Texas Tax Calculator — Sales & Property

Understanding Texas Taxes: A Comprehensive Guide

Navigate the unique landscape of Texas taxation. From high property taxes to zero income tax, understand exactly where your money goes and how to minimize your liability.

Texas is widely known for being one of the few U.S. states with **zero individual income tax**. This "tax-friendly" reputation is a major draw for individuals and corporations relocating from high-tax states like California and New York. However, the state government must still fund its operations, schools, and substantial infrastructure. It achieves this primarily through a combination of **sales taxes** and **property taxes**, which are among the highest in the nation. This calculator helps you estimate your potential tax liability across these different categories to give you a clear picture of the true cost of living or doing business in the Lone Star State.

Texas Sales Tax Explained

If you look at your receipt after buying a cup of coffee or a new TV, you will notice a standard charge added to the total. This is the sales tax, which serves as one of the primary revenue streams for the state.

The base **state sales tax rate** in Texas is **6.25%**. However, very few people actually pay just 6.25%. Local jurisdictions (cities, counties, special purpose districts, and transit authorities) have the option to impose additional taxes up to **2.00%**, bringing the total maximum combined sales tax rate to **8.25%**.

Most tangible personal property and some services are taxable. However, Texas offers critical exemptions to protect essential spending:

• Groceries: Food products for home consumption (unprepared food) are exempt.
• Medicine: Prescription drugs and over-the-counter medicines are exempt.
• Utilities: Residential use of gas and electricity is essentially exempt from state sales tax (but local taxes may still apply).

Texas Property Tax: The "Hidden" Cost

Because there is no income tax, local governments in Texas rely heavily on property taxes to fund public services, especially public schools. Consequently, Texas has some of the highest property tax rates in the country, often ranking in the top 5 nationwide.

Property taxes are **locally assessed** and collected. There is no state-level property tax. The rate you pay depends on two main factors:

1. Assessed Value: The value of your property as determined by the Central Appraisal District (CAD) in your county.
2. Tax Rate: The aggregate rate set by the various taxing units that have jurisdiction over your property (e.g., School District, City, County, Hospital District, Junior College).

The Protest Process: If you believe your property's assessed value is too high, you have the right to protest it annually with your county's Appraisal Review Board (ARB). Many Texans successfully lower their taxes by presenting evidence that their home is valued higher than similar neighboring properties.

Texas Franchise Tax: The Business Tax

While individuals don't pay income tax, businesses operating in Texas may be subject to the **Franchise Tax**. This is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas.

The tax is complicated because it is not based on simple net income. It is based on a business's "margin." Taxable entities can choose the method that results in the lowest tax:

• **Total Revenue times 70%** (The "E-Z" computation)
• **Total Revenue minus Cost of Goods Sold (COGS)**
• **Total Revenue minus Compensation**
• **Total Revenue minus $1 million**

No Tax Due Threshold: Small businesses are often shielded from this tax. If your total annualized revenue is below the threshold (typically adjusted for inflation, around $1.2 to $1.3 million), you owe **zero tax**. However, you must still file a "No Tax Due Report" to remain in good standing. Failure to file can lead to the forfeiture of your right to transact business in Texas.

Taxes for New Residents

If you are moving to Texas, be prepared for a few one-time sticker shocks:

• Vehicle Registration: Texas charges a "New Resident Tax" of roughly $90 per vehicle brought into the state, in lieu of sales tax.
• MUD Taxes: If you buy a home in a newer development outside city limits, you might be in a Municipal Utility District (MUD). These districts levy an extra property tax to pay for water and sewer infrastructure, sometimes adding $0.50 to $1.00 per $100 valuation to your bill.

Texas vs. California: A Tax Showdown

The migration from California to Texas is a major demographic trend. But does the move actually save you money? It depends on your income and property value.

• Income Tax: Texas wins (0% vs up to 14.4% in CA). High earners save heavily here.
• Property Tax: California wins. CA property taxes are generally lower (avg ~0.73%) and capped by Prop 13. Texas taxes are higher (avg ~1.8%) and rise with market value (though capped at 10% increase for homesteads).
• Sales Tax: It's a tie, leaning towards Texas. Texas maxes at 8.25%, while many California cities exceed 10%.

Verdict: If you are a high earner renting a luxury apartment, Texas is a tax paradise. If you are a retired low-earner owning an expensive home, Texas property taxes might actually result in a higher total tax bill than California.

The "Robin Hood" School Finance System

A unique and controversial aspect of Texas property tax is "Recapture," often called the Robin Hood plan.

Property-rich school districts (like those in Austin or Plano) collect more tax revenue than the state formula says they need. The state government "recaptures" this excess money and redistributes it to property-poor districts. This means a significant portion of your local property tax bill might not actually stay in your local school details, but basically subsidizes the state education budget. This is a perpetual hot topic in the Texas legislature.

Tax Tips for Small Business Owners

Texas is consistently ranked the #1 state for business. Here is why, and how to maximize it:

• Structure Matters: Sole proprietorships and general partnerships entirely owned by natural persons are often exempt from the Franchise Tax automatically.
• Inventory Tax: Be aware that Texas essentially taxes business inventory as tangible personal property (Business Personal Property Tax). You must render this value to the county annually. This differs from many states that only tax real estate.
• Freeport Exemption: If you manufacture goods in Texas that are shipped out of state within 175 days, you may be exempt from property tax on that inventory ("Freeport Goods").

How to Use This Calculator

Our Texas Tax Calculator is designed to be simple yet powerful. Here is how to use each section:

• **Sales Tax:** Enter the purchase price of an item. The calculator will apply the state rate (6.25%) and allow you to adjust the local rate to see the total tax.
• **Property Tax:** Enter your home's assessed value and your local tax rate (expressed per $100 of valuation). If you don't know your exact rate, a common average in Texas is around 1.8% to 2.5%, but it can be as high as 3% in new MUDs.
• **Franchise Tax:** For business owners, input your total revenue and choose your deduction method to estimate your state franchise tax liability.