Austin Has No Income Tax: Property, Sales, and Franchise Taxes

Austin has no income tax. Neither the city nor the State of Texas taxes personal income, so your wages, freelance earnings, and investment returns are not subject to any state or local income tax withholding here. What Austin does have is a heavy reliance on property taxes, a full-rate sales tax, and a business-level franchise tax that together fund what income taxes pay for in other states. You still owe federal income tax to the IRS like everyone else.

Why Austin Can’t Levy an Income Tax

The prohibition is written into Article 8, Section 24 of the Texas Constitution. Any law taxing the net incomes of individuals cannot take effect unless a majority of registered voters approve it in a statewide referendum.1Justia Law. Texas Constitution Art 8 – Sec 24 No such referendum has ever been held. Texas voters tightened the restriction further in 2019 with a constitutional amendment limiting legislative authority to enact one.

Austin has no independent power to create its own income tax either. Texas cities draw their taxing authority from the state, and the state has never granted that authority to any municipality.

Federal Income Tax Still Applies

Living in a no-income-tax state does not touch your federal obligation. If your income exceeds the standard filing threshold, you still file a federal return. For tax year 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026

Federal rates for 2026 start at 10% on the first $12,400 of taxable income for single filers and climb to 37% on income above $640,600.2Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Self-employed Austin residents also owe federal self-employment tax covering Social Security and Medicare.

Property Taxes Are Where the Money Comes From

Property tax is where you feel the absence of an income tax most directly. The combined rate across all overlapping taxing entities runs roughly $2.00 to $2.10 per $100 of taxable value for a typical homeowner inside the city, which puts Austin’s effective rate among the higher ones in the country.

The process starts with the Travis Central Appraisal District (TCAD), which sets the market value of every property in Travis County. Each spring, TCAD mails a Notice of Appraised Value showing the estimated market value, the prior year’s values, and any exemptions on file.3Travis Central Appraisal District. Property Tax System That number becomes the baseline every taxing entity uses.

Multiple independent entities then stack their rates on the same value. For a home inside Austin city limits, the main ones per $100 of taxable value run approximately:

Each entity adopts its rate through an annual budget process with public hearings when the proposed rate would generate more revenue than the previous year beyond certain thresholds.

Exemptions That Actually Lower Your Bill

Texas offers several exemptions that reduce the taxable value of a primary residence, and in a city with rates this high they matter a lot.

The standard residence homestead exemption for school district taxes is $140,000.7Texas Comptroller of Public Accounts. Property Tax Exemptions On a home appraised at $500,000, only $360,000 is subject to the school district portion. You apply through TCAD and must use the property as your primary residence.

Homeowners aged 65 or older and those with disabilities get an additional $60,000 school district exemption, bringing the school-district total to $200,000. They also receive a school district tax ceiling: once you qualify, your school taxes freeze at that year’s level and cannot rise unless you add improvements. A proportional version of that ceiling can transfer to a new Texas home if you sell and buy again.

Disabled veterans with a 100% VA disability rating are exempt from all property taxes on their primary residence.8Travis County Tax Office. Property Tax Breaks, Disabled Veterans Exemptions Surviving spouses and minor children of veterans who died from service-connected causes may also qualify. The exemption applies to one property, and the veteran must be a Texas resident.

Protest Your Appraisal If You Think It’s High

Because property tax is the dominant cost here, challenging an inflated appraisal is one of the better-paying hours a homeowner can spend. TCAD’s valuations are estimates, and they are frequently too high.

You have until May 15, or 30 days after TCAD mails your appraisal notice, whichever is later, to file a protest with the appraisal review board.9Texas Comptroller of Public Accounts. Appraisal Protests and Appeals Filing is free. You can challenge the market value, argue your home is appraised higher than comparable properties, or dispute whether you received an exemption you applied for. Many homeowners protest successfully on their own.

Miss the deadline and you lose the right to protest for that tax year.

When Property Taxes Are Due

Property taxes are due by January 31 of the year following the tax year. Miss that, and your account becomes delinquent on February 1 with a 7% combined penalty and interest charge applied immediately. More accrues each month. By July 1 the total reaches 12%, and if the taxing unit has handed collection to an attorney, an additional collection fee of up to 20% of the base tax can be added.10Texas Comptroller of Public Accounts. Property Tax Law Deadlines Homeowners aged 65 or older and those with disabilities can arrange installment payment plans with their local tax office.

Sales Tax in Austin

The combined sales tax rate in Austin is 8.25%. That’s a 6.25% state rate plus a 2% local rate.11Texas Comptroller of Public Accounts. Sales and Use Tax The local portion is split between the City of Austin and the Capital Metropolitan Transportation Authority (CapMetro) at 1% each. That hits the state-imposed maximum, so no additional local tax can stack on top.

Unprepared grocery items like fresh produce, meat, dairy, bread, and canned foods are not taxed. Prescription medications, insulin, hearing aids, and prosthetic devices are also exempt. Prepared foods, candy, and soft drinks are taxable. Over-the-counter medications are generally taxable, though dietary supplements labeled with a Supplement Facts panel are exempt.12Texas Comptroller of Public Accounts. Grocery and Convenience Stores

Texas also imposes a use tax at the same 8.25% rate on items purchased from out-of-state sellers and brought into Austin for use here, which covers online purchases where the seller doesn’t collect Texas sales tax at checkout.13Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers

Franchise Tax if You Own a Business

Texas has no corporate income tax, but it has a franchise tax that functions similarly for businesses. It applies to every taxable entity formed in Texas or doing business here and is calculated on the entity’s margin rather than net profit.14Texas Comptroller of Public Accounts. Franchise Tax

Margin is figured using whichever of four methods produces the lowest amount: total revenue times 70%, total revenue minus cost of goods sold, total revenue minus compensation, or total revenue minus $1 million.15Texas Comptroller of Public Accounts. Franchise Tax Overview The standard rate is 0.75%. Retailers and wholesalers pay 0.375%. Businesses with total revenue under $20 million can use a simplified EZ computation at 0.331%.14Texas Comptroller of Public Accounts. Franchise Tax

For the 2026 report year, entities with annualized total revenue at or below $2.65 million owe no franchise tax.16Texas Comptroller of Public Accounts. Texas Franchise Tax Report Forms for 2026 They still have to file either a Public Information Report or an Ownership Information Report. The annual report is due May 15, and the late filing penalty is $50.14Texas Comptroller of Public Accounts. Franchise Tax Failing to file can lead to the Secretary of State forfeiting your entity’s registration, which is a far bigger problem than the penalty itself.

Hotel Occupancy Tax

If you rent out property in Austin for stays of fewer than 30 consecutive days, including on short-term rental platforms, you are responsible for collecting and remitting hotel occupancy tax. The combined rate is 17%: 6% to the state17Texas Comptroller of Public Accounts. Hotel Occupancy Tax and 11% to the City of Austin, which consists of a 9% occupancy tax plus a 2% venue project tax.18City of Austin. Hotel Occupancy Taxes Visitors see the same 17% on hotel room charges.