Texas taxes compared to other states come out low overall, with a total state and local tax burden of about 8.6% of personal income, which ranks sixth lowest in the country.1Tax Foundation. State and Local Tax Burdens, Calendar Year 2022 That ranking hides a real tradeoff. Texas has no state income tax, but it leans harder than most states on property taxes and sits near the top nationally on combined sales tax. Whether Texas actually feels cheaper than where you live now depends on how much you earn, whether you own a home, and how much of your income you spend on taxable goods.
The No-Income-Tax Advantage
The Texas Constitution flatly prohibits a personal income tax. Article 8, Section 24-a bars the legislature from taxing “the net incomes of individuals, including an individual’s share of partnership and unincorporated association income.”2FindLaw. Texas Constitution Article 8 Section 24-a – Individual Income Tax Prohibited That is an outright ban, not a rule that can be waived by a legislative majority.
In practical terms, nothing comes out of your paycheck for the state. Salary, freelance earnings, capital gains, and retirement distributions all stay untouched by Austin. For someone earning $150,000 who moves from a state with a 5% income tax, that works out to roughly $7,500 a year staying in their pocket before any other tax enters the picture. For a high earner making $300,000, the gap compared to California or New York can exceed $20,000 in state income tax alone.
Texas also has no traditional corporate income tax. Businesses instead pay a franchise tax on Texas-sourced margin, at a general rate of 0.75% (0.375% for retail and wholesale).3State of Texas. Texas Tax Code Section 171.002 – Rates and Computation of Tax Smaller businesses are exempt entirely: for 2026 reports, companies with total revenue at or below $2.47 million owe no franchise tax, though they still file information reports.4Texas Comptroller. Texas Franchise Tax Report Forms for 2026
To replace the revenue most states pull in through income tax, Texas loads up on what you buy and what you own. That is where the comparison turns.
Property Taxes: Where Texas Ranks High
Property tax is the single biggest line item for most Texas households, and the rates are not gentle. The statewide average effective rate runs around 1.25% of a home’s market value, against a national average closer to 0.9%. On a $350,000 home, that gap means roughly $1,200 more per year than you would pay in the typical state. Texas consistently ranks among the ten highest property-tax states in the country, which surprises people who associate the state with low taxes.
The state itself does not collect property tax. Local entities set their own rates: school districts (usually more than half of a typical bill), counties, cities, hospital districts, community college districts, and special-purpose districts. Your total bill is the sum of all those overlapping rates applied to your home’s taxable value.
Homestead exemptions soften the number if the property is your primary residence. The mandatory school-district homestead exemption removes $140,000 from taxable value for school tax purposes, which alone can save well over $1,000 a year at typical school rates. Other taxing units can adopt their own local homestead exemptions of up to 20% of appraised value, with a $5,000 floor.5Texas Comptroller. Property Tax Exemptions
Texans age 65 or older and those with qualifying disabilities get an additional $60,000 removed from school-district taxable value on top of the standard exemption, and their school-district taxes are frozen at the dollar amount owed in the year they first qualify.5Texas Comptroller. Property Tax Exemptions Even with those protections, a family with a $500,000 home in a major metro area can easily see an annual bill of $8,000 to $10,000 after exemptions. In a state like Colorado, where income taxes exist but effective property rates are far lower, the math can land closer to even.
Sales Tax at the Register
Texas charges a 6.25% state sales tax on most physical goods and certain services.6State of Texas. Texas Tax Code Section 151.051 – Sales Tax Imposed Cities, counties, transit authorities, and special districts can add up to 2% in local tax, with the combined local rate in any area capped at that 2%.7Texas Comptroller. Sales Tax Programs Most urban areas hit the maximum, so you pay 8.25% at the register. That combined rate sits among the highest in the country.
Some everyday purchases are shielded. Groceries such as flour, bread, milk, eggs, fruits, and vegetables are exempt, as are prescription medications and over-the-counter drugs labeled with an FDA Drug Facts panel.8Texas Comptroller. Grocery and Convenience Stores Restaurant meals, clothing, electronics, and household goods are fully taxable.
Vehicles get their own treatment. Buying a car triggers a flat 6.25% motor vehicle tax on the purchase price minus any trade-in, with no local add-ons.9State of Texas. Texas Tax Code Section 152.021 – Retail Sales Tax A $40,000 vehicle with a $10,000 trade-in generates $1,875 in tax, collected when you title and register the vehicle.10Texas Comptroller. Motor Vehicle – Sales and Use Tax
Lower-Than-Average Fuel Tax
Fuel is one place Texas clearly undercuts most states. The gasoline and diesel tax is $0.20 per gallon, a rate that has not changed in decades, against state rates nationally that range from about $0.09 to over $0.70 per gallon. For a driver filling up 50 gallons a month, state fuel tax works out to about $120 a year. The federal gasoline tax of $0.184 per gallon and the federal diesel tax of $0.244 per gallon apply on top, the same as anywhere else in the country.
No Estate or Inheritance Tax
Texas does not impose a state estate tax or inheritance tax. Heirs and beneficiaries owe nothing to the state based on what they inherit. Only 12 states and the District of Columbia currently levy an estate tax, and only five states impose an inheritance tax; Texas is in neither group.11Tax Foundation. Estate and Inheritance Taxes by State Federal estate tax still applies, but only to very large estates: the 2026 federal exemption is $15 million per person, so a married couple can pass up to $30 million before federal estate tax starts.12Internal Revenue Service. What’s New – Estate and Gift Tax For most Texas families, this category is a non-event compared to inheritance- or estate-tax states.
Who Comes Out Ahead, Who Doesn’t
The 6th-lowest ranking is accurate overall, but the burden is not spread evenly. Three groups experience the comparison very differently.
High earners who rent or own modest homes benefit the most. Someone making $300,000 and renting a $2,000-a-month apartment pays no income tax and absorbs relatively modest sales tax on their spending. Against California or New York, the savings run well into five figures. For this profile, Texas is genuinely one of the cheapest states in the country.
Homeowners in expensive neighborhoods feel the tradeoff directly. An $8,000 to $10,000 property tax bill on a $500,000 home can wipe out most or all of the savings from skipping income tax, depending on the state they are comparing with. People who own high-value homes in Texas are, in effect, paying for the absence of an income tax through their property bills.
Lower-income residents face a different squeeze. Sales tax applies to most non-grocery purchases, and landlords pass property taxes through in rent. Households that spend most of what they earn on taxable goods carry a heavier proportional burden than they would in a state that leans on graduated income tax. Economists call this a regressive structure, and it is the main criticism of the Texas model.
The SALT Deduction Angle
Federal rules change the state-to-state math too. If you itemize, you can deduct state and local taxes on your federal return, capped at $40,400 for 2026. That cap rises 1% a year through 2029 before dropping back to $10,000 in 2030 under current law. Texans with large property tax bills can direct the entire SALT deduction toward property taxes because there is no state income tax eating into the cap. Residents of high-income-tax states lose much of their SALT cap to state income tax and have less room left for property tax deductions. For homeowners doing a careful comparison, that federal interaction can shift the result by thousands of dollars a year.
Calling Texas a low-tax state is accurate as a headline, and the national ranking supports it. But whether Texas is cheaper than the state you are comparing with comes down to your income, what you own, and what you buy.