The highest tax rates in Texas show up in sales tax, property tax, and a handful of targeted excises, because the state funds itself almost entirely through consumption and property instead of income. Sales tax tops out at 8.25 percent combined. Property tax rates commonly land above 2.5 percent of a home’s appraised value in growing suburbs. Hotel stays in big cities can carry about 17 percent in combined occupancy tax. And wages? Zero. Texas does not tax personal income at all.
Zero on Income, by Constitutional Design
There is no state tax on wages, salaries, or investment earnings in Texas. Voters sealed that in 2019 by approving Proposition 4, which added a flat constitutional ban on any state net income tax. Reversing it would require another constitutional amendment. Texas also imposes no state estate tax, inheritance tax, or gift tax; the legislature repealed the state estate tax in 2015.1Texas Legislature. 84th Legislature SB 752 – Enrolled Version Federal estate tax can still apply to large estates, but the state takes nothing at death.
Sales Tax: 8.25 Percent at the Register
The state sales tax rate is 6.25 percent on the retail price of taxable goods and services.2State of Texas. Texas Tax Code 151.051 – Sales Tax Imposed Cities, counties, transit authorities, and special purpose districts can add their own local sales taxes, but the combined local share is capped at 2 percent. That puts the ceiling at 8.25 percent, which is the normal rate in most urban areas where several taxing entities overlap.3Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers
Groceries are the big exception. Staples such as bread, milk, eggs, fruits, vegetables, flour, and sugar are exempt, along with most unprepared bakery items, coffee, tea, and juice that is more than 50 percent real fruit or vegetable juice. Over-the-counter medicines with an FDA “Drug Facts” label are exempt too.4Texas Comptroller of Public Accounts. Grocery and Convenience Stores Snack foods lose the exemption when they come in individual portions under 2.5 ounces or out of a vending machine.
Cars run on a separate track. Buying a vehicle triggers a 6.25-percent motor vehicle sales tax on the purchase price, minus any trade-in credit.5Texas Comptroller of Public Accounts. Motor Vehicle – Sales and Use Tax Local sales taxes do not stack on top, so 6.25 percent is both floor and ceiling. For private-party used-car sales, the tax may be calculated on the state’s standard presumptive value rather than the actual price paid, which can push the bill higher than the buyer planned for.
Property Tax: Where Most Texans Feel It Most
The state itself collects no property tax.6Texas Comptroller of Public Accounts. Property Tax System Basics Local entities set the rates: school districts, cities, counties, hospital districts, community colleges, and other special districts. School districts alone often make up more than half of a tax bill. Because multiple districts tax the same parcel, combined effective rates above 2.5 percent are common in fast-growing suburbs, and some locations push past 3 percent.
State law puts guardrails on increases rather than hard caps on the total. Cities and counties that want to raise their maintenance-and-operations tax rate by more than 3.5 percent above the prior year’s no-new-revenue rate must get voter approval first.7Texas Comptroller of Public Accounts. Tax Rate Calculation Hospital districts and junior college districts face an 8-percent threshold before an election is triggered.8Texas.gov. Property Tax Transparency in Texas Nothing in those rules fixes a maximum total rate, which is why longtime owners in appreciating counties can watch their bills climb year after year.
Homestead Exemption and the 10 Percent Cap
If a home is your primary residence, you can claim a homestead exemption. For school district taxes, the exemption removes $140,000 from the home’s taxable value after voters approved a late-2025 constitutional amendment raising it from $100,000. Owners who are 65 or older or who have a qualifying disability get an additional $10,000 off for school taxes.9Texas Comptroller of Public Accounts. Property Tax Exemptions
A homestead also carries a 10-percent appraisal cap. Once you qualify, the appraised value for tax purposes cannot rise by more than 10 percent per year no matter what the market does. New construction or major renovations reset the cap. Owners 65 and older get a stronger protection on top of that: school districts freeze the dollar amount of school taxes at whatever was owed the year the owner turned 65, and the school tax bill cannot exceed that frozen figure afterward.
Protesting an Appraisal
If the appraisal district’s value looks too high, you can protest. The deadline is May 15 or 30 days after the notice of appraised value is mailed, whichever is later.10Texas Comptroller of Public Accounts. Appraisal Protests and Appeals An informal meeting with the district often resolves things; if it doesn’t, you present your case to the Appraisal Review Board. Missing the deadline forfeits that year’s challenge entirely, so the date matters more than the perfection of your evidence.
Hotel Occupancy Tax: Up to About 17 Percent
The state charges 6 percent on the cost of a hotel room.11Texas Comptroller of Public Accounts. Hotel Occupancy Tax Cities and certain counties add their own hotel taxes, generally up to 7 percent, and sports or community venue districts can tack on another 2 percent.12Texas Comptroller of Public Accounts. Hotel Occupancy Tax FAQs In major destinations like San Antonio and Houston, the combined hotel tax can reach around 17 percent of the room rate. The charges usually appear as line items at checkout rather than in the advertised nightly price.
Excise Taxes on Specific Products
Several products carry fixed statutory taxes that do not vary by locality.
- Cigarettes: $1.41 per pack of 20.13Texas Comptroller of Public Accounts. Cigarette Tax
- Gasoline: 20 cents per gallon in state excise tax, with another 18.4 cents from the federal government, for a combined roughly 38 cents per gallon before any markup.
- Mixed beverages: Permitted bars and restaurants pay a 6.7-percent gross receipts tax on alcohol sales, plus a separate 8.25-percent mixed beverage sales tax collected from the customer.
Franchise Tax for Businesses
Most business entities operating in Texas owe a franchise tax, sometimes called the margin tax, on earnings from Texas operations.14Texas Comptroller of Public Accounts. Franchise Tax Overview Corporations, LLCs, and partnerships are all generally included. Rates depend on the type of business:
- General rate: 0.75 percent of taxable margin for most industries.
- Retail and wholesale rate: 0.375 percent of taxable margin for businesses primarily engaged in retail or wholesale trade.
- EZ computation rate: 0.331 percent of total revenue, available to businesses with total revenue of $20 million or less that prefer a simpler calculation.15Texas Comptroller of Public Accounts. Franchise Tax
Businesses with total revenue at or below $2,650,000 owe no franchise tax at all for the 2026 report year, though they still must file a return.16Texas Comptroller of Public Accounts. Texas Franchise Tax Report Forms for 2026 That threshold clears most small businesses. For everyone above it, the margin tax is modest compared with the corporate income taxes used in other states, but it reaches pass-through entities that would not owe a traditional corporate tax at all.