Texas state and local taxes work on a trade: the state takes nothing from your paycheck, and makes up for it through a 6.25% state sales tax (climbing to 8.25% in most cities once local add-ons apply) and property taxes that average roughly 1.6% of a home’s value, well above the national norm. Businesses pay a separate franchise tax, and a handful of excise taxes apply to things like vehicles, fuel, and hotel stays. There is no state estate or inheritance tax.
No Personal Income Tax
Article 8, Section 1-j of the Texas Constitution prohibits the legislature from taxing the net incomes of individuals.1State of Texas. Texas Constitution – Article 8, Section 1-j Voters locked it in through Proposition 4 in 2019. Your wages, salary, and investment income reach you without any state withholding.
Federal income tax, Social Security, and Medicare still come out of your check the same way they do anywhere else. The state’s share of your paycheck is zero, which is why Texas leans so heavily on sales and property taxes to fund itself.
Sales Tax: Rate, Cap, and Use Tax
The state sales tax rate is 6.25% on most tangible goods and a defined list of taxable services.2State of Texas. Texas Tax Code 151.051 – Sales Tax Imposed Cities, counties, transit authorities, and special-purpose districts can add their own sales taxes, but combined local additions are capped at 2%. That puts a hard ceiling of 8.25% on the rate at any single address.3State of Texas. Texas Tax Code 321.101 – Tax Authorized Most urban and suburban locations hit that ceiling.
If you buy something from an out-of-state seller that doesn’t collect Texas tax, the use tax picks up the slack. You owe the Comptroller the equivalent amount at whatever the combined rate is where you store or use the item.
What’s Taxed, What Isn’t
Texas taxes 17 categories of services, including data processing, telecommunications, credit reporting, debt collection, security services, real property repair, and amusement services such as concerts and health clubs.4Texas Comptroller of Public Accounts. Taxable Services Software-as-a-service falls under data processing and is taxable, though data processing and information services get a built-in 20% exemption, so tax applies to only 80% of the charge. Professional services like legal or accounting work are not on the list and stay exempt.
Unprepared groceries, prescription medications, and over-the-counter drugs are permanently exempt. The state also runs annual sales tax holidays. The Emergency Preparation Supplies holiday runs April 25 through April 27 in 2026 and covers portable generators under $3,000, hurricane shutters under $300, and emergency items like batteries, flashlights, and fire extinguishers under $75.5Texas Comptroller of Public Accounts. Emergency Preparation Supplies Sales Tax Holiday An August back-to-school holiday covering clothing, footwear, and school supplies and an energy-efficient products holiday also typically run each year. Dates and qualifying items can shift, so check the Comptroller’s site before you shop.
Property Taxes: Who Sets Them and What They Cost
Texas has no state property tax. Every dollar goes to local taxing units: school districts, cities, counties, hospital districts, and special-purpose districts. The average effective rate runs roughly 1.6%, well above the national average near 0.9%, and homeowners moving in from lower-tax states often feel the jump.
Each county’s appraisal district sets the market value of every property as of January 1.6State of Texas. Texas Tax Code 23.01 – Appraisals Generally Each taxing unit then adopts its own rate to meet its budget. A single property can owe taxes to four or five overlapping jurisdictions, and the bills stack.
Homestead and Other Exemptions
The residence homestead exemption is the one most homeowners use. If you own and live in your home as your primary residence, school districts must exempt $140,000 of appraised value before calculating your school tax.7Texas Comptroller of Public Accounts. Property Tax Exemptions On a home appraised at $350,000, you’d pay school taxes on $210,000. You apply through your county appraisal district, generally before May 1, and you can only claim homestead on one property.
Homeowners 65 or older or with a qualifying disability get an additional $60,000 school district exemption on top of the $140,000.8Office of the Texas Governor. Tax Exemptions If you qualify for both age and disability, you pick the one that helps more; you can’t stack both for school taxes. These homeowners also get a school tax ceiling: once you turn 65 or qualify as disabled, your school district taxes freeze at that year’s amount and can only go down, unless you add improvements.
Any taxing unit may also offer an optional exemption of up to 20% of appraised value, with a $5,000 floor. Not every jurisdiction adopts it, so your total savings depend on where you live. Veterans with a 100% VA disability rating receive a complete exemption from property taxes on their homestead, regardless of age, and surviving spouses may qualify as well.
Protesting Your Appraisal
If your appraised value looks too high, file a protest with your county’s Appraisal Review Board, an independent citizen panel that hears disputes.9Texas Comptroller of Public Accounts. Appraisal Protests and Appeals You can challenge the value, argue unequal appraisal compared to similar homes, or contest a denied exemption. The deadline is typically May 15 or 30 days after you receive your notice, whichever is later. Filing is free, and homeowners who bring comparable sales data often win reductions.
Payment Deadlines and Penalties
Bills go out in October or November, with payment due by January 31. Miss that date and taxes turn delinquent on February 1. Penalties begin at 6% in February and add 1% each month through June. On July 1, the penalty jumps to a flat 12%.10Texas Comptroller of Public Accounts. Property Tax Law Deadlines Interest also accrues at 1% per month. A bill a year overdue can carry combined penalties and interest over 24% of the original amount, and continued non-payment can lead to foreclosure.
Homeowners 65 or older, disabled, or disabled veterans can pay in installments: the first due January 31, the second by March 31. Similar plans exist for properties in a governor-declared disaster area.
Franchise Tax for Business Owners
Personal income is untaxed, but businesses pay the franchise tax. It applies to most entities operating in Texas, including corporations, LLCs, and partnerships, and it’s calculated on revenue minus certain deductions rather than net income.
For the 2026 report year, businesses with total annualized revenue at or below $2,650,000 owe no franchise tax. Above that, retail and wholesale businesses pay 0.375% of taxable margin, and all other industries pay 0.75%.11Texas Comptroller of Public Accounts. Franchise Tax
The report is due May 15. Even businesses below the no-tax-due threshold must file an annual report and a Public Information Report. A $50 penalty applies to each late report. Tax paid 1 to 30 days late incurs a 5% penalty; after 30 days, it’s 10%.
The bigger risk is forfeiture. If a business fails to file or pay long enough, the state can forfeit its right to transact business in Texas.12Texas Comptroller of Public Accounts. Texas Franchise Tax Public Information Report and Ownership Information Report A forfeited entity loses the ability to sue or defend itself in Texas courts, and each officer, director, or member becomes personally liable for debts the entity incurs after forfeiture.13State of Texas. Texas Tax Code 171.255 – Liability of Director and Officers That personal liability survives even if the entity later revives its charter. Single-member LLC owners get caught by this often, because they forget they still have a filing obligation when no tax is owed.
Vehicle, Fuel, and Hotel Taxes
Buying a car triggers a 6.25% tax on the purchase price, minus the value of any trade-in.14Texas Comptroller Manual of Accounts. Revenue Object 3004 – Motor Vehicle Sales and Use Tax Dealers collect and remit. In a private-party sale, the buyer pays the county tax assessor-collector within 30 calendar days.15Texas Comptroller of Public Accounts. Motor Vehicle – Sales and Use Tax Bring a vehicle in from another state and you owe use tax within 30 days of entry.
Gasoline and diesel are both taxed at a flat $0.20 per gallon.16Texas Comptroller Manual of Accounts. Revenue Object 3008 – Diesel Fuel Tax The rate is fixed by statute. The Texas Constitution directs 75% of fuel tax revenue to the State Highway Fund and 25% to public education.
The state collects a 6% hotel occupancy tax on room rates, and local governments can add their own on top. The definition is broad and includes traditional hotels, motels, bed-and-breakfasts, and short-term rental platforms like Airbnb.17Texas Comptroller of Public Accounts. Local Hotel Occupancy Tax Overview
No Estate or Inheritance Tax
Texas imposes no state estate tax and no inheritance tax. A Texas estate faces only federal estate tax, and only if it exceeds the federal exemption. For 2026, that federal exemption is scheduled to drop to roughly half of its current level near $13.99 million per person unless Congress acts. Texas itself takes nothing when wealth transfers at death, regardless of estate size.