Texas has no income tax because its constitution forbids one. Article 8, Section 24-a of the Texas Constitution bars the legislature from taxing the net incomes of individuals, and the state covers its budget instead through sales taxes, oil and gas production taxes, a franchise tax on businesses, and local property taxes.1State of Texas. The Texas Constitution Article 8
The Constitutional Ban
The prohibition is written directly into the Texas Constitution. Section 24-a reads: “The legislature may not impose a tax on the net incomes of individuals, including an individual’s share of partnership and unincorporated association income.”1State of Texas. The Texas Constitution Article 8
It wasn’t always this absolute. For decades, the governing provision was Section 24, known as the Bullock Amendment. Adopted in 1993 after 70 percent of voters approved Senate Joint Resolution 49, the Bullock Amendment did not outright prohibit an income tax; it required that any law taxing individual net incomes be approved by a majority of registered voters in a statewide referendum before it could take effect.2Texas Office of the Attorney General. Request Opinion RQ-0479-GA That made an income tax politically impractical but left the door theoretically open.
In 2019, the legislature closed it. House Joint Resolution 38, presented to voters as Proposition 4, replaced the Bullock Amendment with the flat ban now in Section 24-a. Voters approved it, and the old Section 24 was repealed.3Texas Legislature Online. HJR No 38 – Enrolled Version
Reversing a constitutional prohibition takes another constitutional amendment. Under Article 17, Section 1, that requires a joint resolution adopted by at least two-thirds of the members in each legislative house, followed by approval from voters in a statewide election.4Texas House of Representatives Research Organization. Constitutional Amendments Proposed for the November 2025 Ballot – Section: Amending the Texas Constitution A state income tax in Texas is not simply off the agenda; it is structurally difficult to put back on.
How the State Pays Its Bills Without One
Texas replaces income tax revenue with a mix of consumption, business, and natural resource taxes. According to the Texas Comptroller’s Biennial Revenue Estimate for 2026–27, sales taxes account for roughly 53 percent of general revenue-related funds. Oil and gas production taxes together contribute about 10 percent, the franchise tax about 7 percent, and motor vehicle sales taxes another 7 percent. The remainder comes from insurance taxes, fees, investment income, and other sources.5Texas Comptroller of Public Accounts. Biennial Revenue Estimate 2026-27
Sales and Use Tax
The sales and use tax is the single largest source of state revenue. Governed by Chapter 151 of the Tax Code, it imposes a 6.25 percent state rate on most goods and many services. Cities, counties, transit authorities, and special-purpose districts can add up to 2 percent more, pushing the combined rate as high as 8.25 percent in many areas. Groceries, prescription medications, and most over-the-counter drugs are exempt.
Oil and Gas Severance Taxes
Texas is one of the largest oil- and gas-producing states, and it taxes that production directly. The oil production tax, under Chapter 202 of the Tax Code, is 4.6 percent of the market value of oil produced in the state. The natural gas production tax, under Chapter 201, is 7.5 percent of market value. Together these severance taxes contributed roughly $13.5 billion to the 2026–27 biennial revenue estimate, a funding source most other states simply do not have.5Texas Comptroller of Public Accounts. Biennial Revenue Estimate 2026-27
Franchise Tax on Businesses
Texas does not tax individuals’ income, but it does tax business entities. Under Chapter 171 of the Tax Code, corporations, limited liability companies, and partnerships doing business in the state owe franchise tax based on their taxable margin. The general rate is 0.75 percent of taxable margin, with a reduced 0.375 percent rate for businesses primarily engaged in retail or wholesale trade. Smaller operations are exempt: a taxable entity owes nothing if the computed amount is less than $1,000 or if total revenue is $2.47 million or less for a 12-month reporting period.6State of Texas. Tax Code Chapter 171 – Franchise Tax
Motor Fuels and Other Sources
Chapter 162 of the Tax Code imposes a 20-cent-per-gallon tax on both gasoline and diesel. That rate has not changed since 1991 and is one of the lower motor fuel taxes in the country; the national average for state gasoline taxes and fees was about 33.5 cents per gallon as of January 2026.7U.S. Energy Information Administration. Many States Slightly Increased Their Taxes and Fees on Gasoline in the Past Year Motor vehicle sales and rental taxes, insurance premium taxes, hotel occupancy taxes, and various licenses and fees fill out the picture, along with substantial federal funding for transportation, healthcare, and education.
The Property Tax Tradeoff
The state itself cannot levy a general property tax under Article 8, Section 1-e, but local governments can and do.1State of Texas. The Texas Constitution Article 8 Title 1 of the Texas Tax Code—the Property Tax Code—lets county appraisal districts determine market value, while school districts, cities, and counties set their own rates and collect the revenue to fund schools, roads, and emergency services.
Because the state is not routing income tax dollars down to local governments, those local governments carry a larger share of the cost themselves. Texas’s average effective property tax rate runs about 1.58 percent of a home’s assessed value, well above the national average. On a $300,000 home, that works out to roughly $4,740 a year before exemptions like the homestead exemption. No state income tax, but higher-than-average property taxes: that is the Texas tradeoff.
Does the Total Tax Burden Actually Come Out Lower
Not by as much as the “no income tax” headline suggests. When state sales taxes, local property taxes, and excise taxes are added together, Texas’s overall state and local tax burden lands around 7.8 percent of personal income, placing the state roughly 40th out of 50 (where 1 is the highest). Texans pay less than the national average overall, but the savings sit on the income-tax side; property and sales taxes run higher than what residents of many income-tax states face.
Federal Taxes Still Apply
No state income tax doesn’t mean no income tax. The IRS taxes your worldwide income regardless of state, so wages, investment gains, self-employment income, and retirement distributions remain federally taxable. Texas residents file Form 1040 like everyone else.
One federal wrinkle works in your favor. Under 26 U.S.C. § 164, taxpayers who itemize on Schedule A can elect to deduct state and local general sales taxes instead of state and local income taxes.8GovInfo. 26 USC 164 – Taxes With no state income tax to deduct, Texans typically take the sales tax election, either by tracking actual receipts or using the IRS’s optional sales tax tables, which estimate the deduction based on income and zip code.9Internal Revenue Service. Instructions for Schedule A (Form 1040)
The federal SALT deduction is capped. For 2026, the limit is $40,400 for most filers and half that for married individuals filing separately, and it phases down once modified adjusted gross income exceeds $505,000. Because the cap covers combined property taxes and either income or sales taxes, Texas homeowners with large property tax bills can hit it even with no state income tax in the mix.
One further break worth noting: Texas levies neither a state estate tax nor an inheritance tax, so inherited assets passing to Texas beneficiaries owe nothing to the state.