How does Texas make up for no income tax?

Texas relies heavily on sales tax (6.25% state + local, avg 8.20% combined) and property tax (effective rate ~1.60%, among the highest in the US). Texas also collects significant revenue from oil and gas severance taxes, franchise taxes on businesses, and motor vehicle sales taxes.

Is Texas property tax really that high?

Yes. Texas has one of the highest effective property tax rates in the nation at approximately 1.60%. On a $300,000 home, that is about $4,800 per year. However, Texas offers a $100,000 homestead exemption for school district taxes and additional exemptions for seniors and disabled persons.

What is the Texas franchise tax?

The Texas franchise tax (also called the margin tax) is a business tax on entities with total revenue exceeding $2.47 million. The rate is 0.375% for retail and wholesale businesses and 0.75% for other businesses. Most small businesses fall under the revenue threshold and owe no franchise tax.

Is it cheaper to live in Texas than California?

For most people, yes. Texas has no income tax, lower housing costs, and a lower overall cost of living. However, Texas has higher property taxes and sales taxes. A household earning $100,000 owning a $300,000 home would typically pay $5,000-$8,000 less per year in total state and local taxes in Texas vs. California.

Texas Tax Calculator 2026 — No Income Tax, Sales & Property Tax Rates

Q: Does Texas have income tax?

No. Texas is one of seven states with no state income tax. The Texas Constitution prohibits a personal income tax unless approved by voters in a statewide referendum. Texas voters approved a constitutional amendment in 2019 further strengthening this prohibition.

Texas Total Tax Calculator

Since Texas has no income tax, this calculator shows your federal tax plus estimated property and sales tax burden.

Annual Income ($)

Filing Status

Home Value ($)

Income Tax
0%
No state income tax
Sales Tax
8.20%
avg combined rate
Property Tax
1.60%
among highest in US

Texas Income Tax: Constitutional Prohibition

Texas is one of seven US states that levies no state personal income tax. This prohibition is not merely a legislative choice but is enshrined in the Texas Constitution. In November 2019, Texas voters overwhelmingly approved Proposition 4 (Texas Tax-Rate Income Tax Amendment), which added specific language to the Texas Constitution prohibiting the state from imposing a tax on the net incomes of individuals. Any future income tax would require both legislative approval and voter approval in a constitutional amendment election.

This means Texas residents keep 100% of their income from state income tax, making it one of the most attractive states for high earners, retirees, and anyone seeking to maximize take-home pay. The absence of income tax is a major reason Texas has attracted significant corporate relocations and population growth in recent years.

How Texas Funds Government Without Income Tax

Texas generates revenue through several alternative sources:

Sales Tax (largest source) — 6.25% state rate plus local rates (avg 8.20% combined). Generates the most state revenue.
Property Tax — Among the highest in the US (~1.60% effective rate). Primarily funds schools and local services.
Franchise Tax — A margin tax on businesses with revenue over $2.47 million. Rate is 0.75% (or 0.375% for retail/wholesale).
Oil and Gas Severance Taxes — Tax on oil (4.6%) and natural gas (7.5%) production.
Motor Vehicle Sales Tax — 6.25% on vehicle purchases.
Federal Revenue — Texas receives substantial federal funds for Medicaid, highways, and other programs.

Texas Sales Tax

The Texas state sales tax rate is 6.25%. Local taxing jurisdictions (cities, counties, transit authorities, and special purpose districts) can impose additional sales taxes up to a combined maximum of 2%, bringing the maximum combined rate to 8.25%. The statewide average combined rate is approximately 8.20%.

Texas Sales Tax Exemptions

Groceries — Exempt from state and local sales tax
Prescription drugs — Exempt
Over-the-counter medications — Exempt
Clothing — Taxable (but exempt during the annual Sales Tax Holiday weekend in August)
Online purchases — Taxable at the buyer's local combined rate

Texas Property Tax

Texas property tax is the primary trade-off for having no income tax. The effective property tax rate of approximately 1.60% is among the highest in the nation. Property tax is levied by local entities including counties, cities, school districts, and special districts.

Texas Homestead Exemption

Texas offers substantial property tax relief through the homestead exemption:

School District Tax — $100,000 exemption (meaning $100,000 is deducted from your home's taxable value for school taxes)
Over-65 or Disabled — Additional $10,000 exemption plus tax ceiling (your school tax can never increase above the amount in the year you turned 65 or became disabled)
County/City — Optional 20% exemption (up to $5,000 minimum) offered by some jurisdictions

For a $300,000 home with the school homestead exemption, you would pay school taxes on only $200,000 of value, potentially saving $1,500 or more per year.

Texas Franchise Tax (Business Tax)

While Texas has no personal income tax, businesses pay the franchise tax (also called the margin tax). Key details:

Applies to legal entities doing business in Texas (LLCs, corporations, partnerships)
Sole proprietorships and single-member LLCs (owned by natural persons) are generally exempt
No-tax-due threshold: $2.47 million in total revenue
Rate: 0.75% on taxable margin (or 0.375% for qualifying retail/wholesale businesses)
EZ computation: 0.331% of total revenue (for businesses with $20 million or less in revenue)

Texas vs. Neighboring States

Louisiana — Has income tax (1.85%-4.25%) but lower property tax (0.55%). Louisiana's combined sales tax (~9.55%) is even higher than Texas.
Oklahoma — Has income tax (0.25%-4.75%) but lower property tax (0.87%). Similar sales tax rates.
New Mexico — Has income tax (1.7%-5.9%) but lower property tax (0.67%). Lower sales tax rates.
Arkansas — Has income tax (0%-3.9%) with higher combined sales tax (~9.47%) and lower property tax (0.62%).

Use our comparison tool to see exact tax differences for your income.

Frequently Asked Questions

No. Texas is one of seven states with no personal income tax. A 2019 constitutional amendment prohibits income tax unless approved by voters in a statewide referendum.

Texas relies on sales tax (avg 8.20% combined), property tax (~1.60%), franchise tax on businesses, oil/gas severance taxes, and motor vehicle sales taxes.

Yes, ~1.60% effective rate. On a $300,000 home that is about $4,800/year. But Texas offers a $100,000 homestead exemption for school taxes plus additional exemptions for seniors and disabled persons.

A business tax on entities with revenue over $2.47 million. Rate is 0.375% for retail/wholesale, 0.75% for others. Most small businesses fall under the threshold.

For most people, yes. No income tax and lower housing costs more than offset higher property and sales taxes. A household earning $100,000 with a $300,000 home would typically save $5,000-$8,000/year in total taxes vs. California.