Low Taxes

In 2008, Texas replaced its franchise tax with a margins tax in order to establish a broader, fairer tax assessed at a lower rate. The goal of the reformed tax was to provide a level playing field for all businesses, to have a broad base that includes all business entities that receive liability protection from the state, to be competitive with other states to maintain Texas' reputation for having one of the best business climates in America, and to reflect the realities of a rapidly evolving economy. The reformed margins tax lowered the primary franchise tax rate from 4.5 percent to a tax of 1 percent on gross receipts less compensation or cost of goods sold. (Retailers and wholesalers have a rate of 0.5 percent.) Sole proprietorships and general partnerships are exempt, as are businesses with revenue under $1,000,000. Businesses whose total tax liability is $1,000 or less are also exempt.

Under the reformed tax, businesses are rewarded for making good business choices. Every time a business puts a Texan to work, pays for health insurance or invests in a pension plan, their tax liability decreases. The tax also penalizes bad business practices, such as hiring illegal immigrants.

These fair changes to the business tax code continue to stimulate our state's economy and encourage the entrepreneurial spirit that sets Texas apart.

For more information on business tax reform in Texas, click here.

Texas has no property tax at the state level. Local governments and special taxing districts levy taxes on real and tangible personal property. All property is appraised at full market value and is assessed on 100% of appraised value. The total tax rate is the sum of all taxing units including cities, counties, schools and special districts.

Local governments have the option to exempt goods in transit, or "freeport goods", from ad valorem taxation. Freeport goods are inventories acquired or brought into the state by businesses and held for no more than 175 days before being shipped out of the state.

Local governments can offer to businesses an abatement of local ad valorem taxes on real and personal property for up to ten years.

Several property tax exemption incentives are available for qualified businesses. For information on property tax incentives, click here.

For more information on property taxes in Texas, click here.

For information on Governor Perry's commitment to keeping property taxes low, click here.

The state levies a sales and use tax of 6.25 percent on sales of tangible personal property and certain services. Additionally, cities, counties, and transit authorities may add to the rate for a combined state and local rate of 8.25 percent.

Sales and use tax exemptions are offered on machinery and equipment used in the manufacturing process and on natural gas and electricity when sold to commercial businesses that are "predominately" manufacturing. Sales and use tax exemptions may also be available to qualifying businesses in Enterprise Zones. For more information on sales tax exemptions, click here.

For more information on Sales and Use Tax in Texas, click here.