Texas Tax Law
Working income tax free in Texas may seem great first. It’s got a huge job economy with plenty of opportunities and, don’t forget, no income tax. But living in Texas can be expensive when sales, gasoline, property and other taxes are come into play.
Whether you live in San Antonio, Houston or Austin, you’ll need to account for the various state and federal taxes in your budget, including everyday sales and gasoline taxes. It can be easy to get lost in all of the taxes you’ll owe, so use the information in LawInfo’s Texas tax law articles to become familiar and to avoid penalties.
Texas’ Critical Taxes
Since Texas doesn’t have an income tax to support the bulk of its state revenue, it compensates by charging increased rates on other taxes. Texas’s top three critical sources of tax revenue are:
- Sales and use taxes—These are levied against goods and services sold in Texas. Use taxes are a sales tax for out-of-state goods and services that are sold in-state. The sales and use tax rate in Texas is 6.25 percent in 2017. Cities, counties, districts and transit authorities may add up to a two percent tax increase. Texas estimates it will net $30.5 billion in sales and use taxes in 2017.
- Motor vehicle sales, use, and rental taxes—These share the same rate of 6.25 percent in 2017 and are adjusted for special allowances or discounts such as a trade-in allowance. Texas estimates it will net roughly $5 billion in these taxes in 2017.
- Franchise taxes—These are levied as privilege taxes against businesses that do business in Texas but are headquartered outside of the state. The Texas franchise tax rates in 2017 are 0.375 percent for retail or wholesale businesses and 0.75 percent for other types of businesses. Texas estimates it will net $2.8 billion in franchise taxes in 2017.
Texas Sin Taxes
“Sin” taxes are levied on consumer products like alcohol, tobacco and gambling — wherever these things are legalized. They act as additional sales taxes (a.k.a. excise taxes) for products or services that are culturally perceived as vices. Sin taxes are meant to dissuade consumers from purchasing or using the taxed products or services without making them illegal.
Texas’s sin tax rates in 2017 are:
- $0.20/gallon for wine and beer.
- $2.40/gallon for liquor.
- $1.41/pack of cigarettes.
- $0.01 to $0.15/10 cigars.
- $1.22/ounce of tobacco/snuff products.
- $5 entry fee per customer of a business that offers live nude entertainment/performances and permits on-premises alcoholic consumption (a.k.a. the sexually oriented business fee).
Marijuana isn’t taxed because it hasn’t been legalized for recreational or medical use in Texas. Gambling is also illegal and untaxed in Texas except for pari-mutuel taxes on horse and greyhound racing bets. Sin taxes are collected for use in Texas’s All-Funds and General Revenue tax collections, the state’s major sources of revenue.
Texas Tax Collector
Texas’s Comptroller of Public Accounts acts as a unified tax collector. The government office of Comptroller is a popularly elected position with a term of four years similar to other offices in Texas’s executive branch. The Comptroller’s duties include:
- Collecting more than 60 types of state taxes from every Texan city, county and special district.
- Managing prepaid college tuition funds under the Texas Prepaid Higher Education Tuition Board.
- Creating and distributing fiscal management and economic forecast reports.
- Managing Texas’s unclaimed property program.