Texas Tax Guide: No State Income Tax

Tax Overview

Texas is the largest state by population that has no state income tax, and this is a key part of the state's identity and economic appeal. The Texas Constitution explicitly prohibits a state income tax without voter approval, and there is virtually no political appetite for implementing one. This policy attracts businesses and individuals from high-tax states, contributing to Texas's rapid population growth.

Sales tax in Texas is 6.25% at the state level, with local additions up to 2% for a maximum combined rate of 8.25%. Most areas charge near the maximum. Texas exempts most groceries and prescription medications from sales tax, and the state holds periodic sales tax holidays for back-to-school shopping, emergency preparation supplies, and energy-efficient products.

The primary tax burden for Texas residents is property tax, with effective rates around 1.68%, well above the national average. Texas relies heavily on property taxes to fund schools and local government. However, the state has invested heavily in property tax relief, with a $100,000 homestead exemption for school district taxes (increased from $40,000), a freeze on school tax amounts for seniors and disabled homeowners, and additional local exemptions. These relief measures have significantly reduced the effective property tax burden for homeowners.