Taxes are the key resource for all state budgets, but taxation systems are different from state to state, and from region to region (within a state). Income tax is applied in most countries and regions. However, Texas is a place where personal income is not subject to taxation (there are seven states in the USA all in all where the income tax is not levied). This has resulted in having to use a unique taxation pattern. It should be noted, however, that Texan government and tax services do levy a kind of income tax (franchise tax or ‘privilege tax) on some retail and wholesale companies.
The budget in Texas lives by sales taxes, as well as taxes on enterprises involved in certain types of businesses and some industries. Property taxes are charged by towns, cities, counties, school districts, etc., and serve local purposes.
Sales Tax in Texas
Given Texas’ specific taxation structure, the sales tax appears to have the biggest rate in the state as compared to other taxes, and plays the most significant role in filling Texan budget, as it accounts for 57% of the general tax revenue along with other tax collections. Sales tax rate ranges from 6.25% to 8.25%. Even the baseline 6.25% rate is much higher than average sales tax across the United States. The exact rate depends on the add-on taxes mentioned above, which are applied to particular organizations and areas. The 2% margin leaves some room for municipalities, cities, towns, etc., to change sales tax rates, but without going beyond it.
The absence of the personal income tax forced the Texan government and tax bodies to structure the sales tax in a different way: it is imposed on assets and services like entertainment facilities (amusement parks), landscaping services, cable TV, etc. These are items, on which sales taxes are not applied in the rest of the country.
There are products, which are exempt from sales taxes. These include the majority of grocery items, as well as over-the-counter and prescription medicines. It should be noted that some categories of grocery, such as prepared food, beverages and sweets, are still liable to taxation. The tax is applied even to beverages and sweets purchased by Texans in stores, where mainly tax-exempt types of grocery are sold. Every year, In April, May and August, the government introduces ‘sales tax holidays’ for certain items.
Interestingly, even items purchased outside Texas are taxed. Taxes are also applied to goods that are mailed to Texans from other states and regions (use tax). Organizations are to submit tax revenue reports, and the government sets deadlines. Companies, which pay in the right time, can count on some minor exemptions and rewards.
Residents of the state can keep records of products they purchase and thus itemize their payments. Also, they can ask the IRS to provide them summaries, based on which they can make deductions in a safe and certain way. Those who use this service can choose not to keep records of their purchases.
Sales Tax Dynamics 2018 in Texas
Given the particulars of Texan taxation system, most 2018 reports and estimates demonstrates that it is relatively effective. Official tax bodies report a significant increase in tax revenues by September 2018 as compared to September 2017 (by 14.8%). The biggest part of the growth accounts for business (oil/gas enterprises) and consumer spending (restaurants and retail sales). Oil and natural gas production revenues showed the most dramatic growth (more than 66% up); motor fuel sales tax revenue is up 10% compared to 2017. Motor vehicle sales have increased by more than 4%.