Texas Tax System

As, basically, the rest of the country Texas tax system has got three major levels; which means that at the very least the taxes are collected federally, on the level of the state and locally. However, Texas also has its differences.

The major one is that there is NO state income tax in Texas. Income tax is collected on federal level only; however, there are other taxes such as sales tax and property tax and etc. Texas tax system presupposes that one and the same income is taxed by several jurisdictions (and they are numerous).

Many people choose the state to move to and settle for its tax policy; however, the absence of income tax is compensated by relatively high property taxes and this fact should be taken into consideration.

Texas Tax System

Income Tax

Income tax is the major tax imposed on both individuals and corporations. It has three possible levels – federal, state and local. Federal tax is imposed nationwide and the rates vary with regards to the amount of personal income, usually form 10% to 39%. State and local income taxes are not present in all the states and their rates are also graduated in accordance with the income amount; local taxes have fixed rates. Non-residents living and working in the U.S. any term are taxed in the same way as residents.

There is no personal state income tax in Texas (as well as in Alaska, Florida, Nevada, South Dakota, Washington and Wyoming). Texas imposes a variation of a corporate tax – a franchise tax on small businesses in the state.

Sales Tax

There is no VAT (Value Added Tax) in the U.S. Instead, there is sales tax.

Sales taxes are practiced by many states and these are taxes imposed on the retail prices of various goods and services. These taxes are paid by customers and collected by merchants on their behalf. They are then forwarded to the government and spent on state and local needs. Not all states have sales tax and there are goods that are exempt from tax.

Texas sales tax brought $24.2 bln (52%) of revenue into the state budget in 2012 and it is the first major tax in the state, followed only by franchise and property tax, even though the latter is imposed locally only. The state sales tax rate in Texas equals 6.25%. However, local sales tax is also practices in some counties and cities. Local jurisdictions such as counties, cities, transit and special purpose districts are not allowed charging more than 2% in local sales tax, thus making the maximum sales tax rate 8.25%. This rate cannot be exceeded.

Property Tax

Property taxes comprise a very large share of money that is directed to support schools and streets as well as the police and fire services, and etc. They are mostly imposed locally and serve local purposes.

There is no state property tax in Texas. It is not in the power of state to either set tax rates or collect taxes; neither are property-concerned disputes are resolved on the state level – this all is under the jurisdiction of local authorities.

Local governments are authorized to assess property values, set tax rates in accordance and then collect taxes. The rates are directly connected with the property value and are subject to annual change for that matter – there are no set property tax rates. They are also different with regards to location to a pretty large extent.