Learn how Texas’s unique tax structure—without state income tax but with higher property and sales taxes—impacts residents, renters, and businesses in 2025.
4 minute read • Last update April 2025
No, Texas does not have a state income tax.
Texas remains one of nine states that do not impose a personal state income tax. This provides a major financial advantage for individuals and families, particularly high earners and retirees with fixed incomes. However, the absence of state income tax means the state must generate revenue through alternative channels, often resulting in higher property and sales taxes.
To understand the complete tax impact, Texans should still refer to federal tax brackets. As of 2025, federal income tax brackets range from 10% to 37%, with income thresholds adjusted for inflation. These rates apply uniformly across the country, including Texas.
Texas imposes a state-level sales tax of 6.25%. Local jurisdictions (cities, counties, special-purpose districts) may levy additional sales taxes up to 2%, bringing the maximum combined rate to 8.25%.
Certain goods and services are exempt from Texas sales tax, such as most grocery foods, prescription medications, and some medical supplies. However, items like prepared food, non-prescription medicine, and digital goods are typically taxable. Texans should pay close attention to local tax rates, which vary significantly by location.
Property taxes in Texas are among the highest in the nation. This is primarily because local governments—school districts, municipalities, and counties—rely heavily on property taxes to fund services.
There is no state-level property tax in Texas. Instead, local appraisal districts determine property values annually. Texas offers several exemptions, including the homestead exemption, which can lower the taxable value of a primary residence. Seniors, veterans, and disabled homeowners may qualify for additional exemptions.
Texas does not impose estate or inheritance taxes, which can be beneficial for wealth transfer planning. However, estates may still be subject to the federal estate tax, which applies to estates valued over $13.61 million in 2025.
Texas businesses benefit from a relatively simple tax structure. The primary business tax is the Texas franchise tax, also known as the margin tax. It applies to most business entities with gross receipts over a certain threshold (currently $1.23 million).
Rates vary based on business type: 0.375% for retailers and wholesalers, and 0.75% for other businesses. Sole proprietors and certain passive income businesses are exempt. Businesses are also responsible for collecting sales tax, filing use tax, and adhering to local regulatory fees.
Texas imposes a 6.25% motor vehicle sales tax on the purchase of a new or used vehicle. Private party sales may be subject to the same rate, with the vehicle’s standard presumptive value (SPV) used to calculate tax in underreported transactions.
In addition to the sales tax, residents must pay title and registration fees, which vary by county.
Fuel tax in Texas is 20 cents per gallon for gasoline and diesel, unchanged since 1991. This tax funds road maintenance and transportation infrastructure. The federal fuel tax adds another 18.4 cents per gallon for gasoline and 24.4 cents per gallon for diesel, resulting in a combined burden of nearly 40 cents per gallon.
While Texans save on state income taxes, they often pay more in property and sales taxes. According to recent reports, Texas ranks in the top 10 for overall tax burden when property and consumption taxes are included. However, the net effect varies based on income level, homeownership status, and spending habits.
Renters in Texas indirectly contribute to high property taxes through rent payments, as landlords typically pass on a portion of their tax liability. However, renters avoid direct property tax payments and may benefit more from Texas’s no-income-tax advantage.
Texas is often ranked as a business-friendly state due to its lack of corporate income tax and streamlined franchise tax system. However, businesses with high property values or extensive retail operations may face a significant local tax burden.
Many individuals and businesses fail to account for use tax obligations when buying out-of-state goods for use in Texas. This is a common audit trigger.
Misspellings, outdated addresses, and mismatched Social Security numbers can delay returns and refund processing. Always verify all identification information before submission.
Whether filing manually or electronically, calculation errors can result in underpayment or overpayment. Use reputable software or consult a tax professional.
Homeowners, parents, students, and small business owners frequently miss deductions or credits for which they qualify. This oversight can result in hundreds or thousands of dollars in lost savings. For example, the Inflation Reduction Act offers substantial tax credits and rebates for energy-efficient home upgrades, such as insulation, heat pumps, and solar panels, providing an opportunity to lower utility costs, reduce fossil fuel reliance, and promote sustainable living.
The federal and state tax filing deadline for 2025 is April 15. Failure to file or pay on time results in penalties and interest. Request extensions proactively if needed.
Keep copies of W-2s, 1099s, receipts, and prior returns for at least three to seven years. Documentation is essential in the case of an audit.
Do not ignore letters or notices from the IRS or the Texas Comptroller’s office. Prompt responses can prevent escalated penalties and liens.
New residents often confuse title transfer, inspection, and registration fees. Each has a distinct requirement and due date. Review the Texas DMV website or consult a local tax office.
While Texas does not collect state income tax, certain business and use taxes still require periodic filing. Stay compliant with sales, franchise, and motor vehicle taxes to avoid penalties.
Navigating the tax landscape in Texas can be complex, but understanding the basics is critical for residents, renters, and businesses alike. At BKV Energy, we believe that knowledge empowers smarter decisions—whether about energy, finances, or lifestyle. Stay informed and explore more of our blogs about Texas living to make the most of your experience in the Lone Star State.
If you’re considering a move to Texas, we hope this article helped shed some light on the tax situation in the state. Another important topic to cover for those moving to Texas? Shopping for an electricity provider. Check out this guide to finding the best energy provider for your needs.
