Texas State Tax Guide for Businesses & Individuals 2026
Texas is one of the most business-friendly states in the US, with no corporate or individual income tax — making it a top destination for entrepreneurs and corporations alike. This comprehensive Texas state tax guide covers franchise tax, sales tax, payroll compliance, property tax, and key business registration requirements for 2026.
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Quick Reference: Texas Tax Rates at a Glance
| Tax Type | Rate / Detail |
|---|---|
| State Corporate Income Tax | None (0%) |
| State Individual Income Tax | None (0%) |
| State Sales Tax Base Rate | 6.25% |
| Average Combined Sales Tax | ~8.20% (state + local) |
| Unemployment Insurance (SUI/SUTA) | 0.23%–6.23%; New employer: 2.7% |
| Effective Property Tax Rate | ~1.60% (average) |
| Estate / Inheritance Tax | No |
Texas Business Tax Nexus
What is Tax Nexus in Texas?
Nexus in Texas determines whether a business has sufficient presence or activity to be subject to Texas tax obligations, including sales tax collection and franchise tax reporting.
Physical Nexus
- Maintaining an office, store, or other place of business in Texas
- Having employees, independent contractors, or sales representatives in Texas
- Storing inventory in Texas, including via Amazon FBA fulfillment centers
- Owning or leasing real or tangible personal property in Texas
- Operating vehicles in Texas
Economic Nexus (Remote Sellers)
| Threshold Type | Detail |
|---|---|
| Sales Threshold | $500,000 in Texas sales in the preceding 12 months |
| Transaction Count Threshold | No transaction count threshold |
| Effective Date | October 1, 2019 |
Click-Through & Affiliate Nexus
Texas enforces click-through and affiliate nexus. A retailer that pays Texas-based affiliates for customer referrals that result in sales is presumed to have nexus if total Texas sales exceed $10,000 in the prior four calendar quarters.
Texas State Income Tax
Corporate Income Tax
Texas does not impose a corporate income tax. Instead, businesses are subject to the Texas Franchise Tax (also known as the "margin tax"), which is based on taxable margin rather than net income. See Section 6 for full Franchise Tax details.
Individual Income Tax
Texas has no state individual income tax. Residents pay no state tax on wages, salaries, interest, dividends, or capital gains. There is no state withholding requirement for employees.
Filing Deadlines
| Filing Type | Due Date |
|---|---|
| Franchise Tax Report (Annual) | May 15 of each year |
| Individual Income Tax Return | Not applicable (no state income tax) |
| Franchise Tax Extension | Extended to November 15 (automatic with timely payment) |
| Estimated Franchise Tax Payments | Not required for most filers; EFT required if tax due > $10,000 |
Texas Sales Tax
State Sales Tax Rate
The Texas state sales tax rate is 6.25%. Local jurisdictions (cities, counties, transit authorities, and special districts) may add up to 2%, bringing the maximum combined rate to 8.25%. The average combined rate across Texas is approximately 8.20%.
Taxable vs. Exempt Goods & Services
| Category | Status | Notes |
|---|---|---|
| Tangible Personal Property | ✅ Taxable | Most physical goods are subject to sales tax |
| SaaS / Digital Products | ✅ Taxable | SaaS and downloaded software are taxable in Texas |
| Groceries / Food | ✅ Taxable (Prepared) / ❌ Exempt (Unprepared) | Unprepared food for home consumption is exempt; restaurant meals are taxable |
| Prescription Drugs | ❌ Exempt | Prescription medicines and devices are fully exempt |
| Clothing | ✅ Taxable | Clothing is generally taxable; sales tax holiday applies in August |
| Manufacturing Equipment | ⚠️ Partial | Equipment directly used in manufacturing qualifies for exemption |
| Professional Services | ⚠️ Partial | Most services are exempt; taxable services include data processing, real property repair, and others specifically enumerated |
Sales Tax Permits & Registration
- Registering Agency: Texas Comptroller of Public Accounts — comptroller.texas.gov
- Cost to Register: Free (no fee)
- Renewal Requirement: No periodic renewal required; permit remains active while business operates
Filing Frequency & Deadlines
| Annual Tax Liability | Filing Frequency | Due Date |
|---|---|---|
| $500,000 or more | Monthly (EFT required) | 20th of the following month |
| $1,500–$499,999 | Monthly | 20th of the following month |
| $1,000–$1,499 | Quarterly | 20th of the month following the quarter |
| Under $1,000 | Annually | January 20 of the following year |
Local Sales Tax Rates (Top 5 Cities)
| Jurisdiction | Local Rate | Combined Rate |
|---|---|---|
| Houston | 2.00% | 8.25% |
| Dallas | 2.00% | 8.25% |
| San Antonio | 2.00% | 8.25% |
| Austin | 2.00% | 8.25% |
| Fort Worth | 2.00% | 8.25% |
Texas Payroll Tax & Compliance
Employer Payroll Tax Obligations
| Tax / Obligation | Rate / Detail |
|---|---|
| State Income Tax Withholding | Not applicable (no state income tax) |
| SUI/SUTA Rate Range | 0.23%–6.23% |
| SUI Taxable Wage Base | $9,000 per employee per year |
| New Employer SUI Rate | 2.7% (most industries) |
| Workers' Compensation | Private market (Texas is the only state where workers' comp is not mandatory for most employers) |
| Paid Family & Medical Leave | Not applicable (no state PFML program) |
| State Disability Insurance | Not applicable |
Withholding Registration & Filing
- Registration Agency: Texas Workforce Commission — twc.texas.gov
- Filing Frequency: Quarterly (TWC Form C-3); monthly or semi-weekly for federal withholding deposits
- Annual Reconciliation Deadline: Not applicable (no state income tax withholding)
- New Hire Reporting Deadline: Within 20 days of hire date; report to Texas Office of the Attorney General
Minimum Wage
| Category | Rate |
|---|---|
| Standard Minimum Wage | $7.25/hour (mirrors federal minimum) |
| Tipped Employee Rate | $2.13/hour (with tips bringing total to at least $7.25) |
| Youth / Training Wage | $4.25/hour for employees under 20 during first 90 days |
| Next Scheduled Increase | None scheduled (no state legislation pending) |
Texas Property Tax
- Assessment Ratio: 100% of appraised (market) value
- Effective Average Rate: ~1.60%
- Assessment Cycle: Annual reappraisal by county appraisal districts
- Appeal Deadline: May 15 or 30 days after notice of appraised value, whichever is later
Business Personal Property Tax
Texas taxes business personal property including equipment, furniture, fixtures, and inventory. Businesses must file a Rendition (Form 50-144) with their county appraisal district by April 15 each year. There is no blanket exemption threshold, though a $500 de minimis exemption applies in some counties.
Homestead & Other Exemptions
| Exemption Type | Amount / % | Eligibility |
|---|---|---|
| Homestead | $100,000 off school district assessed value | Primary residence as of January 1; must apply with county appraisal district |
| Senior / Elderly (65+) | Additional $10,000 off school district value + tax freeze option | Age 65 or older; primary residence |
| Veteran / Disabled | Up to 100% exemption based on disability rating | 100% disabled veterans receive full exemption; partial ratings receive proportional exemption |
| Agricultural | Productivity (open-space) valuation instead of market value | Land used for agriculture, timber, or wildlife management; application required |
Property Tax Due Dates
| Installment | Due Date | Notes |
|---|---|---|
| Full Payment | January 31 | No penalty if paid by January 31 |
| Installment 1 (of 4) | January 31 | Available for qualified homesteads; 25% of total due |
| Installment 2 | March 31 | 25% of total due |
| Installment 3 | May 31 | 25% of total due |
| Installment 4 | July 31 | Final 25%; penalty begins August 1 |
Other Key Texas Taxes
Franchise / Privilege Tax
Texas imposes a Franchise Tax (margin tax) on most entities doing business in Texas. The tax is based on the lesser of: (1) 70% of total revenue, (2) total revenue minus cost of goods sold, or (3) total revenue minus compensation. The rates are:
- Most businesses: 0.75% of taxable margin
- Retailers and wholesalers: 0.375% of taxable margin
- Entities with revenue ≤ $2,470,000: No tax due (EZ Computation or No Tax Due threshold for 2026)
- Minimum tax: $0 (no minimum franchise tax below the No Tax Due threshold)
- Due date: May 15 annually
Gross Receipts Tax
Texas does not impose a standalone gross receipts tax. The Franchise Tax (margin tax) functions similarly for businesses but uses taxable margin, not gross receipts, as its base.
Excise Taxes
| Product | Rate |
|---|---|
| Gasoline | $0.20 per gallon |
| Diesel | $0.20 per gallon |
| Cigarettes | $1.41 per pack (20 cigarettes) |
| Beer | $0.19 per gallon (manufacturer/distributor level) |
| Wine | $0.20 per gallon (14% ABV or less) |
| Cannabis | Not applicable (recreational cannabis not legal in Texas) |
Texas Tax Credits & Incentives
| Credit / Incentive | Value / Rate | Eligibility |
|---|---|---|
| Texas Enterprise Zone Program | State sales tax refund up to $2,500–$15,625 per job | Businesses creating jobs in designated enterprise zones |
| Chapter 313 Successor (TEAFF) | School district property tax limitation for up to 10 years | Large-scale manufacturers and data centers making qualifying investments |
| Research & Development (R&D) Franchise Tax Credit | 5% of qualifying research expenses (or 6.25% on incremental) | Entities with qualified research expenses in Texas; elected in lieu of federal R&D credit deduction |
| Texas Moving Image Industry Incentive | 5%–22.5% cash grant on eligible in-state spending | Film, TV, commercial, and video game productions filming in Texas |
| Skills Development Fund | Customized training grants (average $1,800 per trainee) | Texas employers partnering with community colleges for workforce training |
| Manufacturing Machinery & Equipment Exemption | Sales tax exemption on qualifying equipment | Manufacturers purchasing equipment directly used in production process |
| Data Center Sales Tax Exemption | Sales tax exemption on qualifying equipment and power | Qualifying data centers investing $200M+ and creating 20+ jobs over 5 years |
How to Register a Business in Texas
- Choose a business structure — LLC, Corporation, Partnership, or Sole Proprietorship based on liability and tax needs.
- Register with the Texas Secretary of State — File a Certificate of Formation (LLC: Form 205; Corporation: Form 201) at sos.state.tx.us. Filing fee: $300 for LLCs and Corporations.
- Obtain an EIN from the IRS — Apply for free at irs.gov. Required for payroll, banking, and tax accounts.
- Register for Sales Tax Permit — Apply through the Texas Comptroller at comptroller.texas.gov. Free registration.
- Register for Unemployment Insurance (SUI) — Register with the Texas Workforce Commission at twc.texas.gov within 10 days of first payroll.
- File Franchise Tax Registration — Most entities automatically receive a franchise tax account upon formation registration with the Secretary of State.
- Obtain Required Licenses and Permits — Check industry-specific requirements via the Texas Department of Licensing and Regulation at tdlr.texas.gov.
- Register for Local Business License — Contact the city or county clerk's office in your business location for local permit requirements.
Key Texas Tax Agencies & Resources
| Agency | Responsibility | Website |
|---|---|---|
| Texas Comptroller of Public Accounts | Sales tax, franchise tax, excise taxes, tax permits | comptroller.texas.gov |
| Texas Workforce Commission (TWC) | Unemployment insurance (SUI), employer payroll compliance, new hire reporting | twc.texas.gov |
| Texas Secretary of State | Business entity registration, formation filings, registered agent | sos.state.tx.us |
| State Office of Administrative Hearings (SOAH) | Tax appeals, contested case hearings for Comptroller disputes | soah.texas.gov |
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Note: This guide is for informational purposes only and does not constitute legal or tax advice. Consult a licensed tax professional for advice specific to your situation.