Texas‘s tax system ranks 7th overall on the 2025 State Tax Competitiveness Index. Texas boasts a regionally and nationally competitive tax code. The state does not impose an individual income tax. However, unlike most others without an individual income tax, Texas (like Washington) applies the corporate gross receipts tax (also known as the “margin tax”) to S corporation and LLC income when others accord them pass-through status.
The margin tax is complex and burdensome. As a modified gross receipts tax, it applies to a firm’s total sales with limited deductions, rather than being imposed on profits.
In 2023, Texas voted to increase the homestead exemption on residential property from $40,000 to $100,000 ($110,000 for the elderly, disabled, and disabled veterans). While seemingly beneficial for taxpayers, homestead exemptions are nonneutral and tend to shift the tax burden to commercial property and renters. Moreover, a significantly increased homestead exemption could deny local governments the funding needed to properly resource public services, including education.
Texas treats remote sellers and marketplace facilitators competitively. Unlike most other states that require such sellers to collect and remit sales taxes if either a transaction or dollar threshold is surpassed, Texas only imposes a dollar threshold. Additionally, the dollar threshold is $500,000, greater than most other states, which better aligns the threshold with the size of the state’s economy.
The State Tax Competitiveness Index enables policymakers, taxpayers, and business leaders to gauge how their states’ tax systems compare. While there are many ways to show how much state governments collect in taxes, the Index evaluates how well states structure their tax systems and provides a road map for improvement.
States that tax GILTI increase filing complexity, drive up the cost of tax compliance, and introduce unnecessary economic uncertainty and legal risk. 21 states and DC continue to tax GILTI despite these challenges.
Sports stadium subsidies are salient political gimmicks designed to appear as if politicians are providing tangible benefits to taxpayers. The empirical evidence shows repeatedly that stadium subsidies fail to generate new tax revenue and new jobs or attract new businesses.