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.
| Category | Rank | Rank Change | Score |
|---|---|---|---|
| Overall | 7 | 0 | 6.00 |
| Corporate Taxes | 46 | 0 | 3.94 |
| Individual Income Taxes | 1 | 0 | 10.00 |
| Sales Taxes | 36 | 0 | 4.21 |
| Property Taxes | 40 | -2 | 4.29 |
| Unemployment Insurance Taxes | 30 | -1 | 4.76 |
Get facts about taxes in your state and around the U.S.
Thirty-nine states will begin 2025 with notable tax changes, including nine states cutting individual income taxes. Recent years have seen a wave of significant tax reforms, and the changes scheduled for 2025 show that these efforts have not let up.
25 min read
Tax avoidance is a natural consequence of tax policy. Policymakers should consider the unintended consequences, both to public health and public coffers, of the excise taxes and regulatory regimes for cigarettes and other nicotine products.
5 min read
Many policies, such as minimum wage levels, tax brackets, and means-tested public benefit income thresholds, are denominated in nominal dollars, even though a dollar in one region may go much further than a dollar in another. Lawmakers should keep that reality in mind as they make changes to tax and economic policies.
6 min read