Texas is famous for not having a state income tax. That’s usually the first thing people mention when they talk about moving to the Lone Star State. You get your paycheck, you look at the "State Tax" line, and it's a beautiful, round zero.
But honestly? That money has to come from somewhere.
If you’re living here or running a business, you've probably realized by now that while the state doesn't touch your salary, it definitely makes up for it at the cash register and when your property appraisal hits the mailbox. People get blindsided because they expect one flat number. In reality, the tax rate for Texas is a jigsaw puzzle of state base rates and local add-ons that can change just by crossing a street.
The Sales Tax Trap: 6.25% is Only the Start
When you ask what the sales tax is, most people will tell you 6.25%. They’re technically right, but practically wrong.
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That 6.25% is the state’s cut. It’s the floor. However, Texas allows cities, counties, and "special purpose districts" to tack on their own percentages. By law, the total combined sales tax rate cannot exceed 8.25%.
Almost every major area—Houston, Dallas, Austin, San Antonio—hits that 8.25% ceiling.
You might find a tiny pocket of unincorporated land where you only pay 6.25% or 6.75%, but those are becoming rare. For example, in 2026, many shoppers in the San Antonio area are seeing slight shifts in how their local 1.125% is distributed between the city and transit authorities, but the final price at the register stays at that familiar 8.25%.
It’s not just "stuff" either. Texas taxes services too. Getting your hair done? No tax. Getting your car repaired? Tax on the parts, and sometimes the labor. Data processing services? Only 80% of that is taxable. It gets weirdly specific.
Property Taxes: The Real "Income Tax" of Texas
Since there’s no income tax, property taxes do the heavy lifting for schools, roads, and emergency services. This is where the tax rate for Texas really starts to bite.
There is no such thing as a "state property tax." The state doesn't collect a dime of it. Instead, your bill is a cocktail of rates from:
- Your local school district (usually the biggest chunk)
- The county
- The city
- Hospital districts or Junior Colleges
- MUDs (Municipal Utility Districts)
In 2026, we’re seeing some interesting shifts. Denton County, for instance, recently lowered its county-level rate to about $0.185938 per $100 of valuation. That sounds great until you realize your school district might be charging $1.20 and your city is charging another $0.45.
If you live in a high-growth area like a new suburb outside of Austin or Fort Worth, you might be in a MUD. These districts build the infrastructure for new neighborhoods. It’s not uncommon to see an extra 1% tax rate just for the MUD, which can push your total effective tax rate over 3%.
Why Your Neighbor Pays Less
You’ve probably seen it. You have the same house as the guy next door, but his bill is $2,000 lower.
Exemptions are the secret sauce here. If it's your primary residence, you better have that Homestead Exemption filed. It knocks a huge chunk off the taxable value for school taxes—currently $100,000 in many cases—and caps how much your appraisal can rise each year. Without it, you’re basically donating extra money to the government.
Business Taxes and the "Margin" Headache
If you’re running a business, you don't pay corporate income tax, but you do deal with the Franchise Tax.
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Most people call it the "Margin Tax." For the 2026 report year, the rates are staying pretty steady. If you’re primarily in retail or wholesale, your rate is 0.375% of your taxable margin. For everyone else, it’s 0.75%.
The "No Tax Due" threshold is the number to watch. For 2026, if your business makes less than $2.47 million (the current adjusted threshold), you don't owe the tax, but—and this is a big "but"—you still have to file the paperwork.
Texas also has a "EZ Computation" rate of 0.331% for businesses with $20 million or less in total revenue. It’s simpler, sure, but it’s not always the cheapest route. You have to do the math both ways.
The Hidden Costs: From Hotels to Gas
If you travel within the state, you’ll run into the Hotel Occupancy Tax. The state takes 6%, but cities like Austin or San Antonio can push the total over 15% to fund convention centers and "venue projects."
Then there’s the gas tax. It’s 20 cents a gallon. It hasn't changed in decades, which is why you see so many toll roads popping up. The state needs highway money, and if the gas tax doesn't provide it, the toll gantry will.
Actionable Steps to Handle Texas Taxes
Navigating the tax rate for Texas isn't about finding one number; it's about managing the variables.
1. Protest Your Property Appraisal Every Single Year
In Texas, the value of your home is just an opinion held by the Appraisal District. You have a legal right to disagree. Between April and May, you’ll get your notice. Don't just sigh and pay it. Research "comps" (comparable sales) in your neighborhood. If houses are selling for less than your appraisal, file a protest. Even a small win can save you thousands over five years because of how the 10% appraisal cap works.
2. Verify Your Exemptions
Check your county appraisal district (CAD) website right now. Does it say "HS" next to your name? If not, you’re overpaying. If you’re over 65 or disabled, there are additional "ceilings" that freeze your school taxes so they can never go up, even if your home value triples.
3. Shop the "Border" for Big Purchases
If you’re buying a $5,000 riding lawnmower and you live near a city limit, check the rates. Moving your purchase a few miles into an unincorporated area could drop your sales tax from 8.25% to 6.25%. That’s a $100 difference just for driving ten minutes.
4. Small Business Owners: Use the $2.47M Rule
If your gross receipts are under the threshold, don't pay a CPA a fortune to do a full franchise tax return. You likely only need the "No Tax Due" report. It’s a simplified filing that keeps you compliant without the audit-level stress.
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Texas is a "low tax" state for some and a "high tax" state for others. It really depends on what you own and where you shop. By staying on top of your property exemptions and knowing the local add-ons, you can actually keep your "zero income tax" dream from turning into a property tax nightmare.