Texas, a state famous for its endless prairies, vast herds of cattle and countless oil towers, keeps a fiscal secret. Because if you look at the tax rates that Texas sets for its own income tax and corporate tax, you hardly get out of amazement. More specifically, both tax rates in Texas are 0%. If you didn’t have to pay taxes at the federal level in Texas, Texas would be a real tax haven. In any case, Texas is one of the most interesting locations in the USA where it is worth starting a US company. Because even apart from any tax advantages, Texas can lure entrepreneurs with further privileges. This includes, among other things, a well-developed infrastructure and a labour market with highly qualified specialists.

1st Taxes at Lone Star State Texas – Introduction

Anyone who wants to start a company in the USA must of course also think about where exactly this should be located. Similar to many other countries in the world, there are also regional differences in the USA in many ways. In fact, these are even of a fiscal nature in the US. After all, in addition to the tax laws at federal level, other, each own in the individual federal states apply: each state has its own individual tax law. In addition, of course, there are many other aspects that influence the choice of a location in the USA.

One of the favorites when choosing a business location is certainly Texas. Therefore, here we want to give an overview of taxes in Texas as well as many other aspects that are important when choosing a location.

Taxes in Texas: a brief look at history

2.1 General information about the US state of Texas

Texas is located in the southwestern United States, borders Mexico in the west and borders the Gulf of Mexico in the south with a long, flat coastline. Mexico, after Alaska, is the second largest country in the USA. Texas also ranks high in terms of population: only California is more populous.

2.2. The Texas History

Texas looks back on an eventful history. At least from a European point of view, she was modest in mapping the Texas coast by Spanish navigator Alonso Álvarez de Pineda. The later exploration of the interior was not a splendid event, as it coincides with the shipwreck of the Spaniard Álvar Núñez Cabeza de Vaca.

But gradually more and more Spanish immigrants from Mexico settled in Texas. When Mexico gained independence from Spain in 1821, Texas was one of them. Meanwhile and after that, the influx from the still young USA had increased. Thereby (at least) two completely different cultures clashed. So it came as it had to come: after the Declaration of Independence of Texas in 1835 began the Texas War of Independence, which the Texans were able to decide for themselves after only a few months. Texas was independent.

But an influential part of the population considered the secession from Mexico merely a political intermediate step. It was therefore only a short time before Texas joined the USA as an independent federal state in 1845.

Peace had arrived in Texas, but lasted only a few years. Because with the rise of the American Civil War, which Texas fought alongside the Confederates, the war came back to Texas. When this too came to an end and Texas was again part of the USA, the state could devote itself to creating a prosperous future.

Certainly, the history of the state of Texas, at this point representative of all areas of America, can only be incomplete if it does not mention the indigenous population. However, this is mainly due to the minor importance of their influence on modern history, which is fundamental to our interests in the foreground here. Finally, we want to report on taxes in Texas. And these in their present form go back to the introduction by Europeans.

3rd business location Texas

Economically, Texas is a very successful state. Many factors contribute to this. On the one hand, it is rich in mineral resources. The coveted black gold in the country and off the coast alone has contributed enormously to the prosperity of the state. Agriculture is also of great importance to Texas. A Texas without cowboys? Unthinkable!

But industry in its many forms also plays a prominent role in economic development. In addition to petrochemicals, there are in particular the food industry, the aerospace industry, the automotive industry and the electronics industry. There is also, of course, the services sector and tourism.

Infrastructure is also a guarantee of economic success in Texas. Since it is well developed, it facilitates the movement of goods, which makes the location Texas particularly attractive for manufacturing companies. For example, Texas tops the list of the highest exporting US states for many years. Particular importance is attached to the ports through which companies in Texas handle a large part of their exports.

But education is also an important factor for the economy in Texas. Many elite universities are located there. They help ensure that Texas has a steady stream of qualified professionals available for the labor market. And the working population should please pay taxes in Texas. Which brings us back to our real topic.

4. Tax Law in Texas

Paying Taxes in Texas? Okay, that was probably a little premature. Of course, there is an independent tax law and thus taxes in Texas (here you will find a complete overview). But in general, there are few taxes. And these flow primarily into the treasury of the United States. A good part of the state of Texas budget comes from exactly this source.

4.1 Taxes in Texas: Income Tax

Only a few U.S. states have their own income taxes. In addition to Florida and Wyoming, the state of Texas is one of them. Nevertheless, Texans pay income tax, albeit only as federal taxes.

Even more notably, Texas also has no income taxes at the local level (counties and communities). This is ensured by the Texas income tax law, which categorically excludes this.

Taxes in Texas: Corporate Income Tax and Other Corporate Taxes

The same applies to corporate tax. Here, too, Texas generally waives its own corporate tax. However, the obligation to pay corporate tax at federal level remains.

However, companies in certain industries still pay taxes in Texas. Both the extraction of oil and natural gas is subject to taxes.

There is also a franchise tax. It is relevant to a number of legal forms that are either based in Texas or do business there. Other forms of enterprise, on the other hand, are exempt from this tax, such as individual enterprises. What is interesting about this, however, is that this tax is aimed at sales instead of profits. In fact, there is a right to choose from one of four alternative tax bases. A fifth option is added for companies that remain below a total annual turnover of USD 20,000,000, because they can also register their franchise tax electronically (E-Z computation).

The obvious advantage of the E-Z computation method is a reduced tax rate of 0.331%. Otherwise, the applicable tax rate depends, inter alia, on the nature of the business. For example, wholesalers can apply a tax rate of 0.375 %. Otherwise it is 0.75%.

However, you only pay franchise tax in Texas if the tax amount exceeds the USD 1.230,000 threshold. Texas sets this threshold every two years.

Taxes in Texas: Sales and use tax and other excise duties

If Texas waives both its own income tax and corporate income tax, how does tax revenue come about? Apparently, in particular via sales tax, a sales tax that thus roughly corresponds to the German sales tax. This is 6.25% in Texas. However, they also concern user fees, transit fees and comparable transfers.

In addition to the sales tax at the state level, other taxes may apply at the local level. These can be counties as well as cities and other communities. Nevertheless, Texas has provided a cap in its tax legislation. Thus, the tax rate on taxable transactions may be a maximum of 8.25%. This means that the additional levies at local level are a maximum of 2%. However, the average value should have settled at 1.94 %.

Further taxes are due in Texas on tobacco and alcoholic beverages, fuels, and vehicle sales and rental. In addition, taxes are levied on hotel stays in Texas. However, all these taxes are only of minor importance for the state budget. Because the majority of the tax revenue goes back to the sales and use tax.

4.4. Ad valorem tax – property taxes in Texas

The state of Texas does not impose any property tax – at least none directly. Indirectly, however, in certain cases you pay levies on certain assets, which are, however, earmarked. Because these funds go to the public education system of the state, especially to the school system. This property tax applies mainly to real estate, but can also affect other economic goods. What is important here, however, is a whole series of exceptions which result in tax concessions or even tax exemptions. This applies, for example, to senior citizens over the age of 65 and disabled people. Here, the tax break can be $10,000.

This tax is called ad valorem in Texas – Latin for “according to value”. This means that the valuation is regularly subject to repeated examination and determination.

Taxes in Texas: No Inheritance and Gift Taxes

At first glance, the title of this subchapter provides exhaustive information. However, the transmission of motor vehicles is an exception, albeit one of minimal importance. Because under certain circumstances you have to pay a tax of USD 10.

5th Taxes in Texas – Conclusion

So now you know the most important facts about taxes in Texas. This is of interest both to those readers who want to start a company in the USA and to those who are already entrepreneurially active there. Because in this case, the relocation of the company to Texas may offer further, because previously untapped advantages. We hope that this contribution has been helpful in this regard. Alternatively, we wish everyone else who could not benefit from it to have invested time in an informative reading pleasure. This too should be seen as a win.