Is Texas the State with the Lowest Tax Burden In the US?

We recently prepared a comprehensive report of 15 States with the Lowest Tax Burden in the US. Click to see the free report.

But the interesting question to answer is: Is Texas really the State with the Lowest Tax Burden In the US?

Texas

State Tax Burden: 7.68%

Income Tax: 0%

Sales Tax: 6.25%

Property Tax: 1.68%

Texas lies among those eight states with no personal income tax and is also one of the few states with no corporate income tax. Texas has a state sales tax of 6.25%, imposed on all retail sales, leases, taxable services, and rentals of most goods. Other local authorities in the state can impose up to 2% of sales tax, taking the combined state and average local sales tax rate to 8.25%. The local taxing units impose a property tax of around 1.68%, however, the Comptroller’s office does not collect property tax or set tax rates.

What is the Franchise Tax and No Tax Due Threshold in Texas?

Even though Texas does not impose a corporate income tax, it does levy a franchise tax on corporations. According to the Texas Comptroller of Public Accounts, the Texas franchise tax is a privilege tax implied on each taxable entity formed or doing business in Texas. In July 2023, the legislature passed Senate Bill 3 which raised the no tax due threshold. The state has increased the no tax due threshold to $2.47 million, effective after January 1, 2024. The taxable entities formed or doing business in Texas are no longer required to file a franchise tax, with total revenue less than or equal to $2.47 million. The franchise tax rate of taxable entities in the wholesale and retail segment is 0.375%, with a total revenue of over $2.47 million. For segments other than wholesale and retail, the franchise tax is 0.75%. The due date for franchise tax is May 15.

Texas Tourism Economy and Tax Revenue?

Distilleries in Texas attract a large number of tourists each year. According to a report by Tourism Economics, a subsidiary of Oxford Economics, highlighted the economic impacts of distillery tourism in Texas. In 2022, around 2.08 million people visited Texas with distilleries as the main tourism point. The non-local distillery visitors in Texas generated a total economic impact of $831.7 million in 2022. The statewide economic impact supported more than 7,700 part-time and full-time jobs, adding $42.5 million in state and local tax revenues.

Overall, Texas generates over $250 billion in revenue annually coming from more than 60 different taxes, fees and assessments, as per the Texas Comptroller of Public Accounts.

Is Texas the State with the Lowest Tax Burden In the US?

How Big was Tesla, Inc.’s (NASDAQ:TSLA) Relocation to Texas?

Many corporations have migrated to Texas. According to data compiled by FDI Intelligence, 134 companies relocated to Texas between 2019 and 2023. According to data from the US Census Bureau, the US recorded around 447,449 new applications filed between January 2023 and January 2024. Out of those 447,449 new applications, 40,890 were filed in Texas, an increase of almost 3.4% year-over-year. Texas has the most Fortune 500 companies, totaling $2.6 billion in revenue, as per a report from Fortune.

The business climate, low taxes, and skilled workforce in Texas make it an attractive business location. In recent years, the leading companies that have moved their headquarters to Texas include HP Inc. (NYSE:HPQ) and Tesla, Inc. (NASDAQ:TSLA).

Tesla, Inc.’s (NASDAQ:TSLA) global headquarters are based in Austin, Texas. The Gigafactory Texas covers 2,500 acres of area and is the US manufacturing hub for Model Y and Cybertruck. On May 8, Tesla, Inc. (NASDAQ:TSLA) announced that they have initiated the construction of Tesla’s in-house lithium refinery, situated in the greater Corpus Christi area of Texas. Upon completion, the facility will represent an investment of more than $1 billion in Southwest Texas. The 1,200+ acre site will create more than 1,000 construction jobs and the facility will employ 250 full-time employees onwards.