Last Updated: April 2026
Texas is one of only nine US states with no state income tax — and its prohibition is constitutional, making it exceptionally durable. Article 8, Section 24 of the Texas Constitution requires a referendum to implement a personal income tax. This gives Texas workers a significant advantage: at $100,000 income, a Texan saves approximately $5,000–$6,500 in state income tax compared to a Californian, and approximately $3,000–$4,000 compared to an average-state resident paying 4-5% state income tax.
But the no-income-tax story is only half the picture. Texas funds its state and local governments heavily through property taxes and sales taxes. Texas property taxes average between 1.6% and 2.5% of assessed value — among the highest effective rates in the country. A $400,000 Texas home generates an annual property tax bill of $6,400 to $10,000. Understanding the full tax picture — income, property, sales, and beyond — is essential for anyone considering a Texas relocation or evaluating the state's true tax burden.
Texas's prohibition on personal income tax is embedded in the state constitution and cannot be changed by the legislature alone — it requires voter approval in a statewide referendum. Texas voters approved Proposition 4 in 2019, amending the constitution to explicitly prohibit both individual and corporate income taxes and require a two-thirds legislative supermajority plus a statewide referendum before any such tax could be implemented. This makes Texas's no-income-tax status one of the most secure in the country.
The practical result for workers: every dollar of employment income is taxed only at the federal level. At $150,000 income (single filer), a Texan pays approximately $29,900 in federal income tax plus FICA payroll taxes — but nothing to Texas. A comparable California resident pays the same federal tax plus approximately $14,200 in California state income tax. The $14,200 annual saving accumulates to over $700,000 over a 50-year working career at compound growth — a compelling argument used in corporate relocation pitches.
Texas property taxes are assessed by county appraisal districts and levied by school districts, city/county governments, and special purpose districts. Unlike California's Prop 13 cap, Texas reassesses property annually to market value — meaning rapidly appreciating properties trigger rapid tax increases. Combined effective rates (the ratio of taxes paid to market value) typically range from 1.6% to 2.5% depending on county and the specific combination of taxing entities.
| Home Value | At 1.8% Rate | At 2.3% Rate |
|---|---|---|
| $300,000 | $5,400/year | $6,900/year |
| $400,000 | $7,200/year | $9,200/year |
| $500,000 | $9,000/year | $11,500/year |
| $700,000 | $12,600/year | $16,100/year |
Harris County (Houston) and Travis County (Austin) tend to have the highest effective property tax rates among major Texas metros. The school district levy typically represents 50-60% of the total property tax bill, reflecting Texas's school funding model that relies heavily on local property tax revenue.
Texas levies a 6.25% state sales tax on most goods and services. Cities, counties, transit authorities, and special purpose districts can add up to a combined 2% in local sales taxes, bringing the maximum combined rate to 8.25%. Most major Texas cities — Houston, Dallas, San Antonio, Austin — are at or near the 8.25% maximum. The sales tax applies to most goods but notably exempts food products for home consumption (groceries), making the effective burden somewhat lower for households that cook at home.
For a household spending $50,000 per year on taxable goods and services, the sales tax burden at 8.25% amounts to approximately $4,125 per year. This is a real tax, but it is also partially controllable — higher-income households typically save a larger share of income and spend less proportionally on taxable consumption, making the sales tax regressive in nature (hitting lower-income households harder as a percentage of income).
Texas law provides a Homestead Exemption that reduces the taxable value of a primary residence for property tax purposes. As of 2023 (Proposition 4), the school district homestead exemption increased from $40,000 to $100,000 — a significant change that reduces the taxable value of every Texas homeowner's primary residence by $100,000 for school district purposes (the largest component of most Texas property tax bills).
To claim the homestead exemption, you must own and occupy the property as your primary residence as of January 1 of the tax year, and file an application with your county appraisal district (usually only required once). Additional exemptions are available for homeowners aged 65 and over (an extra $10,000 school district exemption plus a tax ceiling that freezes school taxes), disabled individuals, and veterans. For a homeowner with a $400,000 home in a district with a $1.17 per $100 school tax rate, the $100,000 homestead exemption saves approximately $1,170 per year on the school tax alone.
The headline comparison between Texas and California focuses on income tax, but the full picture includes all tax categories. Here is an illustrative comparison for a professional earning $150,000 and owning a $500,000 home:
| Tax Type | Texas | California |
|---|---|---|
| State income tax | $0 | ~$14,200 |
| Property tax (on $500K home) | ~$9,000 – $11,500 | ~$5,000 – $6,500 (Prop 13) |
| Sales tax (on $40K taxable spend) | ~$3,300 | ~$3,800 |
| Federal income tax | ~$29,900 | ~$29,900 |
| Total (approx) | ~$42,200 – $44,700 | ~$52,900 – $54,400 |
The comparison narrows when accounting for California's lower property taxes (thanks to Prop 13) and the fact that Californians generally live in higher-valued homes. For renters, the comparison is starker: renters get no property tax benefit and fully absorb the income tax differential. Texas is clearly advantageous for high-income earners and particularly for renters, while the property tax tradeoff can offset some of the income tax saving for homeowners in rapidly appreciating Texas markets.
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Get Matched with a Local CPA →It would be extremely difficult. Texas voters amended the state constitution in 2019 (Proposition 4) to explicitly prohibit a personal income tax and to require any future effort to implement one to first pass a two-thirds majority vote in each chamber of the Texas Legislature and then win approval in a statewide referendum. Given strong political opposition to income taxes in Texas, this is considered a near-insurmountable barrier for the foreseeable future.
Texas effective property tax rates (taxes paid as a percentage of property value) are significantly higher than California's. Texas averages 1.6-2.5% effective rates; California averages around 0.7-0.8% effective rates, kept low by Proposition 13. However, California homes tend to be higher-valued, so the absolute dollar amount of property tax can be comparable or higher in expensive California markets for newer buyers paying at current market assessments. Longtime California homeowners with Prop 13 protections often pay dramatically less in absolute dollars than comparable Texas homeowners.
Texas levies a franchise tax (also called the Margin Tax) on businesses — corporations, LLCs, partnerships, and other entities doing business in Texas. It is calculated on a business's taxable margin (revenue minus certain costs) with a general rate of 0.75% and a reduced 0.375% rate for retail and wholesale businesses. Small businesses with revenues below $2.47 million (2026 threshold) owe no franchise tax. As an individual W-2 employee, you are not affected by the franchise tax. Self-employed individuals and freelancers operating as LLCs or corporations in Texas may owe the franchise tax on their business income.
No. Because Texas has no state income tax, all retirement income — Social Security, pensions, 401(k) distributions, IRA withdrawals, and investment income — is entirely exempt from Texas state tax. Texas is one of the most tax-friendly states for retirees on an income tax basis. Combined with the homestead exemption property tax freeze for residents over 65 (which locks school district taxes at the year you turned 65 or became disabled), Texas can be highly advantageous for retirees — provided the property tax burden doesn't offset the income tax advantage.
All three states have no state income tax. Florida's property taxes average approximately 0.83% — much lower than Texas's 1.6-2.5% average. Tennessee's property taxes average approximately 0.68% — also lower than Texas. However, Texas offers larger and higher-valued job markets (particularly in energy, tech, and finance) that may offset the property tax differential. Tennessee's 9.75% combined sales tax in Nashville is higher than Texas's 8.25% maximum. For retirees, Florida's low property taxes combined with no income tax may offer a better overall package than Texas for those who own homes.
Yes, and it is common. Texas property owners have the right to protest their appraisal district's assessed value annually. The process involves filing a protest with the local Appraisal Review Board (ARB) by May 15 (or 30 days after receiving your notice). You can present evidence that the appraisal district overvalued your property relative to comparable recent sales. Many Texas homeowners use property tax consultants who work on contingency — taking a percentage of any tax savings they achieve. In rapidly appreciating markets like Austin, successful protests can save thousands of dollars annually.
The absence of a state income tax is far more valuable for high earners in absolute dollar terms. A Texan earning $500,000 saves approximately $50,000+ annually compared to a California resident at the same income. A Texan earning $50,000 saves approximately $2,000-$3,000 compared to a Californian. Meanwhile, property taxes hit all homeowners regardless of income, and sales taxes are regressive — consuming a higher percentage of lower-income households' budgets. This means Texas's tax structure is structurally favorable to high earners and less advantageous for lower-income households compared to progressive income tax states.