Business Tax Structure

Magnifying Glass Looking at Tax Document
  • Determining a business venture's state, local, and federal tax obligations is a crucial step in deciding where to locate the business' activities. It is strongly recommended that a professional tax advisor, accountant, and/or attorney be consulted before starting a business.


    Additional Resources

  • Federal

    Information regarding federal income taxes, tax identification numbers, business tax credits, and employment tax regulations may be obtained by contacting the following agencies:

    INCOME TAXES, TAX IDENTIFICATION NUMBERS, AND BUSINESS TAX CREDITS

    Internal Revenue Service
    825 East Rundberg Lane, Suite H-4
    Austin, Texas 78753
    (800) 829-1040 or (800) 829-4059 (TDD)

    Business Tax Kit and other publications:
    (800) 829-3676 or (800) 829-4059 (TDD)

    EMPLOYMENT TAXES

    Social Security Administration
    903 San Jacinto
    Austin, Texas 78701
    (512) 916-5404 or (800) 772-1213

  • State

    With no corporate income tax and no individual income tax, Texas has one of the lowest tax burdens in the country, ranking as a Top 10 Best State in the Tax Foundation's 2015 State Business Tax Index.

    The Comptroller of Public Accounts is charged with the administration and collection of state and local sales tax from businesses operating in Texas, and collects any franchise taxes owed by Texas corporations. The Comptroller maintains field offices in most major Texas cities to provide assistance and aid in complying with tax regulations. For further information on these taxes, contact:

    Comptroller of Public Accounts
    111 East 17th Street
    Austin, Texas 78711
    (512) 463-4600 or (800) 252-5555

    Franchise Tax

    In 2008, Texas replaced its franchise tax with a margins tax in order to establish a broader, fairer tax assessed at a lower rate. The goal of the reformed tax was to provide a level playing field for all businesses, to have a broad base that includes all business entities that receive liability protection from the state, to be competitive with other states to maintain Texas' reputation for having one of the best business climates in America, and to reflect the realities of a rapidly evolving economy. The reformed margins tax lowered the primary franchise tax rate to 1 percent on gross receipts for most taxable entities, and 00.5 percent for retailers and wholesalers (less compensation or cost of goods sold). Sole proprietorships, general partnerships, businesses with revenue under $1,000,000, and businesses whose total tax liability is $1,000 or less are exempt.

    Under the reformed tax, businesses are rewarded for making good business choices. Every time a business puts a Texan to work, pays for health insurance, or invests in a pension plan, their tax liability decreases. The tax also penalizes bad business practices, such as hiring illegal immigrants.

    These fair changes to the business tax code continue to stimulate our state's economy and encourage the entrepreneurial spirit that sets Texas apart.

    For more information on business tax reform in Texas, click here.

    Sales and Use Tax

    Texas levies a sales and use tax of 6.25 percent on all retail sales, leases, and rentals of most goods, as well as taxable services. Additionally, cities, counties and other taxing jurisdictions may add to the rate for a combined state and local rate of 8.25 percent.

    Sales and use tax exemptions are offered on machinery and equipment used in the manufacturing process and on natural gas and electricity when sold to commercial businesses that are "predominantly" manufacturing.

    The Comptroller of Public Accounts is charged with the administration and collection of state and local sales tax from businesses operating in Texas, and also collects any franchise taxes owed by Texas corporations. The Comptroller maintains field offices in most major Texas cities to provide assistance and aid in complying with tax regulations.

    Unemployment Insurance

    Businesses that employ one or more individuals may be subject to unemployment tax. New employers will pay either 2.7 percent or the applicable industry average tax rate, whichever is higher, on the first $9,000 of wages per employee. A minimum of six quarters is required to obtain an experience rating. www.twc.state.tx.us/ui/bnfts/employerinfo.html

    Workers' Compensation

    The Texas Department of Insurance, Division of Workers' Compensation (Division) is a state agency that regulates the delivery of workers' compensation benefits to injured workers and to eligible family members of employees killed on the job. Benefits are paid by workers' compensation insurance companies, by employers certified by the Division to self-insure, or by self-insured governmental entities. Workers' compensation is not mandatory in Texas. The Texas Department of Insurance publishes a rate guide to assist employers in comparison shopping for worker's compensation and employers' liability insurance in Texas. http://www.tdi.state.tx.us/wc/indexwc.html

    Employment Taxes

    The Texas Workforce Commission collects all unemployment taxes for workers employed in Texas. For information regarding these taxes, to obtain a state employer's identification number, and for information on tax credits, contact:

    Texas Workforce Commission
    Tax Department
    101 East 15th Street
    Austin, Texas 78778

    • New Employer Accounts/Status of Accounts: (512) 463-2731 or (800) 832-9394
    • Quarterly Reports and Rates: (512) 463-2407
    • Unemployment Insurance Customer Service: (512) 463-2542
    • Labor Market Information: (512) 491-4922
    • Work Opportunity Tax Credit (WOTC): (512) 463-2488 or (800) 695-6879

    Further Assistance on Texas Tax

    Further assistance on Texas tax can be viewed on the Texas State Comptroller website which includes information on electronic filing and online assistance through the STAR system.

  • Local

    PROPERTY TAX

    Texas has no property tax at the state level. Local governments and special taxing districts levy taxes on real and tangible personal property. All property is appraised at full market value and these taxes are assessed on 100 percent of appraised value. The total tax rate is the sum of all taxing units including cities, counties, schools, and special districts.

    Several property tax exemption incentives are available for qualified businesses.

    For more information on property taxes in Texas, click here.

    For information on Governor Perry's commitment to keeping property taxes low, click here.

     

    BUSINESS PERSONAL PROPERTY TAXES

    If the business owns tangible personal property that is used to produce income, the property must be reported on a rendition form to the local county appraisal district, after January 1 and no later than April 15, each year. Business owners must report all inventories, equipment, and machinery. For additional information, contact the local county appraisal district. See the government pages of your local telephone directory for telephone numbers.