Tax in Texas

“You may all go to hell and I will go to Texas.” – Davy Crockett

Perhaps Davy was anticipating the tax-friendly climate that Texas would develop over the next 150 years when he made his statement.

One of the biggest benefits: Texas has no state income tax. It does not tax:

  • IRA income
  • Income from 401(k) and other defined contribution employer retirement plans
  • Private or public pension income
  • Employment income
  • Social Security payments

A second huge benefit: Texas does not have an inheritance tax or an estate tax. The Texas legislature did away it, notwithstanding Will Roger’s position: “I don’t see why a man shouldn’t pay an inheritance tax. If a country is good enough to pay taxes to while you are living, it’s good enough to pay in after you die. By the time you die you should be so used to paying taxes that it would just be almost second nature to you.”

Instead, to raise money, Texas taxes sales and property. The state sales tax is 6.25%, and localities can add to that. The average combined sales tax rate is 8.05%.

As for the property taxes – Texas offers some decent exemptions for homestead. There is a $15,000 school district homestead exemption, and other local taxing units can offer a separate exemption up to 20% of the total property value.

Seniors get an additional tax break. If a senior is age 65 or older, an additional $10,000 of his or her homestead’s assessed value is exempt from school taxes. Other local taxing units can offer an additional exemption of at least $3,000.00.

Seniors also benefit from a tax ceiling for school taxes. School-district taxes are frozen at the level imposed on the homestead the year the owner turns 65 (although if the home is later improved, the tax ceiling can be adjusted). Local taxing units can also establish a tax freeze on homesteads.

One more benefit for seniors – they may qualify to defer their property taxes until they no longer own or occupy their home as a residence. The taxes continue to accrue and carry an interest charge of 8%, but the deferral can give a bit of respite to seniors who are cash-strapped or on a fixed income.

Texas has this tax-thing figured out. As Jean-Baptiste Colbert succinctly stated: “The art of taxation consists in so plucking the goose as to procure the greatest quantity of feathers with the least possible amount of hissing.”