Texas is one of only five states that do not charge any business tax, personal income tax, or fee to sole proprietors. This means that businesses in the Lone Star State can invest more of their profits in their operations. The other states that don't impose these taxes are Alaska, Florida, South Dakota, and Wyoming. If you sell physical products such as electronics, books, cars, furniture, appliances, raw materials, etc., you will need to remit the taxes you collect to the Texas Comptroller.
Some items such as medicines and some groceries are exempt from sales tax in Texas. The State Administrative Code, Title 34, Part 1, Chapter 3, Subchapter O contains an extensive list of Texas sales tax rules and exemptions applicable to numerous organizations, services and products. The state sales tax rate is 6.25 percent statewide. Local tax jurisdictions such as cities and counties can also impose sales taxes at a rate of up to 2 percent for a total maximum combined rate of 8.25 percent.
In addition to sales taxes, businesses in Texas must also pay franchise tax and unemployment insurance tax. Franchise tax allows for several different tax choices which can adjust the rate and amount taxed. To pay your unemployment insurance tax, you can create an account with the Texas Workforce Commission and pay online or by mail. All employers must withhold federal income taxes from each employee's paycheck to be remitted to the federal government.
Consult with your accountant or tax advisor for more information on how to reduce your LLC's self-employment tax through a corporate tax election S. If you buy furniture for your Texas LLC from a company in a state that does not have a sales tax or has a sales tax lower than the Texas sales tax, you will be responsible for paying the use tax. In these situations, Texas treats companies as sole proprietorships and does not impose franchise tax. Liabilities incurred while a company has lost its right to conduct business transactions could be assessed against the business owner individually so it is imperative that business owners be diligent in their filing and reporting.
In such cases, business owners must pay federal income tax on this income but not state tax since Texas does not tax personal income. Other factors contributing to the economic boom in the Lone Star State include a wide range of competitive Texas business incentives and financing options, the nation's largest business closing fund to attract projects that stimulate job creation and capital investment, and programs innovators to help employers and educational institutions with personalized job training for skilled workers. As a result of the COVID-19 pandemic, Texas has adjusted unemployment insurance tax due dates which are not traditional due dates. The individual shareholders of the company do not have to pay state taxes on their share of the company's income. However, funds withheld by an employer are held in trust for its benefit and will be sought from individual owners and operators of the company when a company fails to pay payroll taxes. Knowing exactly what state taxes apply to each business can be stressful even for experienced business owners.
As such, your only withholding obligations are federal taxes and also Texas unemployment insurance. Both the State of Texas and the Federal Government impose employer taxes on wages paid to employees.