What is the Texas Business Tax Rate?

Learn about the Texas business tax rate and how it affects your business. Find out what taxes you need to pay and how to calculate them.

What is the Texas Business Tax Rate?

Texas imposes a 6.25 percent state sales and use tax on all retail sales, leases, and leases of most goods, as well as taxable services. Local tax jurisdictions (cities, counties, special purpose districts, and traffic authorities) can also impose up to 2 percent sales and use taxes for a maximum combined rate of 8.25 percent. 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. Certain items such as medicines and some groceries are exempt from sales tax.

The State Administrative Code contains an extensive list of Texas sales tax rules and exemptions applicable to numerous organizations, services and products. When it comes to local taxes, jurisdictions such as cities and counties can impose sales taxes at a rate of up to 2 percent for a total maximum combined rate of 8.25 percent. Use our sales tax calculator to get an idea of what you'll have to pay, but always check with your accountant and the Texas Comptroller to find out if your company is required to collect sales taxes and make sure you continue to comply. As a general rule, the details of how the revenues of a specific company are taxed depend in part on the legal form of the company. The tax base is distributed to Texas using a single-factor gross revenue sharing formula: Texas gross income divided by gross income everywhere.

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. An individual member owes no state tax on any part of the company's net income they ultimately receive. Greg Abbott and the Texas Legislature have been making efforts to make the state even more competitive from a cost perspective. You'll be able to deduct some of your company's expenses from your income by calculating how much you have to pay self-employment tax. For example, 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. The Internal Revenue Service allows an LLC to be treated as an S Corporation for tax purposes, as long as your company meets certain requirements.

In addition, a Texas corporation dedicated exclusively to the business of manufacturing, selling, or installing solar energy devices is exempt from franchise tax. And if you're looking for detailed guidance on federal income tax issues, see Frederick Daily's Tax Savvy for Small Business (Nolo).Federal taxes can be complicated, so talk to your professional accountant or tax preparer to make sure your Texas LLC pays the right amount. You will find all the forms you need to file and pay your TX Franchise Tax and file your TX Public Information Report on the Comptroller's website. The greater propensity for single-rate systems for corporate tax than individual income tax is probably due to the lack of a significant concept of “ability to pay” in corporate taxes.

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