Do I Need to File State Taxes for Texas?

Some states levy a tax on income that's earned in those states. For some states of residence, this means all income earned by its residents is subject to state income tax regardless of where the taxpayer earns the income. The state income tax is not unlike the federal income tax in that it's a self-assessed tax that imposes a responsibility on the taxpayer to file a state tax return.

In addition to Washington, D.C., ​42 states​ impose a state income tax. State laws, which govern tax collection procedures, taxpayer obligations and the penalties incurred for the failure to comply with tax law, vary from one state and district to another. While a taxpayer must file a state tax return in each tax-levying state in which she earns income, only her state of residence can tax all of her income.

Although the state of Texas does not levy a personal income tax, the state does impose other taxes, such as a general sales tax, that can be as costly to a worker as some state income taxes might be.

Alaska, Washington, Nevada, Wyoming, South Dakota, Texas, Tennessee, Florida and New Hampshire don't levy a state income tax. Like Texas, these states raise revenue by other means. For instance, while Alaska imposes neither a state income tax nor a state sales tax, the state's localities may impose an average sales tax of ​1.76 percent​ and a gas tax rate of ​15.13 cents​ per gallon.

The Tax Foundation, a leading independent tax policy nonprofit with offices in Washington, D.C., says that of the 50 states in the U. S., Texas has the fourth-lowest tax burden of all for the Tax Year 2019. The primary sources of the state's revenue that come from individual residents of the state are the sales and use taxes. In turn, localities rely heavily on property taxes to fund citizen services.

​Read More:​ Is an Inheritance Taxable in Texas?

A franchise tax is a tax some corporations pay to conduct business in Texas. Also called a privilege tax, the ​0.375 percent​ franchise tax grants a business the right to operate or be chartered within Texas. A company pays the franchise tax each year along with its federal tax. The amount of the franchise tax is from ​0.331 percent to 0.75 percent​, depending on the company's income threshold, deductions and business type.

Also, Texas charges a ​6.25 percent sales and use tax​ on all retail sales and most leases and rentals of goods, as well as taxable services, including live performances, antique shows, go-cart raceways and country clubs. Items that are exempt from sales and use taxes are over-the-counter medicines and groceries.

Some 501(c) organizations can apply for exemptions based on their federal exemption status. For instance, an organization that's exempt under 501(c)(2), (5), (6), (7), (16) or (25), can apply for an exemption from franchise tax.

Note that local tax governments may charge an additional sales tax of ​2 percent​ or less for a maximum combined rate of ​8.25 percent​.

​Read More:​ Taxes on Mineral Rights in Texas

The state of Texas does not assess a property tax on real estate, but counties, cities and school districts do. Property tax is the primary revenue source for local governments. It funds roads, police and fire departments, emergency response services, libraries, schools, parks and the other services that local governments provide.

The state of Texas does grant a property tax exemption that allows some property owners to receive a reduction in their property taxes. For instance, veterans, people with disabilities, senior citizens and charitable organizations may be eligible for property tax exemptions.