The Tax Foundation recently released its list of the top 10 State Business Tax Climate Index for 2023 and Texas remained at 13 possibly indicating there is room for growth. From last year, the two categories to change were sales taxes and property taxes, both dropping by 1 in the Tax Foundation’s rankings (all categories are ranked 1-50). State sales taxes now ranks 37 out of 50 and state property taxes ranks 38 out of 50.
Recently, The Wall Street Journal Editorial Board published an article, ‘State Tax Winners and Losers,’ calling Wyoming the best and New Jersey and New York the worst. Regarding states with room for improvement the WSJ Editorial Board said, “Texas (13th overall) doesn’t have an individual income tax, but property taxes are high and the average burden for state and local sales tax is 8.2%.”
Texas has no income tax, something that has been very enticing for companies looking to relocate. According to The Texan, Samsung is currently building a $17 billion microchip facility in Taylor, Tesla’s Cybertruck plant and new company headquarters are now up and running in Travis County and this past June, Caterpillar announced its departure from Illinois and relocation of its headquarters to Irving.
Be that as it may, Texas’ corporate tax ranks 47th out of 50. The state levies a .375% retail tax and .75% wholesale tax on a company’s overall profit margin if revenue exceeds $1.23 million, according to The Texan. This means that income after expenses accounted for will be taxed 37.5 cents for every $100.
Janelle Fritts, a policy analyst with the Tax Foundation, told The Texan that Texas is performing well in many areas measured, such as individual tax, but the state’s business taxes, and local property taxes are holding them back from competing with states in the top 10.
The closest comparable state by population and a state without income tax is Florida, which has a more traditional corporate income tax of 4.45%. Florida is ranked 4th overall and its corporate tax is ranked 10th. The Tax Foundation described Florida’s single-rate system as being simple and neutral, consistent with sound tax principles.
Property taxes are an issue state officials have less authority over, as rates are set by localities. However, the state can set parameters. The Tax Foundation ranked Texas at 38 out of 50 for property tax rates, down 1 from 2022.
Texas' median effective residential property tax rate in 2022 is 1.81%, according to TaxRates.org. The median effective rate measures the percent of a home's market value that is collected by taxing authorities. Any tax exemptions on the property are figured into the rate.