With no corporate income tax and no individual income tax, Texas has one of the lowest tax burdens in the country, ranking as a Top 10 Best State in the Tax Foundation's 2013 State Business Tax Climate Index.
The state’s tax structure includes a Franchise Tax, Property Tax and Sales and Use Tax. You may click on the following link for an Overview of the Texas Tax System. . .
Margins Franchise Tax
In 2008, Texas replaced its franchise tax with a margins tax in order to establish a broader, fairer tax assessed at a lower rate. The goal of the reformed tax was to provide a level playing field for all businesses, to have a broad base that includes all business entities that receive liability protection from the state, to be competitive with other states to maintain Texas' reputation for having one of the best business climates in America, and to reflect the realities of a rapidly evolving economy. The reformed margins tax lowered the primary franchise tax rate from 4.5 percent to a tax of 1 percent on gross receipts less compensation or cost of goods sold. (Retailers and wholesalers have a rate of 0.5 percent.) Sole proprietorships and general partnerships are exempt, as are businesses with revenue under $1,000,000. Businesses whose total tax liability is $1,000 or less are also exempt.
Under the reformed tax, businesses are rewarded for making good business choices. Every time a business puts a Texan to work, pays for health insurance or invests in a pension plan, their tax liability decreases. The tax also penalizes bad business practices, such as hiring illegal immigrants.
These fair changes to the business tax code continue to stimulate our state's economy and encourage the entrepreneurial spirit that sets Texas apart.
Franchise tax exemptions, and franchise tax deductions are available for renewable energy equipment and systems. Renewable energy encompasses solar, wind, ethanol, and biodiesel energy. A franchise tax exemption is available to manufacturers, sellers, or installers of solar energy devices. The state also permits a corporate deduction from the state's franchise tax for renewable energy sources. Business owners may deduct the cost of the system from the company's taxable capital or deduct 10 percent from the company's income. Wind energy can qualify under the term "solar energy" for the exemption and deduction.
Texas has no property tax at the state level. Local governments and special taxing districts levy taxes on real and tangible personal property. All property is appraised at full market value and is assessed on 100% of appraised value. The total tax rate is the sum of all taxing units including cities, counties, schools and special districts.
Texas property tax code permits a 100 percent exemption on the appraised value of solar, wind or biomass energy devices installed or constructed for the production and use of energy on-site. See Texas property tax Form 50-123, "Exemption Application for Solar or Wind-Powered Energy Devices" to claim this exemption.
Local governments have the option to exempt goods in transit, or "freeport goods," from ad valorem taxation. Freeport goods are inventories acquired or brought into the state by businesses and held for no more than 175 days before being shipped out of the state.
Kilgore offers a triple Freeport tax exemption from the city of Kilgore, Kilgore College and Kilgore Independent School District, which amounts to 87% of the total taxation.
Local governments can offer to businesses an abatement of local ad valorem taxes on real and personal property for up to ten years.
Kilgore offers two abatement schedules depending on jobs/payroll created and amount invested.
Sales and Use Tax
The state levies a sales and use tax of 6.25 percent on sales of tangible personal property and certain services. Additionally, cities, counties, and transit authorities may add to the rate for a combined state and local rate of 8.25 percent, which is the case in Kilgore.
The Texas Enterprise Zone Program is an economic development tool for local communities to partner with the State of Texas to promote job creation and significant private investment that will assist economically distressed areas of the state. Approved projects are eligible to apply for state sales and use tax refunds on qualified expenditures. The level and amount of refund is related to the capital investment and jobs created at the qualified business site.