Texas is a Low-Tax State, Sometimes
by Ross Ramsey October 7, 2013
When he is roaming other states trying to get their businesses to move to Texas, Gov.Rick Perry likes to tell their executives that the tax burden in Texas is lower than other states.
Here, for instance, is the top of the governor’s script for a radio ad in Maryland: “When you grow tired of Maryland taxes squeezing every dime out of your business, think Texas, where we’ve created more jobs than all the other states combined. Where you’ll find limited government, low taxes and a fair legal system.”
That tax claim is only partly true. Texas ranks 48th among the states for the tax burden on individuals, according to a Texas business group that specializes in taxes and other fiscal and economic issues. But the state is 18th in business taxes, about 8 percent above the national average. (Maryland’s state and local business taxes, relative to economic output, are lower than the national average.)
“We’ve improved,” said Dale Craymer, president of the Texas Taxpayers and Research Association. “If you ran those numbers 10 years ago, we were easily in the top 10. What happened is that other states raised taxes and got ahead of us.”
In fact, Texas taxes look great to some companies and terrible to others. Capital-intensive operations with lots of buildings, machinery and hard assets? Not so wonderful. Corporate headquarters? Paradise.
“One thing that the lack of a personal income tax does is it’s great for entrepreneurial business,” Craymer said. “It’s great for us as an incubator, and for corporate headquarters locations.”
For the people in the C-suites — those with titles like chief executive officer, chief financial officer and chief operating officer — Texas is attractive.
The well-titled are also the entitled, pulling the highest salaries; because Texas doesn’t have a personal income tax, it offers them an opportunity to cut their own personal tax burdens.
Lower-paid employees can benefit, too. They might all be a bit shocked by property taxes here, but on average, they’ll come out ahead on the personal side.
For companies making their decisions on the basis of personal finances — or, say, on the personal finances of the small group of people making the site selection decisions — the tax thing can be persuasive.
The business outlook can be considerably different. The numbers from the taxpayers and research association — which researches and lobbies on tax, economic and state fiscal issues — show a state that’s great for individuals, good for service companies and hard on operations that are more capital-intensive.
You’re not going to catch a group like this one trying to chase businesses away or taking potshots at the governor. They are not malcontents or partisans. But they are empiricists, and their numbers present a more nuanced argument than the governor and other promoters are making.
Part of that Texas sales pitch is about climate, workforce, favorable regulations and the quality of life. Another is that this is a low-tax state. On a per-capita basis, the Census Bureau ranked Texas 33rd in tax collections in 2010.
But taxes aren’t collected on a per-capita basis. Individuals pay sales taxes on many of their purchases, and property taxes on their homes and other real estate — but don’t pay state personal income taxes like people in 43 of the other 49 states.
In Texas, individuals pay about 35 percent of state and local taxes, according to TTARA’s research. The average for all 50 states is 52 percent. Of course, the numbers flip for businesses, which pay 65 percent of state and local taxes here, compared with 48 percent, on average, nationally.
Individuals paid 55.1 percent of the state sales tax in 2011, according to the state comptroller’s office. Businesses, on the other hand, paid 51.5 percent of the school property tax. Texas has the 11th-highest sales tax rates and, according to the Lincoln Land Institute, the fourth-highest tax on industrial property.
“There are different kinds of businesses,” Craymer said. “If you’re capital-intensive, it’s a high-tax state. If you’re in a service business, it’s relatively low tax.”
If you’re on an economic development team barnstorming the country to get businesses to come to Texas, it’s a low-tax state. The rest is just detail.