People from all across the country are moving to Texas at “Astro”nomical rates. Texas has seen an increase in population year over year to a staggering 30+ million, in 2022. This leaves Texas second in population, only to California. What is driving the shift to Texas? Many believe it is the tax benefits of living in the Lone Star State, such as individual income tax, property tax, and corporate income tax rates.
Texas is one of only seven states in the U.S. that does not have an income tax. The income tax varies by state, but it ranges on the low end of 2.50% in Arizona, and on the high end, 13.30% for California. This makes Texas extremely attractive to individuals living in states with income taxes. You can see how advantageous it would be for an individual living in California to relocate to Texas. In fact, “based on U.S. Census American Community Survey migration data from 2009 to 2019, Texas has been the #1 destination for departing Californians within the last decade. During that time period, an average of about 68,700 Californians moved to Texas each year” (Parker, Behle, & Feingold, 2023).
Sales tax isn’t as much of a savings in Texas, but it is still lower than in several states. The combined state and local sales tax rate in Texas is 8.20%. This ranks Texas 14th on the list of highest sales tax. So, there are still 13 other states with sales tax rates higher than Texas. Continuing with California as a reference, the golden state has a sales tax rate of 8.82%, just slightly higher than Texas. Louisiana and Tennessee have the highest sales tax rates at 9.55%.
Property taxes are an average of 1.80% in the state of Texas. This ranks Texas as 7th on the list of highest property taxes. California comes in at number 35 on the list at 0.76%. Still, we have to look at the average home price to see what the average individual is paying in each of those states. The average home price in California is $505,000, according to rocket mortgage. The average home price in Texas is $172,500. That means at the property tax rates mentioned, the average Californian is paying $1,644 annually while the average Texan is paying $3,907 annually. This means the advantage in property taxes goes to California.
The numbers look good for a Texas relocation for individuals, but what about businesses? “California’s corporate income tax rate is 8.84%. While Texas has no corporate income tax, it does levy a franchise tax in some cases (still, it’s less than 1%). These numbers bode very well for entrepreneurs wanting to start a business” (Bahl, 2022). Due to this very fact, many businesses are relocating their headquarters to Texas. Some of the more notable companies that have relocated to Texas are Caterpillar, Hewlett Packard, Oracle, AT&T and Tesla, to name a few.
Based on the numbers alone, the advantages of living in a state like Texas are clear. The higher property tax rates and sales tax rates don’t take away from the savings an individual would receive from a zero percent income tax rate. Businesses have an even clearer incentive to make Texas their home. With more business comes more jobs and an even bigger incentive for a Texas relocation. I think it is safe to say that Texas growth is certain with the Texas sized tax benefits Texans receive.
References:
Araj, V. (2023). Property Taxes By State: A Comparative Look At The Highest To Lowest States. Rocket Mortgage. Retrieved from: https://www.rocketmortgage.com/learn/property-taxes-by-state
Bahl, K. (2022). Why Are So Many People Moving to Texas from California? Retrieved from: https://www.pods.com/blog/moving-to-texas-from-california
Fritts, J. (2022). State and Local Sales Tax Rates, 2022. Taxfoundation.org. Retrieved from: https://taxfoundation.org/2022-sales-taxes/
Parker, P., Behle, B., & Feingold, L. (2023). California Dreaming: Moving to Texas. ABC7 News. Retrieved from: https://abc7news.com/feature/california-exodus-myth-californians-move-to-texas-why-are-companies-moving-from-regrets/13205816/#:~:text=Texas%20is%20the%20top%20state,moved%20to%20Texas%20each%20year.