The Texas Tax Pitch
Texas is one of nine states with no personal income tax, which makes it a magnet for self-employed workers fleeing California, New York, and Illinois. A freelancer with $200,000 of Schedule C net profit pays zero state income tax in Texas — the same earnings in California would cost roughly $14,000 to the FTB. That gap is why Austin, Dallas, and Houston have absorbed a wave of remote independent contractors since 2020.
But "no income tax" is not "no tax." Texas funds state government through property taxes (among the highest in the U.S. at an effective 1.74% average), sales tax (6.25% state plus up to 2% local), and the franchise tax — a gross-receipts-style levy that catches many LLCs and partnerships by surprise.
The Texas Franchise Tax
The Texas franchise tax applies to taxable entities — LLCs, partnerships, corporations, and S-corps — but not to sole proprietorships. The rate is 0.375% for retail and wholesale businesses and 0.75% for most other entities, applied to taxable margin. Taxable margin is the lowest of: total revenue; revenue minus cost of goods sold; or revenue minus compensation (capped at $500,000 per W-2 employee in 2026).
Critically, the tax only applies once revenue exceeds $1.23 million. Below that threshold, the entity files a "no tax due" report but still must file the Public Information Report. A self-employed consultant operating as a single-member LLC with $300,000 of revenue owes $0 in franchise tax but still files Form 05-158.
| Entity Type | Subject to Franchise Tax? |
|---|---|
| Sole proprietorship (Schedule C) | No |
| Single-member LLC (default disregarded) | No |
| LLC taxed as S-corp or partnership | Yes (over $1.23M revenue) |
| C-corporation | Yes (over $1.23M revenue) |
Sales Tax: Where Texas Makes Up the Difference
The Texas state sales tax rate is 6.25%. Local jurisdictions can add up to 2%, pushing the combined rate to 8.25% in many cities — Houston, Dallas, San Antonio, and Austin all sit at the 8.25% cap. The economic nexus threshold is $500,000 of in-state sales, which trips registration and remittance obligations for out-of-state sellers and digital product vendors.
If you sell taxable services or goods into Texas, you must collect sales tax from the moment you cross $500,000 of cumulative in-state gross revenue. A freelance web developer selling $25,000 in templates to Texas customers is below the threshold, but a designer crossing $500,000 in digital downloads must register with the Comptroller and file monthly or quarterly returns. Estimate the cost with the Sales Tax Calculator.
Property Tax Reality
Texas homeowners pay an average effective property tax of 1.74%, third-highest in the U.S. A freelancer who buys a $400,000 home in Austin can expect $7,000+ in annual property taxes. For a self-employed filer who itemizes, this is deductible on Schedule A — but only above the SALT cap of $10,000. Property tax alone can consume most of that cap before any state income tax is added (in Texas, there is none). The trade-off is real: zero income tax, but the highest property tax in the lower 48.
How Texas Compares for High vs. Low Earners
The Texas model favors high earners. A self-employed consultant earning $500,000 saves roughly $40,000 a year versus California, while paying perhaps $2,000 more in property tax on a comparable home — net positive by a wide margin. The math inverts at lower earnings. A freelancer earning $40,000 in Houston pays roughly $3,500 in rent that embeds the landlord's high property tax, plus 8.25% sales tax on purchases — and saves nothing on income tax because there is nothing to tax away. For moderate-income self-employed workers, North Carolina or Georgia often pencil out better than Texas despite the headline "no income tax" pitch.
Texas also charges a 6% motor vehicle sales tax (capped at $4,225 on the first $35,000 of value for used vehicles but uncapped on new ones), and Austin, Houston, and Dallas all sit at the 8.25% combined sales tax cap. A freelancer who buys $20,000 of camera and computer equipment for the business pays $1,650 in state and local sales tax on top of the federal Section 179 deduction — and that sales tax is generally not recoverable.
The Bottom Line
Texas charges no personal income tax on self-employment earnings, which can save a $200,000 freelancer $14,000+ versus California. Sole proprietors and single-member LLCs pay no franchise tax regardless of revenue. Multi-member LLCs, partnerships, and S-corps cross the franchise tax line at $1.23 million of revenue at a rate of 0.375% (retail) or 0.75% (other). Sales tax reaches 8.25% locally with a $500,000 economic nexus threshold. Use the Self-Employment Tax Calculator for federal SE tax and the Sales Tax Calculator to project Texas collection duties.