What Is Tax Free in Texas? Sales, Property & More

Texas has a distinct tax landscape compared to many other states, characterized by the absence of certain statewide taxes. This environment leads to questions about what is “tax-free” within the state. While some taxes are not imposed at the state level, numerous exemptions and specific conditions exist for others, allowing individuals and organizations to benefit from reduced tax burdens.

Key Texas Tax Absences

Texas is one of a handful of states that does not levy a broad-based individual income tax. This means personal earnings, including wages, salaries, and retirement income, are not subject to state taxation.

Texas does not impose a state property tax. Property taxes in Texas are exclusively levied by local government entities, such as counties, cities, and school districts. Rates and assessments are determined and collected at the local level, not by the state government.

Texas also lacks a state inheritance or estate tax. Heirs do not owe Texas taxes on inherited assets. The state repealed its inheritance tax beginning in 2015.

Sales Tax Exemptions

Texas imposes a sales and use tax, but numerous items and services are exempt. Most unprepared food items, commonly referred to as groceries, are not subject to sales tax. This includes fresh fruits, vegetables, meats, dairy products, bread, and canned goods. Prepared foods, hot foods, candy, and soft drinks are generally taxable.

Prescription drugs and certain medical devices are also exempt from sales tax. This includes prescription medications, insulin, diabetes testing supplies, prosthetics, and hearing aids. Over-the-counter medications are exempt if they have a “Drug Facts” panel or are prescribed by a physician. Many medical services are also exempt.

Texas offers sales tax holidays throughout the year. The annual sales tax holiday, typically in August, exempts most clothing, footwear, school supplies, and backpacks priced under $100 per item. Other sales tax holidays may include emergency preparation supplies and energy-efficient or water-efficient products.

Sales to specific entities are also exempt from sales tax. Non-profit organizations, including religious, charitable, and educational groups, can qualify for exemptions on their purchases if they obtain exempt status from the Texas Comptroller’s office. Federal and Texas government entities are exempt from sales tax on their purchases. These exemptions extend to items purchased by individuals for direct donation to qualifying exempt organizations.

Property Tax Exemptions

Property taxes in Texas are a source of revenue for local governments, and various exemptions can reduce a homeowner’s taxable value. The general residence homestead exemption is available to individuals who own and occupy a property as their principal residence. This exemption reduces the appraised value of the home for school district taxes, with a standard exemption of $100,000. Homeowners can apply for this exemption in the year they purchase the property.

Additional property tax exemptions are available for specific groups. Individuals age 65 or older or disabled can qualify for an extra exemption. School districts provide an additional $10,000 exemption for these homeowners, and local taxing units may offer further optional exemptions of at least $3,000. Qualifying for an age 65 or older or disabled exemption also establishes a tax ceiling for school district taxes, meaning these taxes cannot increase as long as the homeowner owns and lives in that home.

Disabled veterans and their surviving spouses may qualify for property tax exemptions. A disabled veteran with a 100% service-connected disability rating or determination of individual unemployability from the U.S. Department of Veterans Affairs can receive a total property tax exemption on their residence homestead. For veterans with disability ratings between 10% and 99%, partial exemptions are available, with the amount varying based on the disability percentage. For example, a 10-29% disability rating provides a $5,000 exemption, while a 70-99% rating offers a $12,000 exemption.

Beyond individual homeowners, certain property types and organizations also qualify for exemptions. Properties owned by charitable organizations, religious organizations, and public property are exempt from property taxes.

Vehicle Tax Exemptions

Texas imposes a motor vehicle sales and use tax on the purchase or transfer of vehicles. However, certain scenarios allow for exemptions. A primary exemption applies to vehicles transferred as a gift between qualifying family members. For this exemption to apply, the transfer must be an actual gift, with no money or other consideration exchanged.

The recipient must be a direct lineal descendant or ascendant, such as a parent, child, grandparent, or grandchild, or a spouse. To claim this gift exemption, the recipient must complete a Gift Affidavit (Form 14-317) and pay a $10 gift tax.

Other minor exemptions may exist for certain transfers, such as vehicles donated to qualifying non-profit organizations, provided the organization meets specific criteria and the vehicle is used for its exempt purpose.