USA – TEXAS Law and Practice Contributed by: Perrin Clark and Meredith McIver, Ytterberg Deery Knull LLP
Texas usually assesses sales and use tax at a rate of 6.25% on sales, leases and rentals of goods, as well as the purchase of certain services. Cities, counties and other local taxing jurisdictions can impose and additional sale and use tax of up to 2%. No sales tax is imposed on the sale of real estate in Texas. Franchise Tax For the privilege of doing business in the state, Tex - as assesses a franchise tax on each taxable entity formed or organised in Texas, or doing business in Texas. Texas has an expansive interpretation with respect to “doing business in Texas”, including any contact with Texas that creates a sufficient nexus to allow state taxation pursuant to the US Constitution. The tax base is the entity’s margin, and margin can be calculated as: • 70% of total revenue; In 2026, no tax is due on total revenue less than USD2.65 million. The tax rate is 0.75%, though this is reduced to 0.375% for retail and wholesale, and there is an “EZ Computation” if total revenue is over USD20 million that applies a rate of 0.331%. 1.2 Exemptions For 2026 and thereafter, the US federal combined life - time gift and estate tax exemption is USD15 million, subject to a mechanism for annual inflation adjust - ments. The lifetime exemption is available to both US citizens and non-citizen domiciliaries. A non-citizen non-domiciliary has no lifetime gift tax exemption and has an estate tax exemption of only USD60,000 with respect to their US situs property. However, all persons, whether they are citizens, non-citizen domiciliaries, or non-citizen non-domiciliaries, have a lifetime generation-skipping transfer tax exemption of USD15 million in 2026 subject to annual inflation adjustments. All persons have an annual exclusion from gift tax (and, except with respect to transfers in trust, generation-skipping transfer tax) of USD19,000 per recipient in 2026, as well as unlimited exclusions with respect to gifts to a citizen spouse or to charity; provided the exclusion with respect to gifts to a non- • total revenue minus cost of goods sold; • total revenue minus compensation; or • total revenue minus USD1 million.
citizen spouse is limited to USD194,000 in 2026. Any transfer in excess of the relevant exemption or exclu - sion amount is subject to the applicable transfer tax. See the discussion regarding applicable US federal transfer taxes in 1.1 Tax Regimes . Since no state or local transfer taxes are assessed in Texas, there are no similar exemptions or exclusions at the state or local level. 1.3 Income Tax Planning Numerous strategies exist for planning with respect to US federal income tax. With respect to individu - als, highly appreciated assets can be held until death, at which point, their basis receives a step-up to fair market value, thereby reducing or potentially avoiding gain recognition on disposition and any associated tax on capital gains. In Texas, because it is a community property state, this tax benefit extends to a surviving spouse’s interest in the community estate, meaning that the surviving spouse’s one-half interest in com - munity property receives a similar step-up in basis on the death of the first spouse. Other income tax planning strategies include tax loss harvesting, private placement life insurance, qualified opportunity zones, Section 1031 exchanges, retire - ment account contributions, Roth conversions, invest - ments in municipal bonds, and tax residency planning (eg, moving to Texas), to name a few. No state or local income taxes are assessed in Tex - as; therefore, Texas is a very tax-favoured state with respect to income tax planning. Many persons have moved for income tax reasons to Texas from other states in recent years, particularly from New York, Illi - nois and California, each of which assesses substan - tial state and/or local income taxes. These states are known for continuing to assess income taxes against persons claiming new residencies and careful plan - ning and implementation should be undertaken to ensure the new residency is respected if challenged by the prior taxing authority. 1.4 Pre-Immigration and Exit Planning As discussed elsewhere herein, Texas imposes no income tax and no transfer tax on individuals. How - ever, pre-immigration and exit planning strategies
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