Tax Incentives Help Texas Lead U.S. Economy

Texas’ lack of personal income tax has long been a major draw for residents. As one of only seven states without a personal income tax, it truly outshines states like California, which has a staggering income tax burden. Plus, with 52 Fortune 500 companies in the state, and 12.9 million people comprising its labor force, Texas is maintaining—and building—its reputation for being one of the most significant business hubs in the nation.

There are dozens of factors that contribute to Texas’ booming economy. Two of the most notable ones? The state’s tax structure and the multiple tax incentives that Texas offers to businesses. In fact, the Lone Star State has one of the lowest tax burdens in the U.S. Here’s a closer look at the policies that make Texas such a business-friendly place.

Reformed Margins Tax

As a result of the Texas Tax Reform Commission, Texas replaced its franchise tax in 2008 with a structure that more accurately reflected the structure of businesses and helps the state remain a competitive player in the U.S. economy.

The reformed margins tax replaced an outmoded franchise tax that was developed at a time when the state’s economy was driven by products rather than services. Under the new law, the primary franchise tax rate dropped from 4.5% to between .5 and 1%.  Additionally, an exemption is granted to small businesses with a revenue below $1 million—a decision that benefits 40,000 small businesses in Texas.

The Texas Enterprise Fund

The largest initiative of this kind in the U.S., The Texas Enterprise Fund was created to attract out-of-state businesses by incentivizing job creation and capital investment. Comprising more than $410 million, the fund offers awards ranging anywhere from $194,000 to $50 million to eligible businesses.  The Texas Enterprise Fund has attracted such businesses as Bank of America, Fidelity Global Brokerage, Lockheed Martin and Frito-Lay. It has also contributed to a huge tech influx in Austin where companies like Apple, Facebook, Sematech, and Samsung have recently set up shop.

Tax Exemptions and Incentives

Texas offers a diversity of tax incentives to its businesses. These are granted for everything from manufacturing to pollution control to renewable energy. For example, exemption from state sales and use tax on natural gas and electricity are granted to manufacturers.  Additionally, companies that utilize renewable energy resources, such as solar and wind power, are eligible for a variety of tax exemptions. Concessions such as these can truly add up for business owners seeking to sustain and grow a prosperous company in Texas.