No personal income tax, 0.75% franchise tax, $1.23M exemption threshold, 6.25% sales tax, and why Tesla, Oracle, and thousands of tech companies are relocating to Texas.
Updated October 2024 • 23 min read
Personal Income Tax
Franchise Tax Rate
Exemption Threshold
Base Sales Tax
Texas has become the #2 destination for tech startups and relocations after California. Tesla, Oracle, HP, and thousands of startups have moved headquarters or significant operations to Texas, primarily Austin.
Example: Founder earning $300K/year moves from California to Texas:
Texas doesn't have corporate income tax, but it does have a "franchise tax" (also called margin tax). It's 0.75% for most businesses, with a $1.23M revenue exemption threshold.
Most early startups owe $0!
| Business Type | Rate |
|---|---|
| Most businesses | 0.75% |
| Retail/wholesale | 0.375% |
| Revenue under $1.23M | $0 (exempt) |
| Revenue $1.23M - $20M | Reduced rate (EZ computation) |
"Taxable margin" isn't profit—it's calculated using one of four methods. You choose the method that gives you the lowest tax:
Cost of goods sold deduction (best for product companies)
Deduct wages/salaries up to $400K per person (best for service/SaaS)
Simple calculation, no deductions needed
Flat $1M deduction (EZ computation for revenue $1.23M-$20M)
Method 2: Revenue - Compensation (best for SaaS)
No filing required if revenue under $1.23M
Method 4: EZ Computation (revenue $1.23M-$20M)
Texas is one of nine states with NO personal income tax. This is the single biggest reason founders and employees relocate from high-tax states.
In 2019, Texas voters approved a constitutional amendment prohibiting the state from enacting an income tax without voter approval. This provides long-term certainty that income will remain untaxed in Texas.
Texas has a 6.25% state sales tax, with localities adding up to 2% more. Total rates range from 6.25% to 8.25%.
| City | Total Rate | Breakdown |
|---|---|---|
| Austin | 8.25% | 6.25% state + 2% local |
| Dallas | 8.25% | 6.25% state + 2% local |
| Houston | 8.25% | 6.25% state + 2% local |
| San Antonio | 8.25% | 6.25% state + 2% local |
Note: Texas is generally SaaS-friendly for sales tax
Thousands of tech workers and companies have relocated from California to Texas in recent years. Tesla, Oracle, HP Enterprise, and countless startups have made the move.
That's $2.7M saved over 10 years—enough to hire 2-3 more engineers!
California aggressively audits people claiming to move. You must truly relocate, not just claim TX residency:
California's Franchise Tax Board aggressively audits high-income individuals claiming to move out of state. They look at cell phone records, credit card statements, social media, and more. Document everything and truly relocate—don't just pretend.
Texas offers aggressive tax incentives to attract and retain businesses, especially in tech and manufacturing.
Cash grants to companies creating significant jobs. Used to attract major relocations like Tesla, Oracle.
Property tax abatements for qualifying projects. Many tech companies used this for data centers.
Grants for employee training programs. Tech companies can get funding to train new hires.
Qualified R&D purchases exempt from sales tax. Includes equipment, software, and supplies used in R&D.
Understanding nexus is critical—you may owe TX taxes even if not based in Texas.
Annual TX sales threshold
Remote sellers with $500K+ in TX sales must register and collect TX sales tax, even with no physical presence.
Who Files:
Deadline:
Public Information Report (PIR): Filed with Texas Comptroller
Texas has NO personal income tax, but does have franchise tax, sales tax, and property tax.
Solution: Understand all TX tax obligations. Still much lower than CA overall.
If revenue exceeds $1.23M, you must file even if owe $0 tax after deductions.
Solution: File annual franchise tax report if over threshold. Use EZ computation to minimize tax.
Claiming TX residency but not truly relocating. CA audits and proves you still live in CA.
Solution: Truly relocate. Document everything. Spend <183 days in CA.
Not comparing all four margin calculation methods—could overpay significantly.
Solution: Calculate all four methods annually. Choose lowest. Use compensation method for SaaS.
15-person SaaS company, $5M revenue, profitable
Additional benefits: Team happier with lower cost of living, hired 5 more engineers with savings, easier to recruit from CA (many want to leave).
Yes! Texas has NO personal income tax. It's protected by the state constitution. No tax on salary, capital gains, stock options, or any personal income. This is the biggest draw for relocating founders.
0.75% tax on "taxable margin" (revenue minus certain deductions). Exempt if revenue under $1.23M. Most startups pay $0-$20K/year. Much lower than CA's 8.84% corporate tax.
Yes, but you must TRULY relocate. CA audits high-earners aggressively. Spend majority of time in TX, get TX driver's license, register to vote, move valuable property. Keep detailed records. Just claiming TX residency without relocating won't work.
Generally no. True cloud-based SaaS accessed via internet is not taxable in Texas. Downloaded software or software on physical media is taxable.
No state R&D credit. But you still get 20% federal R&D credit. Combined with 0% income tax, TX is still highly competitive with states that have R&D credits.
You're exempt from franchise tax—no filing required! Most early-stage startups owe $0 in TX taxes. Once over $1.23M, must file annual report and calculate franchise tax.
Yes, property taxes are higher than CA (average 1.6% vs. 0.73%). However, home prices are much lower in TX, and you save so much on income tax that it's still a net win for most people.
For VC-backed startups, still incorporate in Delaware (investors prefer it). You'll qualify as foreign corporation in TX but benefit from DE legal framework. If bootstrapped TX-only business, incorporating in TX is fine.
Our tax specialists help startups relocate from high-tax states to Texas, ensuring clean exit from CA/NY tax jurisdiction and proper TX compliance setup.