Texans like to tout our low taxes, but Lone Star State residents still pay their fair share. A new study from the Tax Foundation finds that Texas has more sales tax jurisdictions than any state in the country, with over 1,500. In comparison, other states like Michigan and Indiana have just one statewide sales tax rate, and New Jersey has only two. The big reason for so many different jurisdictions in Texas is that the state allows local counties and cities to levy additional sales taxes (voted on by residents) on top of the flat rate the state takes. "Different cities have different needs, and that's exactly why there are different rates," says Houston CPA and financial planner Michael Parmet.
Parmet explains that large cities like Houston have higher sales tax rates than small, rural counties that don't have as many needs. For instance, Houston collects sales taxes for public transportation that isn't necessary in other parts of the state. "I guess we're lucky, or unlucky depending on how you look at it, to have an 8.25% sales tax locally, versus a 6.25% rate that the state collects in many areas," says Parmet. But he notes that many of those counties with the 6.25% rate have "nothing but dirt out there."
There is debate over whether Texas' sales tax system is more fair or unfair than other states, but it definitely is more confusing. "It's very difficult to enforce by the state, and it's even harder for businesses to try to handle it when there are different jurisdictions that they're selling to," says Parmet. While he agrees that a more simplified tax structure might be good in Texas, having a sales tax is still much better than the alternative. "We don't have a state income tax, which most people see as good," says Parmet. "A sales tax seems innocuous, most people don't tend to be as upset about writing little small checks along the way." Indeed, Texas is one of just nine states without an individual income tax.