By Kingsville Independent News Staff
TEXAS — Texas does not levy a state income tax, a point often cited by state leaders and residents alike. But the absence of an income tax does not mean the state operates without significant revenue. Each year, Texas collects tens of billions of dollars through other taxes and fees to fund schools, transportation, health services, and state government operations.
According to the Texas Comptroller of Public Accounts, Texas collected about $84.2 billion in state tax revenue in fiscal year 2025, with the largest share coming from sales and use taxes.
Sales tax is the backbone
Sales and use taxes account for more than 58% of all state tax revenue, making them the single largest funding source for Texas government operations. The state imposes a 6.25% sales tax on most goods and certain services, while cities, counties and special districts may add local sales taxes up to a combined total of 2%.
Because Texas relies heavily on sales taxes, state revenue tends to rise and fall with consumer spending and broader economic conditions. During economic slowdowns, sales tax collections often decline, placing pressure on state budgets.
Other major sources of revenue
In addition to sales taxes, Texas collects revenue from several other major sources, including:
- Motor vehicle sales and rental taxes, which fund general operations and property tax relief
- Franchise taxes, paid by certain businesses operating in Texas
- Oil and natural gas production taxes, which fluctuate with energy prices and production levels
- Insurance taxes, paid by insurance companies operating in the state
Together, these taxes support state services while allowing Texas to avoid a personal income tax.
Where the money goes
Most state tax revenue flows into the General Revenue Fund, which lawmakers use to fund public education, health and human services, higher education, public safety and state agencies.
Some taxes are dedicated to specific purposes. For example:
- Portions of sales and motor fuel taxes are directed to the State Highway Fund, which pays for road construction and maintenance.
- Certain revenues support property tax relief, helping offset school funding that would otherwise fall more heavily on local property taxpayers.
- Oil and gas production taxes help fund the Economic Stabilization Fund, commonly known as the Rainy Day Fund, which lawmakers may tap during economic downturns or emergencies.
What Texas does not tax
Texas does not collect a state property tax or a state personal income tax. Property taxes are instead levied by local governments, including cities, counties, school districts and special-purpose districts.
While the state does not directly collect property taxes, rising property values still affect the state budget because of the way Texas funds public education, which combines state and local dollars.
Why this matters locally
For communities like Kingsville, the state’s tax structure influences everything from road funding and school finance to decisions made during legislative sessions in Austin. Understanding how Texas raises and allocates revenue helps residents better follow debates over infrastructure, education funding and property tax relief.
The Comptroller’s office publishes updated revenue reports and economic forecasts each year, reflecting how changes in the economy can affect state services and long-term planning.
Editor’s Note: This explainer is based on data from the Texas Comptroller of Public Accounts’ A Field Guide to the Taxes of Texas (December 2025). Figures cited reflect statewide totals and may change as economic conditions and state policy evolve.