TAXES

Many move to Texas to enjoy its low tax structure. Texas is one of the few states without a state income tax - a reprieve many enjoy who need to make the best use of every dollar they earn. In 2005, Texas was almost the lowest per capita tax state in the nation, ranking 49th in per capita state taxes, or $1,434 per person. Statistics show state and local taxes consume a smaller proportion of Texans’ incomes - 9.4%. The national average is 10.6%.

AD VALOREM (PROPERTY) TAX

Texas does not have a state property tax. Local governments and special taxing districts levy taxes on real and tangible personal property. All property is appraised at full market value, and taxes are assesses by local county assessors on 100% of appraised value. In 2009, the Tyler City Council, Smith County, and Tyler ISD voted unanimously to voluntarily exercise their option to freeze property taxes for senior citizens. The following table shows the 2009 adopted rates for all taxing entities within Tyler MSA/Smith County at $100 valuation:

COUNTIES   Smith County $0.2889 CITIES   City of Tyler* $0.2040 City of Arp $0.5000 City of Bullard $0.5580 City of Lindale $0.5023 City of Troup $0.8739 City of Whitehouse $0.6327 City of Winona $0.3854 * The City of Tyler tax rate is the lowest among all Texas mid to large sized cities, according to an annual survey by the Texas Municipal League. SCHOOL DISTRICTS (ISD's)   Tyler ISD $1.3750 Arp ISD $1.2277 Bullard ISD $1.4700 Lindale ISD $1.3050 Troup ISD $1.1080 Whitehouse ISD $1.1930 Winona ISD $1.2191

SPECIAL DISTRICTS   Tyler Junior College $0.1370 Emerald Bay M.U.D. $0.0570 Smith County M.U.D $0.3022 Emergency Service District #1 $0.0600 Emergency Service District #2 $0.0850

The real and personal property of residents living within the city limits of Tyler are taxed at the combined rate of four taxing entities listed in table above: Smith County ($0.2889), City of Tyler ($0.2040), Tyler ISD ($1.3750), and Tyler Junior College ($0.1370), for a combined assessed rate of $2.0049 per $100 valuation. At this rate and not factoring any exemptions, the annual ad valorem (property) taxes due on a $150,000 home would be [($150,000 x $2.0049)/$100] = $3,007.

For comparisons, here are some of the 2009 tax rates (within city limits) for surrounding cities:

City Rate/$100 Athens, TX $2.2103 Henderson, TX $2.0737 Longview, TX $2.1717 Mineola, TX $2.1944 Tyler, TX $2.0049

SALES AND USE TAX

Residents of Tyler must pay a sales and use tax on certain purchases of goods and services. Texas exempts sales taxes on groceries, medicine, property for resale, manufacturing equipment, and many items used exclusively on farms and ranches for food production. The following table shows the itemized total of the sales and use tax in Tyler:

Taxing Entity Tax Rate City of Tyler 1.50% Smith County 0.50% State of Texas 6.25% TOTAL 8.25%

Thus, if you were to purchase $250 worth of taxable goods or services, you would pay a sales tax of ($250 x 8.25%) $20.63. The tax added to the purchase price would make the total price paid equal ($250 + $20.63) $270.63.

INCOME TAXES

Texas does not have a state personal income tax! An additional benefit came in 2005, when the IRS allowed individuals to deduct either their state income tax or local sales taxes paid in 2005. Because Texas doesn't have an income tax, Texas residents were able to deduct their sales taxes on their federal tax return. It is uncertain whether this deduction will continue in future years.

CORPORATE FRANCHISE TAX

While Texas does not have a corporate income tax as such, the corporate franchise tax has a component based on earned surplus. Earned surplus is essentially federal net taxable income plus compensation paid to corporate officers and directors if the corporation has more than 35 shareholders.

The revised Texas franchise tax is a privilege tax imposed on each taxable entity organized in Texas or doing business in Texas. The tax is based on the entity’s “margin,” which equals the smaller of three calculations: total revenue minus cost of goods sold; total revenue minus compensation; or total revenue times 70 percent. The tax rate is one percent of the calculated margin for most taxable entities; however, entities meeting certain criteria will have a one-half percent rate. In addition, there are tax discounts available for taxable entities with less than $900,000 in total revenue and an E-Z filing option for those with $10 million or less in total revenue. Entities that calculate a tax due that is less than $1,000 or that have total revenue less than or equal to $300,000 are not required to pay any tax, but must file a report.

A calculator provided by the State Comptroller is available to assist you in estimating the impact, if any, on your business. For more information about the Texas Corporate Franchise Tax, visit the Texas Comptroller of Public Accounts website.

PAYROLL COSTS

Businesses that employ one or more individuals may be subject to the state unemployment tax. New employers pay a tax rate of 2.7% or the applicable industry average tax rate. A minimum of siz complete quarters is required to obtain an experience rating that will determine an employer’s revised rate. The effective tax rate in 2008 ranges from a minimum of 0.10% to a maximum of 6.10%, with a weighted average for all experience-rated accounts being 0.92%.

INVENTORY TAX/FREEPORT

All taxing jurisdictions, including ISDs, for businesses located in Tyler/Smith County have eliminated the tax on interstate inventory and established a freeport. The freeport exempts from tax inventory and materials-in-process manufactured locally and shipped out of Texas within 175 days. This is an annual savings.

More information is available about the Freeport Exemption.