Where the Money Comes From

These sources include  taxation; federal receipts; fees, fines, licenses and penalties; interest and investment income; lottery revenues; land income; and other revenue sources, such as the sale of goods and services, child support collections, revenue from unclaimed property settlement claims, and various federal programs.

Of all of the state’s revenue sources, tax collections comprise the biggest source of state income. For the 2010-11 biennium, taxes are expected to account for 43 percent of total state revenue. The next largest source of state revenue, federal receipts, accounts for an estimated 37 percent of total state revenue. The remaining revenue sources are expected to generate a combined 20 percent of total state revenue.

Tax Revenue

A Special Note: Currently, Texas is one of nine states that does not levy a personal income tax on its residents and, in addition, its property tax system is a function of local governments. This makes Texas somewhat unique, in that, its state government largely relies on revenue generated from sales taxes and a business tax.

Sales Tax
The state’s current sales tax rate is 6.25 percent and is imposed on all retail sales, leases and rentals of goods purchased in the state, and taxable services. There are a handful of goods and services exempt from taxation, including food for home consumption, over the counter medicine, and legal and medical services.

When the state’s budget was adopted in mid-2009, state sales and use taxes were expected to generate $77.7 billion or 43 percent of total state revenue. This estimate represents the largest share of state revenue. However, sluggish economic growth and less-than-expected tax collections may have dampened this outlook somewhat.

To see the Texas Comptroller’s most recent estimates of sales tax collection receipts, click here.

Franchise Tax (also known as the Business Tax)
The state’s revised franchise tax generates the second largest amount of revenue for the state, with about $8.7 billion expected or 11 percent of total tax revenue.

During the 2008-09 biennium, Texas changed the method by which state franchise taxes were collected. Through 2008, the franchise tax was collected on the basis of the amount of capital and earned surplus from a business. Starting in 2009, franchise taxes were collected on the basis of taxable margin. The franchise tax is a levy on doing business in the state of Texas.  Businesses that earn more than the threshold of revenue set by the Texas Legislature are required to pay a one percent tax on the smallest value of either: 70 percent of total revenue, total revenue minus cost of goods sold, or total revenue minus total compensation plus benefits. The current threshold is $1 million for 2010 and 2011, and $600,000 thereafter.

Other Taxes
Other taxes generating income for the state include—in the order of highest expected—motor fuel taxes ($6.3 billion), motor vehicle sales and rental taxes ($5.7 billion), cigarette and tobacco taxes ($3 billion), insurance occupation taxes ($2.7 billion), natural gas production tax ($2 billion), oil production taxes ($1.8 billion), alcoholic beverage taxes ($1.7 billion), utility taxes ($1 billion), hotel occupancy tax ($725 million), and other misc. taxes that include levies on cement, legal services, and bingo rental receipts ($294 million). Figures may not add due to rounding.

Non-Tax Revenue

A Special Note: The AmericanRecovery and Reinvestment Act of 2009 provided Texas’ state government with over $12 billion for the 2010-11 biennium.

The largest source of non-tax revenue comes from federal funds followed by fees, fines, licenses, and penalties; other revenue sources; interest and investment income; the lottery; and land income. Other examples of non-tax revenue are interest and investment income, lottery revenue, and land income.

Between the 2008-09 and 2010-11 biennia:

Federal Receipts are expected to increase by almost 20 percent over the previous biennium, from $57.1 billion to $67.3 billion.

Fees, fines, licenses, and penalties are expected to decrease significantly from $17.4 billion to $13.8 billion.

Interest and investment income is estimated to increase 73 percent over the previous biennium from $3.7 billion to $6.3 billion.

Lottery revenue is expected to remain relatively constant at $3.2 billion.

Land income is estimated to decrease slightly from $1.8 billion to $1.7 billion.

Other Revenue Sources are expected to generate slightly more income for the state, going from $8.9 billion to $10.2 billion.