Taxes

Texas’ economic environment encourages job creation and capital investment while maintaining low taxes, predictable regulations and a fair legal system. With no corporate income tax and no personal income tax, we have one of the lowest tax burdens of any state in the country.

Sales & Use Tax
Income Tax
Franchise Tax
Property Tax
Tax Abatement and Exemptions
Worker’s Compensation
Unemployment Insurance

SALES AND USE TAX

The State of Texas sales tax rate is 6.25%. Texas cities, counties, transit authorities and special purpose districts have the option of imposing an additional local sales tax for a combined total of state and local taxes of 8.25%. The Sales and Use Tax is imposed on all retail sales, including rentals and leases of most goods. The local sales tax rate in the City of Pearland is 2.0% for a total sales tax rate of 8.25%.

INCOME TAX

The State of Texas has no personal or corporate income tax. In fact, the state’s constitution restricts passage of a personal income tax.

FRANCHISE TAX

Texas has no corporate income tax. However, Texas does have a franchise tax, which is based on the taxable entity’s “margin.” The Texas Comptroller’s website has published a detailed Franchise Tax Overview as well as a Franchise Tax Calculator worksheet. The Comptroller also provides an extensive and well organized Frequently Asked Questions page.

PROPERTY TAX

Ad Valorem property taxes are placed on real property and tangible personal property. Real property includes land, building, structures and all improvements or fixtures annexed to the building or structure. Tangible personal property that is used for the production of income includes business inventories, machinery, equipment and furnishings.

The majority of the land area of City of Pearland is in Brazoria County and either the Pearland or Alvin Independent School Districts. There are also smaller portions of the city that are located in either Harris and Fort Bend Counties and other taxing jurisdictions. Homestead and other exemptions will reduce the total taxes paid.

Depending upon the location of a specific piece of property, the levying jurisdictions will vary. All rates are per $100 of assessed value. To determine the tax, divide the assessed value of the property by 100 and multiply by the rate.

TAX ABATEMENTS AND EXEMPTIONS

Sales Tax Exemptions on Manufacturing Property
Manufacturers may claim a Texas sales tax exemption for tangible personal property directly used or consumed in or during the actual manufacturing, processing or fabrication of tangible personal property.

Freeport Exemption
Local taxing jurisdictions have the option to exercise or not exercise their authority to tax specific personal property known as freeport goods. The City of Pearland, the Pearland Independent School District and the Brazoria County Drainage District #4 have elected to allow the freeport exemption on eligible property.

The freeport exemption exempts certain types of tangible personal property (i.e., inventory) from ad valorem (property) taxation provided the property is:

• Acquired in or imported into Texas to be forwarded out of state
• Detained in Texas for assembling, storing, manufacturing, processing or fabricating purposes by the person who acquired or imported it
• Transported out of state within 175 days after the date that it was acquired or imported into Texas

Tax Abatement
Tax abatement may be available for new or expanded improvements to real property or business equipment investments through the city, county or other taxing entity. Tax abatement may exempt all or part of the increase in the value of the real property and/or tangible personal property from taxation for a period of up to 10 years. Requirements vary from jurisdiction to jurisdiction.

WORKER’S COMPENSATION

In Texas, private employers can choose whether or not to carry workers’ compensation insurance. Texas employers who do not carry workers’ compensation insurance are required to report their non-coverage status and work-related injuries and illnesses to the Texas Department of Insurance, Division of Workers’ Compensation (TDI-DWC). Employers are also required to notify their employees if they do not carry workers’ compensation insurance.

UNEMPLOYMENT INSURANCE

Unemployment Insurance (UI) tax is a tax employers pay to fund unemployment compensation for workers who lose their jobs. The Texas Unemployment Compensation Act (TUCA) requires Texas employers, including sole proprietorships, partnerships and corporations, to pay UI tax. Employers must register with the Texas Workforce Commission and report employees’ names, social security numbers and total gross wages quarterly. UI tax is paid quarterly.

Liable employers report employee wages and pay the unemployment tax based on state law under TUCA. Wages are reported when they are paid rather than when they are earned or accrued. Employers report employee gross wages each quarter and pay taxes on the first $9,000 per employee, per year.  In most cases, all wages must be reported. However, exempt wages are outlined in TUCA, Section 201.082.