Small Business Taxes
Guide to Houston Small Business Tax
Everything you need to know about small business tax in Houston
When you start planning your small business financials, projections are a vital part of planning your profit future. This is where doing your research comes in handy--a big part of those projections will need to include the city and state business taxes you’ll need to pay in Houston.
If you’re starting from scratch, or have little to no accounting experience, it can be helpful to hire a CPA in Houston to determine your tax structure. There are also many options for business accounting software that can help you manage invoicing and prepare tax documents.
In Houston, starting a small business means applying for both city and state taxes, as well as the regular federal taxes required of all new businesses.
Houston City Taxes
Houston is a great place to start a new business for many reasons, but one of the greatest benefits is the absence of unitary taxes, as well as no personal income taxes.
The only taxes applied to all Houston businesses are:
Ad Valorem Taxes in Houston
Ad valorem taxes are assessed at 100% of market value. In Houston, the tax rates are $0.638 for ad valorem (property) taxes.
Franchise Tax and Fees
Franchise fees are dependent on the parent corporation, but business taxes are set by the city. In Houston, franchise tax rates are 1% for most businesses.
The unemployment insurance rate in Houston is 2.7%, taxed on the first $9,000 in earnings.
Sales and Use Taxes
The sales and use tax rate in Houston is 8.25%: 6.25% state tax, 1% city tax, and 1% transit authority tax.
These low tax rates are typical for most businesses in Houston. However, some businesses are required to pay additional taxes like gross receipt and occupation taxes, so it’s recommended you check with your Houston city government before you apply to file for local taxes.
Additionally, workers' compensation insurance is voluntary in Houston, but it is recommended that all employers carry it.
There is no business license tax in Houston, but all new business must have a Certificate of Occupancy before opening. You can apply by going to:
City of Houston
Planning and Development Department
611 Walker Street, 6th Floor
Houston, TX 77002
You can also request an application by emailing firstname.lastname@example.org.
Zoning laws can determine your city taxes in certain states. Houston is different--Real estate development needs to meet city codes, but zoning regulations don’t exist to restrict land use.
There are Houston neighborhoods that have restrictions to prevent commercial building in their limits; however, commercial buildings and businesses can be built on their borders.
However, as a new Houston business that owns personal property used to create income, you must report your business on a rendition form to the local county appraisal district each year (after January 1 and no later than March 31). Business owners must report all inventories, equipment, and machinery.
Texas State Tax Types
One reason the Houston small business community continues to grow is the favorable tax law, with business taxes extremely low and personal income tax nonexistent.
Depending on your business structure, you either pay the 1% business franchise tax or are exempt.
The 1% rate is based on the lowest margins of the following determinations: 70% of total revenue, 100% of revenue minus cost of goods sold, or 100% of revenue minus total compensation.
Most small business will fluctuate their business structure based on their growth levels, from LLCs and S corporations to C corporations. In Texas, corporations are taxed the standard 1% as described above.
S Corporations and Limited Liability Companies
Most small businesses are classified as S corporations or LLCs, and subject to the 1% franchise tax. Individual shareholders in the company don’t pay state taxes on their company income in this structure, and LLC owners are not subject to personal income tax in Texas.
The following business structures are exempt from business tax in Houston:
Registering a Business for Taxes in Texas
The Texas State Comptroller Office is responsible for issuing the Sales and Use tax permits and Franchise tax documentation required for new small businesses. Your business will be issued a sales tax number with the Comptroller office that you will use to register and pay these taxes.
What you need to apply:
In addition to local and state taxes, all businesses are required to pay the same federal taxes. Those can include:
As a business, keeping a record of payroll and tax documents is important, whether you go with a Houston accounting agency or a software. Documents you should always keep are income tax returns, copies of W-2 forms, general ledgers, and payroll records.
Understanding Houston small business tax is the first step toward making a profit in your new business. Make sure you research the financial options you have for starting a small business.