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. The following table shows the 2007 adopted rates for all taxing entities within Tyler MSA/Smith County at $100 valuation:

Taxing Entity Rate/$100 COUNTIES   Smith County $0.2889     CITIES   City of Tyler* $0.1990 City of Arp $0.5450 City of Bullard $0.4826 City of Lindale $0.5026 City of Troup $0.7180 City of Whitehouse $0.6000 City of Winona $0.3338     SCHOOL DISTRICTS (ISD's)   Tyler ISD $1.2150 Arp ISD $1.2420 Bullard ISD $1.4700 Lindale ISD $1.3900 Whitehouse ISD $1.2000 Winona ISD $1.1115     SPECIAL DISTRICTS   Tyler Junior College $0.1272 Emerald Bay M.U.D. $0.2100 Smith County Water District $0.2729 Emergency Service District #1 $0.0500 Emergency Service District #2 $0.0850 * 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.

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 ($0.1990), Tyler ISD ($1.2150), and Tyler Junior College ($0.1272), for a combined assessed rate of $1.8300 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 $1.8301)/$100] = $2,745.

For comparisons, here are some of the 2007 tax rates (within city limits) for surrounding cities:

City Rate/$100 Athens, TX $2.4665 Henderson, TX $2.0653 Longview, TX $1.8921 Mineola, TX $2.5647 Tyler, TX $1.8301

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 franchise tax is imposed upon all corporations and limited liability companies that do business in Texas or that are chartered or authorized to do business in the state. The tax is based on taxable capital or earned surplus. Both components are apportioned to Texas companies using a single gross receipts factor. Taxable capital is a corporation’s stated capital plus surplus. The tax rate on taxable capital is 0.25% per year. Earned surplus includes federal net taxable income with certain modifications. The tax rate on earned surplus is 4.5%. Corporations pay the higher of the tax on taxable capital or the tax on earned surplus. Those that owe less than $100 or have less than $150,000 of gross receipts do not pay any tax, but must file a report.

Texas has amended its state statutes, which affect franchise tax reports due on or after January 1, 2008. The new franchise tax is now effectively a gross margins tax. A calculator provided by the State Comptroller's office 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% of the first $9,000 of each employee’s annual compensation. A minimum of four complete quarters is required to obtain an experience rating that will determine an employer’s revised rate. The effective tax rate in 2007 ranges from a minimum of 0.29% to a maximum of 7.70%, with a weighted average for all experience-rated accounts being 1.13%.

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.