Sales Tax

The inability of Texas’ tax system to keep pace with the growth of the state’s economy has led some to suggest raising the sales tax rate or expanding the sales tax base. Texas already relies heavily on the sales tax for revenue. According to the Legislative Budget Board, Texas will take in $30.9 billion in revenue from the sales tax during the 2004-2005 biennium.127 This represents 57.6% of total taxes for the entire biennium.128 Texas relies on the sales tax more than most other states in the nation. Of the 15 most populous states, only Washington has a higher sales tax than Texas.129

The sales tax is a regressive tax. It consumes a larger percentage of income from lower and moderate income families than from high income families.130 The tax is largely levied on goods, while services are generally exempted.131 The Center for Public Policy Priorities notes, “A tax system should be able to grow with the state’s economy, generating additional revenue without increases in tax rates.”132 Sales taxes do not fit this description. Goods are taxed, but services, which constitute a much larger portion of the economy and grow at a faster rate, are not taxed.133 Additionally, the Internet allows consumers to bypass this tax through online purchasing. The Comptroller of Public Accounts estimates the revenue lost through both e-commerce and mail order sales at $400 million a year.134

Suggestions to begin taxing vital goods such as food or medicine or to include services such as dental and physician services would generate more revenue. However, expansion of the sales tax would exacerbate the negative impact on lower and middle income families. Any effort to expand this tax base should be carefully reviewed and discussed because of this tax’s regressive nature.