Texas doesn't have an income tax.

It runs the second largest economy in the United States entirely on sales tax, oil revenue, and fees. And right now, the sales tax engine is running exceptionally hot.

Texas Comptroller Don Huffines reported on August 3 that state sales tax revenue totaled $4.6 billion in July 2026 — 10.1% more than in July 2025.

That's the second time in this fiscal year that Texas monthly sales tax collections grew by more than 10%. The last time it happened twice in one fiscal year was during the pandemic recovery boom of 2021.

"State sales tax collections grew by more than 10% for the second time this fiscal year, well above the rate of general price inflation," Huffines said. "Growth was strong in nearly all major sectors, with receipts from the retail trade sector growing at their fastest pace since the pandemic."

There's a new face delivering these numbers — and a new political agenda attached to them.

Meet Texas's New Comptroller

July's revenue report is the first major data release under Comptroller Don Huffines, who was sworn in on August 1 after winning the Republican primary earlier this year. Huffines, a former Dallas real estate developer and state senator, ran on a platform of aggressive property tax relief and fiscal conservatism.

His immediate reaction to the strong July numbers framed them in explicitly political terms: "The Texas economy is strong and continues to grow. The increased tax revenue to the state should also put the Legislature in position to deliver meaningful property tax relief during the next legislative session. Governor Greg Abbott has made this a priority, and I will work with him and all our state leaders to accomplish this goal."

That framing matters — strong sales tax collections give the legislature political cover to cut property taxes without reducing services. Every billion above forecast is a billion that can theoretically flow back to homeowners and businesses as property tax relief. Huffines's first act was to signal that's exactly what he plans to advocate for.

What's Driving the Growth

July's 10.1% growth didn't come from one sector. It came from virtually everywhere — which is what makes the number credible rather than a one-category spike.

Retail trade led the way — with receipts growing at their fastest pace since the pandemic. The specific categories driving retail strength: online general merchandisers, electronics and appliance stores, and general merchandise retailers. The back-to-school shopping season, which picked up pace in July ahead of the August 7-9 Texas sales tax holiday, contributed meaningfully to both online and in-store retail numbers.

Services were strong — up nearly 10% in the sector, reflecting continued consumer spending on experiences, dining, and personal services even as goods prices have remained elevated.

Business spending sectors held up. Manufacturing, wholesale trade, and construction all posted growth — signs that Texas's commercial and industrial economy is expanding alongside consumer activity. Construction in particular reflects continued growth in Texas's population centers, where residential and commercial development has shown no signs of slowing.

Mining was essentially flat — a reflection of oil price stability rather than decline, and a reminder that Texas's economy is far more diversified than its oil patch reputation suggests.

The 2026 Running Total

Put July in context alongside the prior months of 2026:

• April: $4.7 billion (9.8% growth — strongest month of the year)
• May: $4.5 billion (growth above inflation)
• June: $4.2 billion (solid but the softest month of Q2)
• July: $4.6 billion (10.1% growth — second double-digit month of the fiscal year)

Four consecutive months of strong growth, averaging well above the rate of general price inflation. The three-month rolling average through July is running at approximately 8% above the prior year — a sustained pace that is reshaping Texas's fiscal outlook.

For context: Texas's sales tax revenue for all of fiscal year 2025 was $49.06 billion — up 4% from fiscal year 2024. The first four months of fiscal year 2026 are running at more than double that growth rate. If the current trajectory holds, fiscal year 2026 will be among the strongest sales tax collection years in Texas history.

The Local Distribution Picture

State collections are only half the Texas sales tax story. A significant share of what Texas collects is distributed directly to local governments — cities, counties, transit systems, and special purpose districts.

For July's distribution — based on February sales — the Texas Comptroller sent $1.2 billion in local sales tax allocations, up 5.6% from July 2025.

For August's distribution — reflecting more recent sales activity — the numbers from the June local distribution were $1.3 billion, up from the prior year. The trend in local distributions mirrors the state trend: consistent, broad-based growth across the jurisdictions that depend on sales tax for roads, public safety, transit, and infrastructure.

The Tariff Warning — Embedded in Every Headline Number

We've been tracking this dynamic all year — and it applies here too.

A meaningful portion of Texas's sales tax growth in 2026 reflects tariff-inflated prices rather than genuine increases in economic activity. When a $1,000 TV now costs $1,150 because of tariff pass-through, Texas collects 6.25% on $1,150 instead of $1,000 — a 15% revenue increase with no change in consumer behavior.

New York's State Comptroller explicitly flagged this dynamic last week in releasing New York's midyear revenue data, noting that growth was driven "in part by higher prices for goods and services as a result of higher tariffs and global conflicts" and warning that the growth rate "may not last."

Huffines's statement didn't include that caveat. But the underlying dynamic is the same in Texas as in New York — some share of the 10.1% growth is price inflation rather than volume growth. When tariff levels normalize or prices plateau, year-over-year comparisons become harder and growth rates slow even if actual economic activity holds steady.

That doesn't make July's numbers bad. But it's context every business and policymaker should carry when looking at the headline.

What Texas's Numbers Mean for Businesses Selling Into the State

Texas's consistent revenue growth has a specific implication for out-of-state businesses: the state's economic environment is attracting more sellers, which means more businesses are approaching or crossing Texas's economic nexus threshold.

Texas's nexus threshold is $500,000 in annual Texas sales — significantly higher than most states' $100,000 threshold. That higher bar has historically given smaller sellers more runway before triggering a collection obligation.

But as Texas's economy grows and consumer spending expands, more businesses are approaching that $500,000 line for the first time. A business that was doing $350,000 in Texas sales last year may be on track for $450,000 this year — putting it within sight of the threshold for the first time.

Crossing the Texas nexus threshold without registering doesn't pause the obligation — it starts it, retroactively, from the moment the threshold was crossed. And Texas's $50 per-late-return penalty structure, combined with 5% to 10% of tax due in late penalties, adds up quickly on a large-state liability.

If your Texas sales are growing alongside the broader market, now is the time to verify where you stand relative to the $500,000 threshold — not after you've crossed it.

The Property Tax Angle That Shapes Everything

Huffines's property tax comment wasn't casual. It reflects a structural debate in Texas that directly affects how the state uses its sales tax revenue.

Texas relies on property taxes far more heavily than most states for funding local public services — particularly public schools. The state has been running a multi-year effort to reduce property tax burdens by using state revenue to buy down local school property taxes. The mechanism: when state revenue — primarily sales tax — runs ahead of forecast, the excess can be used to increase school finance formulas, which reduces the property tax levy local school districts need to impose.

Strong sales tax collections in 2026 make that trade more affordable. If Texas ends fiscal year 2026 with sales tax revenue materially above forecast — which the current trajectory suggests — the 2027 legislative session will have genuine fiscal room to deliver meaningful property tax reductions.

For businesses, the connection is direct: a Texas sales tax environment that generates consistently strong revenue may ultimately translate into lower property tax burdens at their Texas locations. The two taxes are linked in Texas's fiscal architecture in a way they aren't in most states.

The Back-to-School Holiday Factor in August's Numbers

One more thing worth noting for businesses tracking Texas's monthly trajectory.

August's revenue numbers — which will be reported by Huffines in early September — will include transactions from July that were remitted in August. They will also reflect the first wave of back-to-school shopping in late July as Texas families began their school-year purchases ahead of the August 7-9 holiday.

The August 7-9 Texas back-to-school holiday — covering clothing, footwear, school supplies, and backpacks under $100 — generated significant retail activity. The Comptroller's office estimated $142.5 million in expected savings during the holiday, implying the underlying transaction volume was substantial. Those holiday transactions — where the state waived the 6.25% tax — won't show up in revenue numbers, but the surrounding non-holiday purchases in the same shopping trips will.

August's revenue report in September will be the first clean post-holiday read on where Texas's sales tax trajectory is heading into Q4.

Selling into Texas and want to understand whether your current Texas revenue is approaching the $500,000 economic nexus threshold — or need help updating your Texas compliance setup to reflect July 1 local rate changes? Book a free consultation with our team at sales.tax. We'll review your Texas footprint and make sure your compliance is current before the next filing deadline.

Texas doesn't have an income tax.

It funds its government on sales tax — and right now, that engine is running at full speed.

Texas collected $4.7 billion in state sales tax revenue in April 2026 — 9.8% more than in April 2025. That's not a one-month spike. It's the second consecutive month of growth well above the rate of general price inflation, and it's coming from virtually every corner of the economy. WREG.com

Sales tax is the largest source of state funding for Texas, accounting for 58% of all tax collections. When Texas sales tax grows nearly 10% year over year, it's not just a revenue story. It's an economic one. Avalara

Here's what the numbers actually tell us — and what they mean for businesses operating in the state.

What's Driving the Growth

The April numbers didn't come from one sector. They came from everywhere — which is what makes them significant.

The largest gains in April came from sectors driven primarily by consumer spending, with retail trade and services both doubling compared to April 2025.

Breaking it down by sector:

Consumer spending led the way. Within the retail trade sector, double-digit gains came from the general merchandise subsector — with strong results from big box retailers and warehouse clubs — as well as from electronic shopping. Growth in receipts from clothing and accessories stores and electronics and appliance stores was also notably strong.

Live entertainment surged. The growth in receipts from the service sector reflects a surge in spending on live entertainment — concerts, sporting events, and experiences that generate significant sales tax revenue in a state with no income tax alternative.

Restaurants kept growing. Receipts from restaurants were up 4.2% from a year ago, above the rate of inflation for food away from home — a sign that consumers are still eating out despite elevated prices.

Business spending stayed strong. Among the sectors influenced primarily by business spending, growth in receipts from the construction, wholesale trade, and manufacturing sectors remained robust. These are the indicators that reflect real economic investment — not just consumer sentiment.

The one soft spot: remittances from grocery stores were down slightly compared with the same month a year ago — likely reflecting consumers trading down to more budget-friendly options as food prices remain elevated.

The Three-Month Picture Is Even Stronger

One month can be an anomaly. Three months is a trend.

Total sales tax revenue for the three months ending in April 2026 was up 7.9% compared with the same period a year ago.

That's consistent, broad-based growth across a 90-day window — not a single-quarter blip driven by one sector or one event. And it follows March, which was already a strong month.

State sales tax collections in March grew at the fastest rate since February 2023, propelled by a robust Texas economy with growth once again well above the rate of general price inflation. The Sales Tax People

Two consecutive months of near-10% growth, both above inflation, both broad-based. That's not a coincidence — it's a signal about the underlying health of the Texas economy.

What Texas Is Distributing Locally

State collections are only part of the story. Texas also distributes a significant share of sales tax revenue directly to local governments — cities, counties, transit systems, and special purpose districts.

Acting Comptroller Kelly Hancock distributed $1.4 billion in local sales tax allocations for May — 7.7% more than in May 2025. These allocations are based on sales made in March by businesses that report tax monthly and sales made in January, February, and March by quarterly filers. Resalecertificate

That $1.4 billion flows directly to local infrastructure, public safety, transit operations, and community services across the state. When Texas sales tax grows, local governments feel the benefit — which is part of why the state's no-income-tax model has proven durable through economic cycles.

What Makes Texas Different

Understanding what these numbers mean requires understanding how Texas's tax structure works.

Texas has a base sales and use tax rate of 6.25%, which applies to retail sales, rentals, and leases. Local jurisdictions may impose an additional sales tax of up to 2%, creating a maximum possible combined rate of 8.25%. Baker Tilly

With no state income tax, sales tax carries an enormous share of the fiscal load. At 58% of all state tax collections, sales tax isn't just Texas's largest revenue source — it's the engine the entire state budget runs on. Avalara

That dependency means Texas watches its sales tax numbers more closely than almost any other state. When collections surge, the state has room to invest. When they soften — as happened during the pandemic and the 2015-16 oil price collapse — the budget pressure is immediate and significant.

Right now, collections are surging.

The Nexus Implications for Out-of-State Sellers

Here's what strong Texas sales tax growth means for businesses outside the state.

Remote vendors and marketplace facilitators with $500,000 or more in Texas sales in the previous year must collect and remit sales tax. This requirement also applies to businesses with a physical presence or employees in the state.

Texas's $500,000 economic nexus threshold is significantly higher than most states — which means smaller sellers have historically had more runway before triggering an obligation. But as Texas's economy grows and consumer spending expands, more out-of-state sellers are crossing that threshold for the first time.

If your business has been selling into Texas and your annual Texas revenue is approaching $500,000, now is the time to track your numbers carefully. Crossing the threshold without registering doesn't pause the obligation — it starts it, retroactively, from the moment you crossed.

What the Numbers Don't Show

Strong headline numbers can create a false sense of security — and that's worth naming directly.

Texas's sales tax growth is driven by the sectors that are growing. But it also reflects the tariff-inflated prices consumers are paying for goods in 2026. When a $1,000 TV now costs $1,150 because of tariff pass-through, Texas collects 6.25% on $1,150 instead of $1,000. Higher prices generate more sales tax revenue automatically — even if unit volumes haven't changed.

That dynamic inflates the growth numbers somewhat. It also means that as tariff situations evolve — and the legal landscape around them remains unsettled — sales tax revenue could soften if prices normalize, even without any change in consumer behavior.

For now, the trend is strong. But businesses and policymakers who read these numbers should understand what's inside them.

Why Texas Matters for the National Sales Tax Picture

Texas isn't just a big state. It's a bellwether.

As one of the largest economies in the country — and one of the most watched examples of a no-income-tax model — Texas's sales tax performance shapes the national conversation about what consumption-based taxation can deliver.

States like Missouri and Alaska, which are currently debating whether to shift from income taxes to sales taxes, are watching Texas closely. The April numbers give ammunition to the argument that a well-structured sales tax on a growing economy generates substantial, broad-based revenue without an income tax.

What they don't capture is the complexity underneath — the 1,400-plus local jurisdictions, the compliance burden on multistate sellers, the volatility that comes when consumer spending slows. Texas makes the model look easy. It isn't.

Selling into Texas and not sure whether you've crossed the $500,000 economic nexus threshold — or whether your products are taxable under Texas's rules? Book a free consultation with our team at sales.tax. We'll review your Texas exposure, check your registration status, and make sure your compliance is set up correctly before the next filing deadline.

Texas maintains strict enforcement around sales and use tax, particularly for businesses operating across state lines. Many compliance issues stem from misunderstandings around use tax obligations.

Common areas where businesses get exposed:

1. Out-of-state purchases where sales tax was not collected
2. Untaxed vendor invoices
3. Online and marketplace transactions
4. Equipment or software purchases used in Texas

Even when a seller fails to collect tax, the buyer may still owe use tax. Businesses should regularly review purchasing activity to avoid unexpected liabilities during audits.

Concerned about Texas sales or use tax exposure?
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