California vs. Texas Taxes: Should LA Business Owners Move to Austin?

By The Tax Shack | July 2026 | Los Angeles, CA

Austin has become the default answer when LA business owners ask "where should I move to escape California taxes?" Tech founders, entertainment industry veterans, and real estate investors are taking the 10 freeway out of California and heading to Texas. The exodus is real and well-documented. No state income tax, lower cost of living, and a business culture that's genuinely welcoming.

But is the tax picture as simple as it looks? Here's what the actual numbers say.

Austin, TX

The Headline: State Income Tax

This is the number that drives the conversation.

• California: Top marginal state income tax rate of 12.3%, plus a 1% surcharge on income over $1 million. This brings the effective top rate to 13.3%, the highest in the nation. (California Franchise Tax Board)

• Texas:0% state income tax. No personal income tax, no tax on S-Corp or LLC pass-through income. (Texas Comptroller of Public Accounts)

For a business owner earning $200,000 in net income, the difference in state income tax alone is major. That gap widens considerably at higher income levels.

The Business Tax Picture

California (California Franchise Tax Board)

• S-Corp income tax: 1.5% on California net income

• Corporate income tax (C-Corps): 8.84%, among the highest in the nation (Tax Foundation)

• LLC/S-Corp minimum franchise tax: $800/year, even if the business lost money

• Capital gains: Taxed as ordinary income, up to 13.3%, with no preferential state rate

Texas (Texas Comptroller of Public Accounts)

• No state income tax on individuals or pass-through business income

• No corporate income tax: Texas levies a franchise ("margin") tax instead, but the threshold is $2.47 million in revenue. Most small businesses owe nothing.

• Above the threshold: 0.75% on taxable margin (0.375% for qualifying retailers/wholesalers) is still far below California's combined rates for most businesses

• No minimum annual entity fee

For many small business owners structured as S-Corps or LLCs, Texas removes almost the entire state-level tax burden on business income.

The Austin Reality Check: Property Taxes

Here's the number that catches people off guard.

Texas has no state income tax, but local governments fund schools, roads, and services almost entirely through property taxes. And Austin's property tax rates are high.

The combined property tax rate for a typical home inside Austin city limits in the Austin ISD boundary is approximately $2.07 per $100 of taxable value, including Austin ISD ($0.9252), City of Austin ($0.5240), Travis County ($0.3758), Austin Community College ($0.1279), and Central Health ($0.1180). (source: Neuhaus Realty Group)

What does that mean in practice?

On a median-priced Austin home of around $525,000, homeowners can expect roughly $9,500 to $11,000 per year in property taxes before exemptions. That's $800–$900 per month, on top of your mortgage. (source: Eleven Oaks Realty)

Compare that to California, where Prop 13 caps assessed value increases at 2% per year. A longtime LA homeowner may have a far lower effective property tax rate than the headline numbers suggest due to their home's assessed value. That’s locked to their purchase price, not current market value.

The 2026 Texas Legislature did increase the school district homestead exemption from $100,000 to $140,000, which reduces the overall bill, but for most homeowners, the school district exemption saves roughly $370–$484 per year, which is sizable but not transformative at Austin price points. (Source: Neuhaus Realty Group)

Bottom line on property taxes: If you're moving from a California home you've owned for years and heading into Austin's market, you may be trading a low effective property tax rate for a significantly higher one.

Sales Tax

Both states have sales tax, and Texas is actually slightly lower at the state level.

• California: State rate of 7.25%, with local add-ons pushing it above 9–10% in many LA neighborhoods

• Texas: State rate of 6.25%, with local additions capped at 2%, so the maximum combined rate is 8.25% (source: Texas Comptroller)

For businesses buying inventory or materials, this difference adds up.

What the Numbers Don't Tell You

California still taxes California-sourced income. Ifyour business operations are in California and your clients are here, employees are here, and physical location are here… then moving to Austin doesn't eliminate your California tax obligation. California taxes income earned in California regardless of where you live. A real move means genuinely relocating the business, not just your address.

Employment costs differ significantly. California's minimum wage, mandatory SDI contributions, CCPA compliance, CFRA leave requirements, and workers' compensation rates add meaningful operational costs beyond income tax. Texas has no state minimum wage above the federal floor and far less restrictive employment regulation. For businesses with employees, this difference can often exceed the income tax gap.

The QBI deduction applies in both states (federally). Under the OBBBA, the Qualified Business Income deduction is now 23% for pass-through owners on their federal return. That deduction applies regardless of which state you're in, so the federal savings are available to you in California or Texas. The state-level savings are what changes.

So Should LA Business Owners Move to Austin?

Honestly, it depends on your situation. A few real scenarios:

Moving to Austin likely makes strong financial sense if:

• You earn $300,000+ in pass-through income and your business can fully relocate

• You work remotely with no California clients or employee nexus

• You're renting rather than buying (avoiding Austin's property tax exposure)

• Your business has employees, but the employment regulation savings stack on top of income tax savings

Moving may not pencil out as cleanly if:

• Your revenue and clients are tied to Los Angeles

• You own a California home with a low Prop 13 assessed value. You'd be trading that for Austin's 2% effective rate

• Your business can't fully relocate, so you'd owe California taxes anyway and potentially face dual-state complexity

• Your income is moderate. The income tax savings may be partially offset by higher property costs in Austin's market

What LA Business Owners Should Actually Do

Before making a decision this large based on tax savings projections, talk to a preparer who understands California's source income rules, the Texas franchise tax structure, and what a state change actually requires.

At The Tax Shack, our CTEC-certified preparers work with LA small business owners on exactly these questions year-round. If you're thinking about a move… or just want to understand what you're actually paying now and what strategies are available to you in California, just stop by our Los Angeles location or give us a call.

Quick-Answer FAQ

Does Texas have state income tax?
No. Texas has no personal income tax and no corporate income tax. A franchise (margin) tax applies to businesses above $2.47 million in revenue, at a rate of 0.75% of taxable margin. (source: Texas Comptroller)

What is California's top state income tax rate?
13.3%, including the 1% surcharge on income over $1 million. The rate most high-earning professionals in LA actually hit is 9.3%. (source: California Franchise Tax Board)

What are property taxes like in Austin?
High. The average effective property tax rate in Austin ranges from 1.8% to 2.2% depending on location and taxing entities. On a $500,000 home, that's roughly $9,000–$11,000 per year before exemptions, which significantly higher than most California homeowners pay under Prop 13. (source: Moving To Austin)

If I move to Austin but my business is in California, do I still owe California taxes?
Generally yes. California taxes income sourced from California regardless of where you reside. Eliminating California tax exposure requires relocating the business's operations, not just your home address.

What is the Texas franchise tax threshold for 2026?
$2.47 million in total revenue. Businesses below this threshold owe no Texas franchise tax. (source: Texas Comptroller)

Sources:
- California Franchise Tax Board

- Texas Comptroller of Public Accounts

- Tax Foundation, State Corporate Income Tax Rates 2026

- City of Austin FY2025-26 Tax Rates

- Neuhaus Realty, Austin Property Tax Guide 2026.

This post is for general informational purposes and is not a substitute for personalized tax advice.