Is Texas a Good State to Start a Business?

Texas is one of the fastest-growing states in the country, as Texas has seen a population increase of more than nine million between 2000 and 2022.

The state has a population of more than 30 million, with the Houston, Dallas, and Austin metropolitan areas leading the way. San Antonio, El Paso, Corpus Christi, and the Rio Grande Valley region have also seen substantial growth.

Texas is also home to many prominent businesses. Companies like ExxonMobil, AT&T, Dell Technologies, Oracle, ConocoPhillips, and Kimberly-Clark are among the most prominent groups operating in the Lone Star State.

With so many people flocking to Texas and many businesses succeeding, you might be curious about whether starting a business in Texas is a good idea for you to explore. The truth is that Texas is an ideal location to consider if you want to start something new.

So, what is it about Texas that makes it an ideal place to start a business? Not only is the process of opening a business in Texas easy to follow, but it’s also more affordable when compared with other states. Here’s a closer look at what you can expect about running an entity here.

How Do You Start a Business In Texas?

The process of starting a business in Texas is easy to follow. You will need to create the necessary Texas corporate filings, but the state will assist you in finding details on what you’ll require to get your business ready.

The Texas Economic Development Group states that you can get your business running with a few steps:

First, you’ll need to prepare your business plan. The plan should include a look at your main purpose, value proposition, and your financing plans.
You’ll then select a location for your business.
Proper financing is necessary for getting your business ready. Various banks and federal programs are available for your convenience.
You must also register your business in Texas.

The registration process in Texas entails filing the necessary certificates of formation within the state. The Limited Liability Company or LLC option is the most common option people file in Texas. A sole proprietorship is best for cases where one individual owns the business, while a general partnership can work if you have at least one other person. The Texas Secretary of State’s office has further details on what people can do when registering their businesses in Texas.

Don’t forget to consider your tax responsibilities when registering your business, including federal and state taxes.

You’ll also need to obtain a business license or permit.

Depending on the business you will operate, you might need to obtain a business license or permit to operate in Texas. The Texas Business Permit Office provides full details on what permits are necessary and how people can obtain these points. Texas corporate filings will include details on your business, its industry, and what contributions you plan on making to the state’s economy.

The state’s Business Licenses and Permits guide provides updated information on what permits you’ll require and what regulations you’ll need to follow. For example, a bed and breakfast will require licenses for alcohol sales, pesticide applications, and the sale of retail foods.

After you obtain all these points, you can start hiring employees. These steps are simple and can help you prepare to run a business in Texas without delay.

Tax Considerations

One of the most popular parts about running your business in Texas is that the cost to run a business in Texas isn’t as high as you’d expect. To start, Texas does not have a state income tax.

The Texas Economic Development Corporation reports that the Texas State Constitution prohibits income taxes on individuals. This point has helped encourage many prospective workers to move to Texas. Since the demand for work in Texas is higher, you’ll be more likely to find a diverse pool of employee candidates who can serve your company’s needs.

As for businesses, Texas also doesn’t have a corporate income tax. Texas joins Ohio, Washington, and three other states as places with no corporate income taxes. This point makes Texas more inviting than other highly-populated states like New Jersey, where the corporate income tax rate is 11.5%, or Illinois with its 9.5% rate.

A franchise tax does apply to businesses in Texas. The tax is based on a company’s margin if it has a revenue of $1.23 million or more in a year. The franchise tax is 0.375% for retail businesses and 0.75% for other businesses, which is still less than half of the country’s lowest corporate income tax, North Carolina’s 2.5% rate.

Property taxes also apply in Texas, but the rate varies by county. While the average property tax in Texas is 1.7%, the average can range from 0.4% in Midland County and its eponymous city to 2.95% in McLennan County, the county where Waco appears.

You’ll still have to pay federal taxes with the IRS. You’ll pay your state taxes through the Texas Comptroller of Public Accounts.

The lower taxes in Texas make it a useful place to explore when starting a business. Since your tax burden will be less than what it is like in other places, the potential for you to manage your finances well will be strong.

Substantial Population Growth

The growth in Texas’ population is a popular part of what a Texas business startup can be more successful these days. You don’t have to start your business in a crowded urban area to be successful, as rural and suburban regions of Texas have become increasingly prominent for business startups.

The United States Census Bureau states that Kaufman County, a county in suburban Dallas, is the fastest-growing county in the state as of the 2021-22 Census report. Two other counties outside the Dallas-Fort Worth area, Rockwall and Parker Counties, have also seen significant population increases.

Texas’ population saw an increase of about 16% from 2010 to 2020. Only Utah and Idaho saw higher population increases during that decade.

The move of many people in Texas to suburban and rural areas suggests there’s an increased likelihood of business spaces available in more places. It is often less expensive to occupy a business space in less-populated regions than in busy or crowded urban areas, so it will be easy for people to go forward and afford the cost to run a business in Texas.

A Strong Population

The population itself is another positive of why starting a business in Texas is a great idea. United States Census reports found there are a substantial number of people in varying age groups. About 14% of the state’s population is in the 25-34 age range, and another 14% is in the 35-44 range. About 6.8% are in the 20-24 range as well. This statistic suggests there are plenty of people currently in the working years of their lives who are ready to find jobs and work for businesses like yours.

Businesses aiming to be more diverse may also find Texas to be an inviting place. The Hispanic population of Texas takes up about 28% of the state’s population. The state’s White population also includes various people of German, Irish, French, and Italian ancestry.

Appealing Industry Growth

A Texas business startup can succeed in any industry, as Texas has developed a reputation for being one of the country’s most innovative states. People are coming to Texas every day to bring new ideas and concepts to the state. The annual South by Southwest event held each year in Austin has also helped make Texas a more prominent state for innovation, as more businesses are bringing their developments and ideas to this event each year.

There are many exciting industries that are growing throughout Texas:

Hospitality, including food and drink services
Machine manufacturing
Chemical manufacturing
Construction, including single-family houses and commercial properties
Healthcare services, including home healthcare
Mining
Logging
Oil and drilling
Information technology

It is no surprise that Texas has become an inviting state for businesses, as more industries are building their footprints in the state. You might find plenty of support from these businesses and even establish partnerships with them when you start a business in Texas.

A Strong Economy

Texas’ economy is one of the strongest in the country. While many people are leaving states like Illinois and Ohio, people are flocking to states like Texas because of the extensive array of opportunities there.

The Texas Comptroller’s office reports that Texas has a stronger economy than what you’d find elsewhere:

Texas’ measure of inflation is less than the average amount in the United States. This point means inflation is not causing as much of an impact in Texas as in other states.
Texas’ consumer confidence index is also higher than the United States’ average index. This measure relates to how willing people in Texas are to spend their money.
Houses in Texas are less expensive than in other states. Whereas an average property in the United States is around $350,000, Texas houses are around $290,000 as of May 2023.
Retail fuel prices are also lower in Texas. In May 2023, the average cost of a gallon of gas in the country was $3.65, but that value was around $3 in Texas. The price of a gallon of diesel fuel is also close to $4 in Texas, which is close to the national average.

Since people won’t spend as much money on various things in Texas as in other states, they may be more willing to stick around the state. The lower cost of living in Texas will also invite more prospective workers, making it easier to bring in more people to work for your company.

More Educational Opportunities

Prospective employees often stay in Texas after they graduate from colleges or universities. The extensive assortment of schools in Texas has helped make the Lone Star State a popular state for students to move to.

Texas has multiple educational sites:

There are dozens of public universities in Texas, including ones in the University of Texas, Texas A&M University, University of Houston, and Texas Tech University systems.
You will also find many prominent private schools in Texas, like Baylor, Rice, Southern Methodist, Texas Christian, and Houston Christian Universities.
Texas also has a few Historically Black Colleges and Universities or HBCUs, including Prairie View A&M and Texas Southern Universities.
The health sciences are also well-represented, as Texas has various noteworthy health schools like the University of North Texas Health Science Center and the University of Houston College of Pharmacy.
The state also has many public community college districts, including the Austin, Dallas, El Paso, and Houston districts.

The abundance of higher education sites in Texas makes this state one where you might find various new faces ready to enter the workforce. These eager workers will provide ample opportunity for you to get your business up and running.

A Final Word

Starting a business in Texas is an exciting adventure, as Texas is a state filled with opportunities. You’ll find many potential employees throughout Texas, plus the cost to run a business in Texas won’t be as high as in other states. You can expect the process of running your business in Texas to be more viable than what you’d expect in other states.

Be sure when getting ready to start a business in Texas that you look at the rules for how to start your entity. Be prepared to look for where you will start your business, and watch for all the tax considerations for running your company. Don’t forget to watch for how you’re going to find the right employees for your group. You will find running your business to be easier to follow when you know what to expect when entering the Lone Star State.