The city of Texarkana is divided by an avenue running through the heart of the city. The street, appropriately titled “State Line Avenue,” not only separates the city between two counties, but acts as the state line between Texas and Arkansas. What happens to your paycheck depends on which side of the street you work on. Below is a summary of the tax differences your paycheck could be experiencing, depending on your location.
Texarkana provides some peculiar tax accommodations, especially if you are on the Arkansas side of the city. In particular, for almost four decades the state of Arkansas has allowed residents of Texarkana, Arkansas to be exempt from the normal state income tax, which can be anywhere from 4.5 to 7%. This is due to the drastic difference just across the street - Texas does not have a state income tax. So, according to the Border City Exemption 302 residents of Arkansas working on the Texas side of Texarkana, are exempt from the Arkansas state income tax.
This accommodative tax legislation has provided a productive kick to the population of Texarkana, Arkansas. According to a study done by The University of Arkansas at Little Rock Institute for Economic Advancement (IEA), 70% of Miller County, Arkansas residents reside in Texarkana, while only 38% of Bowie County, Texas residents call Texarkana home. The tax legislation of Texarkana seems to have made the city more attractive for Arkansas residents.
This population growth has translated into the local economy of Texarkana, Arkansas. Outside the jurisdictions of the city there is less opportunity for labor, due to the unattractive state income tax, businesses have set up shop in Texarkana. The study from IEA found that 90% of businesses in Miller County, Arkansas were within the city limits. To compare, on the Texas side only 76% of businesses of Bowie County, Texas were in Texarkana.
Other Taxes Relevant to Texarkana
While the state income tax on either side of “State Line Avenue” is essentially the same (because of Border Exemption 302 described above,) it is the corporate, sales, and property taxes that can be the deciding factor for a move to either side of the city. For example, if you were a resident on the Texas side of Texarkana you would be paying double the rate for your property tax as someone in Texarkana, Arkansas. Because of this, the IEA study found a stark difference in population growth in proportion to job growth on the Arkansas side. In terms of sales tax, the tables are turned. Texas offers a lower sales tax than Arkansas at 8.25%, and 10% respectively. This attracts retailers to the Texas side of Texarkana. When it comes to the corporate tax rate, Texas once again is seen as more attractive due to their special margin tax rate that weights different categories of income. In general, most Texas businesses face lower margin rates, supporting the growth of business, especially small businesses on the Texas side of the city.
Texarkana is a perfect example of how even a simple walk across the street can complicate an individual's taxes. To calculate what your paycheck will be after taxes, use the salary or hourly calculators on PaycheckCity.
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.