Texas Revenue Climbs to $188.9 Billion as Tax Collections Beat Forecast

Texas took in $188.89 billion in fiscal 2026, 3.2 percent more than the year before, according to the comptroller’s totals for the year that ended August 31. A working paper released Wednesday by Rice University’s Baker Institute for Public Policy calls the result “a modest but clear rebound after two years of little or no growth.”

Tax collections drove the gain. They reached $88.23 billion, up 4.8 percent, and beat the comptroller’s forecast by $1.6 billion. General Revenue-related revenue rose 2.5 percent to $88.26 billion.

Sales tax led

Sales tax brought in $52.24 billion, up 6.5 percent. The Baker paper puts the gain at about 3 percent after inflation and says receipts grew in industries serving both consumers and businesses. The strength carried into the new fiscal year: state sales tax revenue for September, the first month of fiscal 2027, rose 11.5 percent.

Other major taxes were mixed. Motor vehicle sales and rental tax rose 5.2 percent to $7.45 billion, and oil production tax rose 9.2 percent to $5.88 billion. Franchise tax fell 1.7 percent to $6.96 billion, and natural gas production tax fell 1.8 percent to $2.43 billion.

“This leaves the state in an improved fiscal condition heading into the second fiscal year of the current budget cycle and indicates the continued strong performance of the Texas economy,” Comptroller Don Huffines said. He urged the Legislature to dedicate surplus sales tax collections to cutting property taxes.

The federal share

Federal money to the state rose 3.4 percent to $61.1 billion after two flat years, according to the Baker paper. That is 32.3 percent of all state revenue, the largest single source. The authors, Bill King, John W. Diamond and Joyce Beebe, call it “the most significant element of uncertainty for the longer-term outlook.”

The 2027 estimate

The paper says the comptroller’s fiscal 2027 revenue estimate of $178.3 billion “is likely low.” It points to construction activity not yet fully showing up in tax collections, recently approved federal reimbursement, and the chance of higher oil and gas production tax receipts.

In November, the State Highway Fund will receive $2.69 billion in oil and natural gas severance taxes, up from $2.52 billion last November. The Economic Stabilization Fund, the state’s rainy day fund, remains above its cap and will receive no severance tax transfers this year, so that money stays in the General Revenue Fund.

Washington supplies nearly a third of the state’s revenue, and the authors name it as the largest uncertainty in the outlook. Texas raises the rest itself, and its tax collections beat the forecast by $1.6 billion.