Senate Finance: Tax Relief Week

This week the Senate Finance Committee took testimony on a number of bills that look to provide both property and margins tax relief.  Chairwoman Nelson announced that she had no intention of passing any tax relief bills out of committee before Senate Bill 2 was voted out, but that she did intend on voting out tax relief bills before beginning hearings on the House plan.

 

While the tax relief bills have received much attention, a number of Senators have expressed concerns about passing any of these measures without knowing how they affect the spending cap and public education funding.   Of particular concern is the desire to pay down Texas’ debt, and meeting many of the state’s needs before talking tax relief.

 

On Wednesday, Lt. Governor Patrick and Senate Finance Chair Nelson laid out a package of bills that would exempt any state money used to make up for tax cuts from counting toward the spending cap. This has received much feedback, both positive and negative.

 

Some of the various tax relief bills proposed include:

  • Reducing property tax burden on homeowners by increasing the homestead exemption for school district taxes from $15,000 to 25% of Texas home median market value (SB1);
    • Whereas Sen. Watson wants to increase the homestead exemption that applies to school property taxes from $15,000 to $25,000 for tax year 2016 and for each successive year, the level of inflation would determine adjustments (SB 278)
  • Reducing the franchise tax rate to 0.85 percent for most taxpayers and 0.425 percent for retailers and wholesalers, and makes those rate reductions permanent (SB 7)
    • Total repeal and/or phase out of the franchise tax (SB 105; 138)
    • Changing the formula with: taxable margin = total revenue – $1 million – cost of goods sold – cost of compensation (SB 330)
    • Exempting all businesses with $4 million or less in total annual revenue from the franchise tax (SB 8)
  • Allowing cities, counties, and other jurisdictions to offer a flat homestead exemption of at least $5,000 in addition to the current percentage option of up to 20 percent (SB279).
  • Changing the rollback tax rate calculation for cities, counties, and special districts to only allow them to gain four percent additional property tax revenue each year from growth in property values without voter approval (SB 182 – **has not been brought before committee due to fiscal note issues**).
  • Tax relief for Freeport property (SB 516); exemptions for property purchases related to manufacturing (SB 758); exemptions for business personal property worth $50,000 or less (SB 763)

 

 

Transportation bills

On Wednesday, the Senate overwhelmingly approved (28-2) SB5 and SJR5 that would provide an additional $2.5 billion or more a year for Texas roads by redirecting some vehicle sales tax revenue to the Texas Department of Transportation (the first $2.5 billion would be directed towards the general revenue fund).

 

Only one amendment passed on the Senate Floor that would constitutionally dedicate 20 percent of all revenue from the tax above $5 billion to teacher pay raises. Above the $5 billion limit, the money would be split evenly among TxDOT and the general revenue fund. The teacher pay raise would come from the general fund’s slice, not the TxDOT portion.

 

Yet, some opposition addressed concern over constitutionally dedicating a large chunk of state revenue to one aspect of government, potentially shortchanging other state needs such as education. Some senators countered that the setup of the legislation would hem in future policymakers by making even more funds essentially off-limits.

 

The legislation now heads to the Texas House, where concerns have already been raised. Rep. Pickett, chair of House Transportation committee, stated that a broader package may be needed that includes debt reduction (at TxDOT) and more transparency within the agency.