Texas Tax Legislative Update:  New Bills Filed in the Upcoming Texas Legislature

Texas Tax Legislative Update: New Bills Filed in the Upcoming Texas Legislature

Pre-filing for the upcoming 88th legislative session began yesterday, November 14, 2022. The following proposals filed on the first day seek to make significant changes to Texas sales tax and franchise tax policy.

Sales Tax & Franchise Tax Bills

H.B. No. 391 proposes to repeal the franchise tax entirely after report year 2022. It would not affect the status of an entity that has had its corporate privileges, certificate of authority, certificate of organization, certificate of limited partnership, corporate charter, or registration revoked, suit filed against it, or a receiver appointed prior to the repeal, although taxable entities could still challenge those actions.

H.J.R. No. 36 proposes a constitutional amendment to eliminate school district maintenance and operations property taxes. The prohibition is conditioned on a yearly determination by the Comptroller that the prohibition will not decrease school funding for school districts for the tax year or subsequent tax year.

H.B. No. 268 proposes an overhaul of the tax system that would eliminate virtually all existing taxes and enact a value-added tax at a combined state and local maximum rate of 8.72%. The tax base would be the amount by the value of property and services supplied by a taxpayer to its customers exceed the value of property and services supplied to the taxpayer by its vendors

H.B. No. 432 proposes to shift catch-all local sales tax sourcing to origin-sourcing, such that local taxes not sourced under other statutory subsections would be sourced solely to the location where the taxable item was stored, “immediately before shipment, delivery, or transfer of possession to the customer.”

H.B No. 447 proposes a new tax on “taxable assault weapons,” defined to broadly include many types of firearms, at a rate of 1,000% of the greater of the sales price or the presumptive sales price of the firearm.

H.B. No. 88 proposes to add 1% to the sales tax on firearms, ammunition, and firearm accessories.

Legislative Priorities

The 88th Legislature will convene on Tuesday, January 10, 2023, with an unprecedented surplus at their disposal. In a July 14, 2022 letter to state leadership, Comptroller Hegar said Texas will have $140.07 billion in General Revenue-related (GR-R) funds available for general-purpose spending for the 2022-2023 biennium. The fiscal 2023 ending balance is projected to be a record $26.95 billion, an increase of $14.95 billion from the November projected balance.

Texas Lawmakers in the 88th Legislature will also have approximately $13.6 billion in their Economic Stabilization Fund (“ESF”), colloquially referred to as Texas’s “Rainy Day Fund.” The unprecedented surplus, a product of post-lockdown economic recovery, inflation, and high energy prices, presents Texas lawmakers with a unique opportunity to cut taxes.

Texas’s top elected officials have set their sights on cutting property taxes in 2023, with Governor Greg Abbot tweeting, “Texas is sitting on a record budget surplus of $27 billion…Because this is your money, I want to return at least HALF of that money to you with the largest property tax cut ever in the history of Texas.”

Regardless of the outcome, it is likely that significant tax cuts will be proposed this session. The 60-day deadline for bill filing is Friday, March 10, 2023. The 88th Legislature is set to adjourn on Monday May 29, 2023.

About Martens, Todd & Leonard

Martens, Todd & Leonard is a trial and appellate law firm headquartered in Austin, Texas. It handles only Texas tax cases, specifically those involving the Texas sales tax and Texas franchise tax. The firm’s attorneys have handled cases all the way through the Texas Supreme Court and U.S. Supreme Court. They speak and write frequently on a variety of Texas sales tax and franchise tax topics and have published articles in publications such as the Journal of State Taxation, the Texas Bar Journal, the Texas Lawyer, and the Texas Tech Administrative Law Journal. For more information, please visit texastaxlaw.com.