THE BILLS

Texas Legislature passes tax-reform bills

The Texas Legislature passed sweeping tax measures to reduce the burden on property owners and implement a low, broad-based business tax in the state:

HB 1 reduces property tax rates by $0.17 in the first year. It also deters local taxing jurisdictions from eating up the tax reduction with rapidly increasing local rates. The bill also includes the following provisions:

1. Provides a $2,000 salary increase for teachers
2. Helps equalize school funding and recapture of funds sent back to the state via the Robin Hood funding formula
3. Moves the public-school start date to the fourth Monday in August, which falls between Aug. 22 and Aug. 28
4. Requires four years of math, science, English, and social studies beginning with the freshman class of 2007
5. Adds new writing requirements to the high school curriculum
6. Calls for more transparency of school district expenditures
7. Encourages increased graduation rates by offering intervention programs and flexible instruction hours for at-risk students
8. Provides school districts with an additional $275 per high school student

HB 2 dedicates all the revenue raised from HB 3, HB 4, and HB 5 to property-tax reduction until the maintenance and operations tax rate reaches $1 per $100 valuation.

HB 3 modernizes the state’s business tax. Loopholes in the current business tax create a situation where only 1 out of 16 businesses pay. HB 3 is a low-rate, broad-based solution. Under the new plan, the primary franchise tax rate will be lowered from 4.5% to 1%. Businesses will pay 1% on gross receipts (retailers and wholesalers will pay 0.5% due to their smaller profit margins). Businesses will also be able to deduct either their cost of goods sold or their employee compensation, including benefits. Sole proprietorships and general partnerships are exempt from the franchise tax, as are all businesses that gross $300,000 or less.

HB 4 tightens the language and the requirements for the sale of motor vehicles so that buyers accurately state the proper sales price from used-vehicle transactions. (This bill is commonly referred to as the vehicle liar’s affidavit.)

HB 5 increases the tax on the sale of tobacco products to raise additional revenue for property tax relief. The bill raises the tax $1 per pack and brings in an estimated $623 million to the state in 2007.

The tax reform package gives property owners an approximate one-third reduction in school property taxes and provides property wealthy districts with their first Robin Hood relief since that program’s inception in 1993. The package includes a property tax cut of 11% this year and a total of 33% in 2007. This plan also increases education spending by about $1.8 billion a year.