On Monday, Texas Lieutenant Governor Dan Patrick and Texas House Speaker Dale Phelan released a joint statement announcing their agreement to propose legislation that will deliver “the biggest property tax cut in Texas history.” The proposed legislation comes in the form of HB 2/SB 2, HB 3/SB 3, and HJR 2, discussed further below.

Property Tax Reform – House Bill 2 (Rep. Morgan Meyer)/Senate Bill 2 (Sen. Paul Bettencourt)

HB 2 [1] and SB 2 [2] propose various changes to the Texas Education Code and Texas Tax Code, which would result in the following:

-The “maximum compressed rate” for school district property taxes would be reduced by $0.107;
-The homestead exemption for school district homes would be raised from $40,000 to $100,000; and
-The amount by which the appraisal value of non-homestead property (valued no more than $5,000,000) can be increased year-to-year would be limited to (i) a 20% increase, plus (ii) the market value of any new improvements to the property during the year.

School districts would be eligible for additional funding to account for the reduction in property taxes that would result from the above changes. The Texas Legislature also seeks to amend Section 1, Article VIII of the Texas Constitution to implement these changes. [3] The proposed amendment is discussed in House Joint Resolution 2.

The above changes would result in an estimated $12.7 billion tax cut through August 31, 2025, and an estimated $33.9 billion tax cut through 2028. [4] Each of the above bills was filed on July 10, 2023, and is expected to be passed by the Texas Senate later this week. The bills would then go to Governor Greg Abbott, who is expected to sign them into law.

Franchise Tax Reform – House Bill 3 (Rep. Charlie Geren)/Senate Bill 3 (Sen. Paul Bettencourt)

HB 3 [5] and SB 3 [6] propose the following changes to Title 2, Chapter 171 of the Texas Tax Code, which covers the Texas franchise tax:

Codification of the “total revenue” exclusion amount at $2.47 million; and
Entities that do not owe Texas franchise tax as a result of the $2.47 million exclusion would no longer be required to file a Public Information Report with the Texas Comptroller.
The proposed changes to Chapter 171 are an important update in light of recent inflation, and greatly simplify the filing requirements for smaller businesses who would not be required to pay Texas franchise taxes.

State and Local Tax Services

Freeman Law works with tax clients across all industries, including manufacturing, services, technology, oil and gas, financial services, and real estate. State and local tax laws and rules are complex and vary from state to state. As states confront budgetary deficits due to declining tax revenues and increased government spending, tax authorities aggressively enforce state tax laws to recapture lost revenues.

At Freeman Law, our experienced attorneys regularly guide our clients through complex state and local tax issues—issues that are frequently changing as states seek to keep pace with technology and the evolution of business. Staying ahead requires sophisticated legal counsel dedicated to understanding the complex state tax issues that confront businesses and individuals. Schedule a consultation or call (214) 984-3000 to discuss your local & state tax concerns and questions.

[1] HB 2

[2] SB 2

[3] HJR 2

[4] Fiscal Note, Legislative Budget Board July 11, 2023

[5] HB 3

[6] SB 3

Have a question? Contact Jason Hendrix, Freeman Law, Texas.