Hot Lists: Property Taxes, Margins Tax, & School Finance

State lawmakers, and Lt. Gov. Dan Patrick in particular, have expressed a strong interest in finding a way to reduce property taxes this session. The Texas Constitution prohibits a statewide property tax and empowers local governments and schools and special districts to levy those taxes. Most property tax revenue goes to public schools.

The state has previously attempted to ease pressure on higher local property tax rates by increasing what it spends on education. But the state cannot set the local rates because of the constitutional ban on state property taxes, and other local taxing entities, including counties and cities, also collect property taxes. Proposals likely to draw interest include capping how much local entities can increase property taxes and increasing the homestead exemption.

RELEVANT LEGISLATION

HB 52

SB 156

Reducing The Margins Tax Burden

Updated: Jan. 15, 2015

Texas lawmakers created the business franchise tax, also known as the margins tax, in 2006 to help pay for a property tax cut. Businesses pay the franchise tax on gross receipts, leading to some paying it even in years when they make little or no profit.

The tax has long drawn criticism from business groups and education groups. Among the concerns has been that the tax drew less than initially anticipated. Also, in some cases, businesses have had to pay the tax even in years when they didn’t make a profit. Since its initial launch, the Legislature has made several revisions to the tax, including exemptions for some smaller businesses. This session, lawmakers are expected to propose various revisions to the margins tax, including a full repeal.

RELEVANT LEGISLATION

HB 193

HB 250

HB 552

SB 105

SB 138

SB 175

SB 186

Budget Fallout From School Finance Lawsuit

Updated: Jan. 15, 2015

The Legislature heads into the session with the future of the state’s education system in flux, as the Texas Supreme Court is expected to hear arguments this year on the question of whether the current school finance system violates the state’s constitution. The lawsuit from more than 600 Texas school districts arose after lawmakers cut roughly $5.4 billion from state public education funding in 2011. In September, state District Judge John Dietz of Austin said that the state’s school finance system is unconstitutional not only because of inadequate funding and flaws in the way it distributes money to districts, but also because it imposes a de facto state property tax.

Lawmakers are now largely split into two camps: those who want to wait for the Supreme Court to rule before considering any changes to school finance, and those who want to boost funding this session in expectation that the Supreme Court will order such a change.

RELEVANT LEGISLATION

SB 243

SB 244

SB 246

SB 247

SB 256

Ross Ramsey is the Executive Editor of the Texas Tribune and Aman Batheja is a reporter for the Texas Tribune where this story originally published. It is reprinted here through a news partnership between the Texas Tribune and Corridor News.