February 20, 2023
Written by: Eleanor Kim, DMA Tax Counsel
DuCharme, McMillen & Associates, Inc. (DMA) provides this information relating to the 88th Texas Legislature Regular Session.
Texas leaders have been clear that their top tax priority for the 88th legislative session will be property tax relief. Governor Greg Abbott stated his intent to work with the Legislature “to deliver one of the largest property cuts in the history of our state and provide long-lasting property tax relief” by passing legislation to:
- Use $15 billion of the state’s budget surplus to cut property taxes
- Lower the school district maintenance and operation (M&O) tax rates by increasing the tax rate compression
- Provide relief to small businesses by increasing the business personal property tax exemption
- Require local government debt be passed by a two-thirds supermajority of the local governing body
- Require local bond issues not included on the November ballot be passed by a two-thirds supermajority of voters
Lieutenant Governor and presiding officer of the Senate Dan Patrick announced his top thirty priorities for this session, including three tax priorities that will be introduced under the following bill numbers and captions:
- SB 3 – Increasing the homestead exemption to $70,000
- SB 4 – Adding additional property tax relief
- SB 5 – Increasing the business personal property tax exemption
The Senate Finance Committee is still holding meetings on SB 1, the budget bill. Dade Phelan, the Speaker of the House, released the committee assignments, and Morgan Meyer returns as the Chair of the House Ways and Means Committee. No hearings have been scheduled by the Ways and Means Committee.
Bills Filed
Following are tax-related bills introduced since our February 1 update on the 88th Texas Legislative Session.
Jump to bills by tax type:
SALES/USE TAX
HB 1887 (Thierry, Shawn) would exempt the sale of maternity clothing.
HB 2223 (Capriglione, Giovanni) would add Tax Code §151.360 to exempt tangible personal property that is installed at or incorporated into a qualifying virtual currency mine and that is necessary and essential to its operation. The exemption would be for either 10 years or 15 years based on the amount of capital investment that is made and the number of jobs that are created. The term “virtual currency mine” is a space of at least 5,000 square feet that is specifically constructed or refurbished and actually used to primarily to house servers and related equipment and support staff for the purpose of validating virtual currency transactions.
HB 2292 (Slawson, Shelby) would amend Tax Code §151.423 to increase the vendor reimbursement discount from 0.5% to 2.5% for credit card sales but would prohibit a vendor claiming the 2.5% discount from being eligible to claim the 1.25% prepayment discount under Tax Code §151.424. The term “credit card sale” means a sale of a taxable item paid by the purchaser using a credit card. For non-credit card sales, the current discount rates in both statutes will continue to apply.
HB 2320 (Harris, Caroline) would exempt the sale of feminine hygiene products.
HB 2422 (Lozano, Jose) would add Tax Code §151.360 to exempt the sale of a skilled trade tool item if the sale takes place during the first weekend in September. The term “skilled trade tool item” includes a toolbox, a power tool, a power tool batter, handheld pipe cutters, plumbing inspection equipment, a tool belt, electrical voltage testing equipment, safety glasses, protective overalls, a duffle bag, an LED flashlight, and work gloves. The bill sets a maximum sales price for various categories of skilled trade tool items.
HB 2482 (Capriglione, Giovanni) would amend Tax Code §151.359 to expand the exemption for qualified data centers by allowing: (1) the required minimum square footage of 100,000 to be satisfied in one or more buildings; (2) the buildings to be on contiguous or noncontiguous parcels of land with certain conditions; (3) the space to be occupied by multiple qualifying occupants; (4) qualifying jobs to be located in different counties if the data center is on noncontiguous parcels of land; (5) certain jobs to be counted toward the required job creation even if the job position is not permanently assigned to the data center; (6) occupants to qualify if they obtain a license via service agreement related to the space if at least one qualifying occupant locates a data center in the space; and (6) the exemption to apply to the refurbishment of a space in which at least one qualifying occupant locates a data center. The exemption for large data center projects provided by Tax Code §151.3595 currently permits a data center to be located in multiple buildings on a contiguous parcel of land. HB 2482 would extend the exemption to noncontiguous parcels of land and make other amendments that are made to Tax Code §151.359 to further expand the large data center exemption.
SB 733 (Hinojosa, Chuy) would amend Government Code §2303.003 to broaden the definition of a “qualified employee” under the Enterprise Zone Program, which authorizes the refund of state sales/use tax that is based on capital investment that is made and the number of jobs that are created. The bill would provide that an employee who provides service offsite but who reports to and resides within 50 miles of the qualified business site may be considered a qualified employee for job creation purposes. The change would apply to an application for an enterprise project designation that is submitted on or after the effective date of the bill passage, but a specific exception is noted that the change would also apply to an enterprise project that is under audit or subject to audit by the Comptroller on or after the effective date of the bill passage.
SB 680 (Johnson, Nathan) and HB 2492 (Capriglione, Giovanni) would amend Tax Code §321.3022 to repeal subsection (f) that limits the use of information that a city obtains from the Comptroller on local tax collection, including the list of businesses in the city that annually remit more than $5,000 in state and local sales tax and that protects the confidentiality of such information. Currently, a city’s use of such information is limited to the purpose of economic forecasting, internal auditing and other economic situations, and the repeal of subsection (f) would allow the city to use the information for other purposes.
SB 1000 (West, Royce) would reduce the state sales/use tax rate from 6.25% to 5.75%.
SB 1022 (Nichols, Robert) would amend Tax Code §151.328 to delete qualifiers in the current statute which would, in effect, allow anyone to claim an exemption on: (1) repair, remodeling, and maintenance services to aircraft, including an engine or other component part of aircraft; (2) machinery, tools, supplies and equipment used or consumed exclusively in the repair, remodeling and maintenance of aircraft, aircraft engines, or aircraft component parts; and (3) tangible personal property that is permanently affixed or attached as a component part of an aircraft.
FRANCHISE TAX
HB 2213 (Landgraf, Brooks) would reduce all tax rates by 50% beginning with Report Year 2024 and would repeal the franchise tax (Chapter 171, Tax Code), effective January 1, 2025.
HB 1915 (Hefner, Cole) would amend Tax Code §171.1011(g-11) to modify the definition of “landman services” to include services performed for “other energy source.” The amendment would allow qualifying taxable entities to deduct from total revenue subcontract payments made to non-employees. The term “other energy source” is defined by the addition of a new provision in Chapter 954, Occupation Code. It would mean “a natural resource other than a miner that is necessary to produce energy, including geothermal, hydroelectric, nuclear, solar, and wind energy.”
HB 2344 (Guillen, Ryan) would allow a taxable entity to claim a franchise tax credit if the taxable entity helps at least one of its employees to obtain a high school diploma or high school equivalency certificates during the period for which the credit claim is based. A taxable entity would be able to claim a credit that is the lesser of $2,000 or two percent of the amount of franchise tax due on the report before the application of any other applicable credits.
SB 953 (Perry, Charles) would amend Tax Code §171.1013 to prohibit a taxable entity from including in the compensation deduction any cost of health care benefits if the entity’s health care benefits include abortion coverage or if the entity provides sick leave related to abortion.
GENERAL
HB 2003 (Slawson, Shelby) and SB 752 (Flores, Pete) would add new provisions to the Alcoholic Beverage Code that would authorize sellers located outside of Texas that hold certain permits to sell and deliver distilled spirits directly to consumers located in Texas. The out-of-state permit holders would have to hold a Texas sales/use tax permit and would be responsible for all Texas taxes in the same manner as if the permittee were a Texas distiller or rectifier located in Texas.
SB 952 (Perry, Charles) proposes to: (1) repeal Tax Code §111.0041(c) and (d), Tax Code §112.052(d), and Tax Code §112.151(f), all of which require taxpayers to retain and produce contemporaneous records and supporting documentation at an administrative or judicial proceeding to substantiate claims related to a deficiency assessment or a refund; (2) amend Tax Code §111.008(a) to expand the current authority of the Comptroller to determine a deficiency assessment based on a tax report or other information available to include overpayments that have been identified in a tax report or an audit, including managed audit; (3) amend Tax Code §111.104(c)(2) to eliminate the “fully and in detail” requirement when stating a reason or ground for a refund; (4) repeal Tax Code §111.105(e) that currently authorizes the Comptroller to issue a 180-day demand letter for supporting documentation for a refund claim; (5) amend Tax Code §112.051(b) to eliminate the “fully and in detail” requirement when stating a reason or ground for a protest; (6) amend Tax Code §112.051(a) to allow a lawsuit to be filed based on an order, rule, or policy that unlawfully or erroneously establishes or implies an obligation to pay or collect the tax; (7) add subchapter F to Chapter 112, Tax Code, that would authorize taxpayers to appeal a deficiency determination directly to a district court without paying under protest and would repeal subchapter E that was added in 2021, which allowed taxpayers’ appeal to a district court after a redetermination hearing but only if uncontested portion of the assessment is paid; (8) makes conforming changes to the finality of a deficiency assessment in Tax Code §111.009 with new subchapter F; and (9) repeal Tax Code §112.003, which currently prohibits attorney’s fees in tax cases.
MOTOR FUEL TAX
HB 2226 (Reynolds, Ron) would add Chapter 401 to the Tax Code that would authorize a city to impose local taxes on the sale of gasoline and diesel fuel that is sold in the city for use to propel a motor vehicle on the public highways in Texas. The tax rate would be one cent per gallon. The imposition of tax must be approved by the voters in a city election. The local taxes would be imposed and collected in the same manner as the state motor fuel taxes.
MOTOR VEHICLE SALES/USE TAX
HB 2004 (Thompson, Ed) would amend Tax Code §152.001 to exclude from taxation the sale of a leased motor vehicle if it is sold by the lessor to the lessee upon termination of the lease agreement.
HB 2027 (Dean, Jay) would add Tax Code §152.0216 to impose a motor vehicle sales tax of $1,200 on the retail sale of an electric vehicle sold in Texas. The definition of “electric vehicle” means a motor vehicle that draws propulsion energy only from a rechargeable energy storage system.
MOTOR VEHICLE REGISTRATION FEES
HB 2028 (Dean, Jay) would add Transportation Code §502.360 to require the collection of a motor fuel tax recovery fee from a person who registers an electric vehicle. The fee would be in addition to any other registration fees authorized by Chapter 502, Transportation Code. The Department of Motor Vehicle would set the fee based on the average amount of motor fuel taxes that the owner of such electric vehicle would have paid if the vehicle operated on gasoline or diesel fuel, but the fee may not be less than $300.
HB 2199 (Canales, Terry) and SB 505 (Nichols, Robert) would add Transportation Code §502.360 to impose an additional registration fee on an electrical vehicle. The additional fee to register a new electric vehicle is $400, and the additional fee for renewal is $200. The term “electric vehicle” means a motor vehicle that has a gross weight of 10,000 pounds or less and uses electricity as its only source of motor power.
SEVERANCE TAX
HB 2056 (Darby, Drew) would add Tax Code §202.062 to exempt from oil production tax oil and gas produced from a restimulation well that has been certified by the Railroad Commission as a qualifying well. “Restimulation Well” means a previously completed oil or gas well that is classified by the Railroad Commission as a marginal well under Natural Resources Code §85.122 or §86.091 and that has received restimulation treatment following production of hydrocarbons.
SB 678 (Johnson, Nathan) would amend Tax Code §201.057(f) to require that an application for a tax reduction for high-cost gas must be submitted before September 1, 2023, which would effectively repeal the exemption from gas production tax.
PROPERTY TAX
(does not include numerous bills related to residence homestead or to an appraisal district’s board of directors or appraisal review board)
HB 1818 (Munoz, Sergio) would amend provisions in Chapter 26, Tax Code, to limit the voter-approval rate to the No-New-Revenue M&O rate plus current debt rate. The limited rate applies to a county with a population of 500,000.
HB 1891 (Swanson, Valoree) would amend Local Government Code §81.006 to provide that in a county with a population of 3.3 million or more, a levy of county tax may be approved at any regularly scheduled meeting of the court only when five members of the county court are present.
HB 1895 (Lozano, Jose) would add Tax Code §23.27 to require a chief appraiser to use the cost method when appraising the market value of a recreational vehicle park’s real property.
HB 1934 (Rogers, Glenn) would amend Tax Code §11.145 to increase the threshold for the property tax exemption for tangible personal property held or used for the production of income from $2,500 to $100,000. This exemption is contingent on the passage of a constitutional amendment (HJR 101) and on the voters’ approval of the constitutional amendment.
HB 1956 (Geren, Charlie) would amend Tax Code §42.29 to increase the attorney’s fee limit that a prevailing property owner can be awarded from the greater of $15,000 or 20% of the total tax liability to the greater of $25,000 or 50% of the total tax liability. The limitation would not apply to an appeal of an appraised value of a residence homestead if the property owner prevailed in an appeal under Tax Code §42.25 (Excessive Appraisal) or §42.26 (Unequal Appraisal).
HB 1994 (Raney, John) would add Tax Code §11.36 to provide an exemption of a portion of the appraised value of inventory of tangible personal property held for retail sale. The bill sets the initial portion of the exemption at 20% of the appraised value in tax year 2024 and would incrementally increase the percentage in subsequent tax years. The exemption would be contingent on the passage of a constitutional amendment (HJR 104) and on the voters’ approval of the constitutional amendment.
HB 2121 (Paul, Dennis) would amend Tax Code §22.24(e) to provide that a rendition or report filed on behalf of a property owner does not have to be sworn under oath if the property owner is rendering tangible personal property used for the production of income and the good faith estimate of the market value of that property is not more than $500,000.
HB 2130 (Lozano, Jose) would add Tax Code §23.28 to require a chief appraiser to use the cost method of appraisal in determining the market value of a manufactured home community’s real property.
HB 2220 (Harrison, Brian) would amend provisions in Chapter 26, Tax Code, to remove the tax increases of 3.5% and 8% that the current law allows, which would result in the voter approval rate to be the no-new-revenue M&O rate plus the current debt rate.
HB 2312 (Romero, Ramon) would add Tax Code §23.013(f) to prohibit a chief appraiser from considering a sale to be a comparable sale for market data comparison if a governmental unit was the purchaser on the sale and a determination is made that the governmental unit paid a sales price that exceeds the market value of the property.
HB 2421 (Lozano, Jose) would amend Chapter 313, Tax Code (Texas Economic Development Act), to reinstate the limitation of appraised value provisions that expired on December 31, 2022.
HB 2488 (Geren, Charlie) would amend Tax Code §42.23 to provide that in a trial de novo appeal brought to challenge the increase in the appraised value when the property’s appraised value had been lowered in the preceding tax year under Tax Code §23.01(e) or §41.43(a-3), the chief appraiser and the appraisal district have the burden of proof to support the increase.
SB 871 (Springer, Drew) would add Tax Code §11.35 to provide that a person is entitled to an exemption by a taxing unit of inventory owned by the person. The term “inventory” is defined to mean: (1) a finished good held for sale or resale; (2) a raw or finished material held to be incorporated into or attached to tangible personal property to create a finished good; or (3) residential real property that has never been occupied as a residence and is held for sale in the ordinary course of a trade or business. The exemption is contingent on the passage of a constitutional amendment (SJR 46) and on the voters’ approval of the constitutional amendment.
SB 899 (Hughes, Bryan) would amend Tax Code §41.45 to: (1) clarify that the designated agent of a property owner is entitled to request one postponement of the appraisal review board’s hearing; and (2) provide that “good cause” exists for rescheduling a missed hearing if the inability to attend the hearing was due to the fact that the owner or agent was appearing before a different panel of the same appraisal review board at the time of the scheduled hearing.
SB 879 (Creighton, Brandon) would impose a cap of 5% on the annual increase of the appraised value of a commercial real property. The term “commercial real property” means real property zoned or otherwise authorized for and actually used for a purpose other than single family use, multi-family use, heavy industrial use, or use as a quarry. The bill is contingent on the passage of a constitutional amendment (SJR 48) and on the voters’ approval of the constitutional amendment.
SB 880 (Creighton, Brandon) would amend Tax Code §23.0101 to provide that a chief appraiser may not use the income method of appraisal in determining the market value of a commercial real property. The term “commercial real property” means real property zoned or otherwise authorized for and actually used for a purpose other than single family use, multi-family use, heavy industrial use, or use as a quarry.
SB 977 (Bettencourt, Paul) would amend Tax Code §26.012(7) to redefine “debt” for the purposes of calculating certain ad valorem tax rates to a bond, warrant, certificate of obligation, or other evidence of indebtedness that has been approved at an election and would eliminate other recognized permissible issuance from being included. SB 976 (Middleton, Mayes) has the same tax amendment, among other changes.
SB 978 (Bettencourt, Paul) would repeal Tax Code §26.075 and §26.063 that set out alternative provisions related to de minimis rate changes from the voter-approval tax rate. SB 976 (Middleton, Mayes) has the same tax amendment, among other changes.
SB 1019 (Hughes, Bryan) would add Tax Code §23.231 to impose a cap of 15% on the annual increase of an appraised value of real property other than residence homestead exempted under Tax Code §111.13 or to property appraised under Subchapter C, D, E, F, G or H. The bill is contingent on the passage of a constitutional amendment (SJR 53) and on the voters’ approval of the constitutional amendment.
If you have questions about the impact these bills may have on your business, contact our team today to consult with a DMA tax expert.
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