February 1, 2023
Written by: Eleanor Kim, DMA Tax Counsel
DuCharme, McMillen & Associates, Inc. (DMA) provides this information relating to the 88th Texas Legislature Regular Session.
Senate and House Budget Bills
Texas Lieutenant Governor Dan Patrick has released Senate committee assignments, appointing 17 senators to the Senate Finance Committee which has scheduled budget hearings to review the Senate budget bill (SB 1). No tax bills will be heard by Senate Finance until the completion of the budget hearings. House committee assignments have not yet been released.
SB 1 proposes spending a total of $288.7 billion for the 2024-2025 biennium of which $130.1 billion is from general revenue. SB 1 sets aside $15 billion for property tax relief, including $3 billion to increase the homestead exemption to $70,000. The House’s budget bill (HB 1) also sets aside $15 billion for property tax relief but differs in other details which will be worked out during the session.
A Historic Budget Surplus
Lieutenant Governor Patrick has publicly stated that Texas has “billions more available” than the widely reported surplus of $32.7 billion and stated his priority of returning a portion of the record surplus to the taxpayers. The state’s unprecedented budget surplus will pose a problem for the legislature because the Texas Constitution limits the amount of additional money that the state can spend every two year-budget cycle to the rate of the state’s economic growth. In effect, it prohibits appropriations funded with tax revenues that are not dedicated by the Texas Constitution from growing faster than the state’s economy.
Both the House and Senate’s budgets, as currently proposed, fall below the tax spending limit, but the legislature will have to address numerous proposals, including tax reliefs other than property tax, that will be introduced this session. According to the Texas Taxpayer and Research Association, the legislature will face three options: (1) pass a resolution to suspend the tax spending limitation by a two-third majority of each chamber (with each member’s vote being recorded); (2) pass a resolution proposing a constitutional amendment to suspend the taxing spending limit which would require the voters of the state to ratify the amendment; or (3) do nothing and let the excess surplus be available for use in the next budget biennium. We will have to see how the political winds will influence the legislature’s election.
Bills Filed
Following are tax bills introduced since initial takeaways from the 88th Texas Legislative Session were published by DMA on January 17th. The number of tax bills is lower than in prior sessions for the comparable period, but this period is the calm before the storm because DMA predicts an onslaught of tax bills to be introduced before the filing deadline of March 10, 2023.
Jump to bills by tax type:
SALES/USE TAX
HB 1465 (Bucy, John) would amend Tax Code §321.203 (City Sales/Use Tax) to provide that an economic development agreement under Chapter 380, Local Government Code or under Chapters 504 or 505, Local Government Code (Type A or B Development Corporation) between a retailer and a city that was in effect as of August 31, 2019, and that recognizes a location as a place of business would remain a place of business of the retailer for the term of the agreement regardless of any law. The bill further reiterates that during the term of the agreement, the sale of a taxable item is deemed to be consummated at that place of business if the sale would have been consummated at that place of business under the law in effect on August 31, 2019. [Note: This is identical to SB 333 (Schwertner, Charles) that was filed on December 12, 2022.]
FRANCHISE TAX
SB 604 (King, Phil) 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, and it would mean “a natural resource other than a miner that is necessary to produce energy, including geothermal, hydroelectric, nuclear, solar, and wind energy.”
GENERAL
HB 1496 (Guerra, Bobby) would add Chapter 95, Business & Commerce Code, to require a person that facilitates the rental of a short-term residential property in Texas to: (1) disclose all taxes and fees charged in connection with the short-term rental; and (2) to post all pertinent taxes and fees on a website in a location that is easily accessible by the customers or potential customers. The bill would prohibit the person from charging fees, except a cleaning fee, in connection with the rental that in total exceed 10% of the price of the short-term rental before applicable taxes and fees.
HB 1497 (Guerra, Bobby) would add Chapter 205, Business & Commerce Code, to require a person that sells or resells tickets for a concert or other event in Texas, including the operator of a ticket website, to: (1) disclose all taxes and fees charged in connection with the sale of a ticket; and (2) post the total price of the ticket, including taxes and fees charged in connection with the sale, on a website in a location easily accessible by ticket purchasers or potential ticket purchaser. The bill would prohibit the person from charging fees that in total exceed 10% of the price of the ticket before applicable taxes and fees.
SB 506 (Perry, Charles) would add Government Code §2001.008 to provide that unless the legislature explicitly grants the authority, a state agency may not adopt a rule that requires a person to pay a fee or a tax if: (1) the item, service, privilege or transaction is not subject to the fee or tax at the time the state agency proposes to adopt the rule; and (2) the state agency has not previously interpreted the statute or other pertinent law as authorizing the agency to impose the fee or tax on the applicable item, service, privilege, or transaction.
HOTEL OCCUPANCY TAX
HB 1689 (Murr, Andrew) would amend Tax Code §352.005 to: (1) authorize a county to spend a portion of the county hotel occupancy tax revenue to create, maintain, operate, and administer an electronic tax administration system; (2) prohibit a county from using the same revenue to conduct audits; and (3) authorize a person who collects and remits a county hotel occupancy tax using the newly created electronic tax administration system to retain up to 1% of the tax collected and remitted as reimbursement.
SB 627 (Menendez, Jose) would amend Tax Code §351.156 to specify the physical parameters as to when a restaurant, bar, or retail establishment is connected to a qualified hotel for the purpose of the city being able to receive tax revenue collected from a qualified hotel project. A restaurant, bar or retail establishment is deemed to be connected if it: (1) shares an adjoining wall or roofline with the qualified hotel or the related qualified convention center facility; (2) is joined with the qualified hotel or the related qualified convention center facility by an intervening structure with walls or a ceiling that allows for passage between buildings; or (3) is located on a plot of land that: (A) shares a property boundary line with the plot of land on which the qualified hotel or the related qualified convention center facility is located; and (B) is developed as part of a qualified project of which the qualified hotel and the related qualified convention center facility are a part. [Note: This bill is in response to the Comptroller’s current interpretation that narrowly reads the phrase “connected to” to mean joined by a common wall.]
SB 644 (Huffman, Joan) would add Tax Code §351.10713 to provide that a city that borders the Gulf of Mexico and through which the Colorado River flows may use all or any portion of the revenue derived from the city hotel occupancy tax to construct, expand, or operate recreational or sports facilities and fields owned by the city for the purpose of promoting tourism and convention and hotel industry.
INSURANCE PREMIUM TAX
HB 1718 (Ashby, Trent) would add Chapter 487A, Government Code, to establish a program that authorizes the Comptroller to provide insurance premium tax credits to insurance companies for making investments to a qualified rural development fund.
NEW TAX
SB 488 (Springer, Drew) would add Chapter 165, Tax Code, to impose a tax on each electric generator in Texas that generates electricity using an energy source other than natural gas. The Comptroller would determine the tax rate each year based on the revenue received in the preceding year attributable to gas production tax imposed under Chapter 201, Tax Code, by the total cubic feet of natural gas and the average number of cubic feet of natural gas used to generate one kilowatt hour of electricity in the preceding year. The term “electric generator” includes an affiliated power generation company, an electric utility or electric cooperative that owns or operates for compensation in Texas equipment or facilities to generate electricity in Texas, an exempt wholesale generator and a power generation company.
PROPERTY TAX
(does not include numerous bills related to residence homestead)
HB 1417 (King, Tracy) would add Tax Code §23,1212 to authorize a small telecommunication utility company to elect the appraisal of taxable real or personal property based on the property’s presumptive appraised value, which is defined to mean 20% of the net book value of the property. The term “small telecommunication utility company” means an incumbent local exchange company or cooperative that, on September 1, 2013, together with all local exchange companies affiliated with the company or cooperative on that date, served 31,000 or few access line in Texas or a company that is successor to such a company. When making a written request for the election, a company must state the presumptive appraised value on January 1 and must include an accounting report that demonstrates the net book value of the company’s taxable property in the appraisal district that was prepared and certified by a certified or licensed public accountant who is not an employee of the company. The bill would allow the chief appraiser to increase above the presumptive appraised value if the increase is supported by a preponderance of the evidence.
HB 1513 (Vasut, Cody) would create a joint interim committee consisting of members from both the House and Senate to conduct a comprehensive study of alternative methods of taxation to replace ad valorem taxes. The committee is to prepare and submit a report containing the results of the study and recommendations for legislative or other action by November 1, 2024. The bill would repeal ad valorem tax (Title 1, Tax Code) effective January 1, 2033.
HB 1608 (Shine, Hugh) would amend Tax Code §31.06 to authorize the acceptance of an electronic payment of tax and would add Tax Code §31.062 to require a collector to set up procedures for the electronic payment of tax. The term “electronic payment” is defined to mean by credit card, debit card, electronic check, electronic funds transfer, wire transfer, or automated clearinghouse withdrawal.
HB 1609 (Shine, Hugh) would authorize a property owner or the owner’s designee to communicate electronically with tax officials.
HB 1801 (Talarico, James) would add Tax Code §11,36 to provide a property tax exemption to a person who owns and operates a qualifying child-care facility on the property if the property is necessary for the operation of the facility and the facility is used exclusively to provide developmental and educational services for children attending the facility. HJR 96 proposes a constitutional amendment to authorize the exemption.
HJR 79 (Moody, Joe) and SJR 32 (Blanco, Cesar) propose a constitutional amendment that would include conservation and reclamation districts located in El Paso County to issue bonds supported by ad valorem taxes to fund the development and maintenance of parks and recreational facilities.
SB 433 (Middleton, Mayes) would amend Tax Code §23.26(d) to eliminate the current requirement that a chief appraiser must calculate the depreciated value of a solar energy property by using a useful life that does not exceed 10 years from the cost method of determining the market value of the property.
SB 480 (Kolkhorst, Lois) would amend Tax Code §11.18 to provide that the current exemption for a charitable organization that provides temporary home shelters for children, battered spouses, or victims of natural disaster does not apply to a real property that consists of rental housing construed, rehabilitated or purchased wholly or partly with money awarded through a program administered by the General Land Office.
SB 539 (Campbell, Donna) would amend Tax Code §33.03 to require each taxing unit to indicate on each delinquent roll whether a tax delinquency is deferred or abated for residence homestead under Tax Code §33.06 (Elderly, Disabled, Disabled Veteran) or §33.065 (Appreciating homestead).
PUC GROSS RECEIPTS ASSESSMENT
SB 488 (Springer, Drew) would add Chapter 165, Tax Code, to impose a tax on each electric generator in Texas that generates electricity using an energy source other than natural gas. The Comptroller would determine the tax rate each year based on the revenue received in the preceding year attributable to gas production tax imposed under Chapter 201, Tax Code, by the total cubic feet of natural gas and the average number of cubic feet of natural gas used to generate one kilowatt hour of electricity in the preceding year. The term “electric generator” includes an affiliated power generation company, an electric utility or electric cooperative that owns or operates for compensation in Texas equipment or facilities to generate electricity in Texas, an exempt wholesale generator and a power generation company.
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.
This website content should be used for general informational purposes only, and not as a substitute for consultation with professional tax, legal, or other competent advisors. Before making any decision or taking any action based upon information contained on this website, you should consult with a DMA professional.
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