LEGISLATURE REACHES DEAL ON SWEEPING TAX CUT PACKAGE
(AUSTIN) — The Senate gave unanimous approval to two measures Wednesday as part of a deal between the House and Senate on how to deliver billions in property tax relief to Texas citizens. As in previous proposals, SB 2 by Houston Senator Paul Bettencourt would raise the homestead exemption, more than doubling the amount homeowners can write off before assessment. This was a firm sticking point for the Senate, with Lt. Governor Dan Patrick saying throughout the summer that any deal on property taxes must include an increase in the homestead exemption. The House plan had focused on limiting appraisal growth. "The blockbuster part of the plan is of course the residential homestead exemption increase from $40,000 to $100,000," said Bettencourt. "This increase in homestead exemption is going to result in savings of $681 for all 5.72 million Texas homesteads if the voters approve in November." He added that the total tax cut package, $18 billion in all, is the largest in the history of the state.
Members of the Senate Finance Committee quickly advanced legislation Wednesday representing the compromise between House and Senate on $18b in tax cuts. The full Senate approved the package soon after.
The compromise language in the bill would cap yearly appraisal growth for all non-homestead real property at 20 percent. It would only apply to businesses worth less than $5 million, though that threshold would be indexed to inflation. This provision is also set to expire at the end of 2026, allowing lawmakers to evaluate the program's success and decide whether to continue with it in the 2027 regular session. The bill also continues the compression of local school property tax rates begun in 2019's HB 3, adding an additional 10.7 cents per $100 valuation in tax savings for homeowners. Taken with the homestead exemption, Bettencourt says the average homeowner will save around $1,300 on their annual property tax bill. The bill is written such that these changes are retroactive to this year, meaning homeowners can expect to see these savings in their next property tax bill.
The bill also aims to add more public input into the property appraisal process by creating three new elected positions in any central appraisal district in a county with a population of 75,000 or more.
The second bill in the plan, SB 3, also by Bettencourt, would dramatically reduce the number of small businesses that pay the state franchise tax. Businesses that make less than $1.24 million are currently exempt from the tax, but the measure approved today would double that, up to $2.47 million. Bettencourt says this will remove 67,000 small and medium-sized businesses from the franchise tax rolls, or about 40 percent of those paying franchise taxes under current law. The bill also gets rid of the requirement that exempt businesses file a "no tax due" form, saving both time and a potential $50 penalty for not filing the form in time.
While lawmakers couldn't reach a compromise in either the regular session or the first special session, Lt. Governor Patrick said that the difference this time around was face-to-face negotiations between Speaker Dade Phelan and himself, as well as tireless work between Bettencourt and his House counterpart Representative Will Metcalf. "I want to thank the Speaker and particularly Chair Metcalf to get us to this point," said Patrick. "It wouldn't have happened without the Speaker and I coming together and Chairman Metcalf and Chairman Bettencourt working day and night on this."
The deal between the Senate and House seems to have passed muster with the governor as well. Governor Greg Abbott added exemptions and franchise tax reform to the scope of the session agenda on Monday, and said in a statement he will approve the measure. "I look forward to this legislation reaching my desk, so I can sign into law the largest property tax cut in Texas history," he wrote.
The Senate is expected to take up and pass HJR 1, which creates the constitutional amendment that would increase the homestead exemption, on Thursday. That means the governor could sign this package into law as soon as Friday.
The Senate will reconvene Thursday, July 13, at 2 p.m.