House Ways & Means Interim Report to the 88th Legislature

The House Committee on Ways & Means interim report to the 88th Legislature covers property taxes, federal funds, and sales tax destination sourcing. For more information see the full report here.

Spotlight on Recommendations

Charge 1. Monitor the agencies and programs under the Committee’s jurisdiction and oversee the implementation of relevant legislation passed by the 87th Legislature, including HB 2080, SB 903, SB 248, SB 2, HB 1869, HB 2429, HB 2723, SB 1438, HB 988, HB 2941, HB 3971, SB 63, SB 916, and SB 1919.

• CPA has successfully adopted rules to implement HB 2080 and did not need to adopt rules for SB 903 because of the clear statutory text. The Committee did not receive testimony indicating concerns with CPA’s implementation of these bills. Therefore, the Committee makes no recommendations regarding Charge 1.1. However, the Committee encourages CPA to update the Committee if CPA determines that either bill is materially, negatively impacting CPA operations or resources.
• The Legislature should identify appropriate metrics of performance as it relates to Senate Bill 1102, including best practices to be shared with other institutions
• Require cities and counties to enter the estimated annual and lifetime value of the economic development agreement in the database.
• Require cities and counties to select from a standardized list of options the types of incentives (e.g., sales tax, property tax, development fees) that the local government is granting to the entity.
• Require cities and counties to list the entity commitments (e.g., property improvements, new jobs) in the database.
• Evaluate whether the State Auditor or another entity could conduct annual compliance audits of a sample of economic development agreements.
• The Committee should continue to monitor implementation of SB 248, including the number of permits issued, number of permit violations, outcome of enforcement actions against permitted retailers, and accessibility of the permit issuance process.
• The Committee should monitor the existing penalty structure for tobacco retailers, including repeat violators and retailers that sell tobacco and e-cigarettes to minors.
• The Committee should evaluate the e-cigarette tax structures of other states, including the units of measurement, tax rates, and taxable products. The Committee should determine whether Texas should impose an additional excise tax on e-cigarettes.
• The Committee should continue to monitor implementation of SB 2.
• The Committee should continue to monitor implementation of HB 1869.
• The Legislature should consider the reforms and transparency enacted in HB 1869 and apply those reforms to Tax Anticipation Notes.
• The Committee should continue to monitor implementation of HB 2723 and should consider allowing property owners to register for email or text notifications from their local property tax website.
• The Committee should continue to monitor implementation of SB 1438 to ensure compliance.
• The Committee should investigate avenues for improving the transparency of property taxes, including public hearing information, and taxpayer opportunity for involvement in the process.
• The Committee should determine, per HB 1869, whether certain debt which is currently excluded from the 3.5% limit should be included in the 3.5% limit.
• The Committee should monitor CPA’s continued revisions, clarifications, and processing of tax calculation worksheets. The Committee encourages CPA to simplify the process, simplify the forms, increase accessibility and identification of data points, and increase verification of data. The Legislature should consider requiring tax calculation data verification to be part of a city’s annual audit.
• The Committee should continue to monitor implementation of HB 988 and should investigate solutions to increase the available pool of potential ARB members.
• The Committee should investigate the efficacy of the current enforcement mechanism that requires adherence to the PVS and should consider requiring CPA to enforce PVS adherence.
• The Committee should continue to monitor implementation of HB 2941 and consider ways to expand the candidate pool for ARBs. The Committee should also examine the training methods for ARB members, and ensure these methods achieve equitable consideration of both the ARB, and the taxpayer.
• The Committee should continue to monitor implementation of HB 3971 to ensure historic districts are accurately appraised.
• The Committee should continue to monitor implementation of SB 63 and address additional concerns raised within the appraisal process.
• The Committee should continue to monitor implementation of SB 916 to ensure transparency in chief appraisers’ PVS results.
• The Committee should continue to monitor implementation of SB 1919 and should gather any available data regarding satisfaction levels for this medium compared with in-person or telephone hearings.

Charge 2. Study and consider methods of providing additional property tax relief, including the use of $3 billion in available American Rescue Plan Act funds that were held for future tax relief by the 87th Legislature, and other sources of revenue. Explore options to reduce business property tax burdens and options for limiting the growth of property tax bills.

• The Legislature should use surplus revenue, and other available funding sources, including ARPA funds, to establish additional permanent school district tax rate compression (at least $0.10) to provide uniform and substantial tax relief for all property taxpayers in the state.
• The Legislature should examine further slowing the growth of school district property taxes by reducing the allowable growth percentage.
• The Legislature should eliminate the property tax on intangible personal property.
• The Legislature should provide tax relief on inventories taxed at the local level by reducing or eliminating the inventory tax.

Charge 3. Study Texas’ property tax appraisal system and make appropriate recommendations to improve the appraisal system. The study should include: Assessing the accuracy of appraised values and operational effectiveness of appraisal districts; Evaluating methods of selecting chief appraisers, appraisal review boards, and appraisal district directors; and evaluating existing appraisal protections for taxpayers and ease of taxpayer participation in the appraisal process.

• The Committee should examine the effects of lowering the maximum statewide homestead exemption appraisal cap from the current 10%.
• The Committee should monitor responses to the CPA’s ARB satisfaction survey and examine ways to increase survey responses and gather better information on how best to improve the process for taxpayers.

Charge 4. Conduct a comprehensive review of the impact of not renewing Chapter 313, Tax Code. Evaluate tax incentives offered by other states and make recommendations for incentivizing manufacturers and other capital-intensive businesses to locate to Texas.

• The Legislature should establish an economic development program that allows limited and temporary school district property tax discounts to incentivize manufacturers and other large-scale, capital-intensive businesses to relocate or expand operations in Texas. This program should prioritize overall economic impact, be transparent, involve all stakeholders, have enhanced audit requirements to ensure agreements comply with the statute, and be simple for applicants to navigate.
• The Committee should evaluate and consider addressing outstanding applications for value limitation agreements under Chapter 313 that were timely filed but not reviewed by CPA and if addressed, find the proper mechanism to do so.

Charge 5. Evaluate the impact of shifting to destination sourcing for local sales and use tax purposes, including the benefits of reduced taxpayer confusion. Monitor the implementation of the Comptroller’s amendments to 34 Tx. Admin. Code §3.334, relating to local sales and use taxes, and the Comptroller’s Sales Tax Rate Locator. Make recommendations for legislation to improve Texas’ local sales and use tax sourcing.

• The Legislature should require all sales to be sourced at the destination in the same manner as remote sales; marketplace sales; sales of natural gas and electricity; sales of mobile telecommunication services; sales of amusement services; sales of cable system services; sales of garbage or other solid waste collection or removal services; and sales of services to remodel, repair, or restore nonresidential real property. The Legislature should provide a sufficient transition period for businesses and consumers to prepare for the change. The Legislature should ensure that the transition period is sufficient for CPA to propose and adopt rules fully implementing the legislation.