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The Senate Committee on Finance met to take up several interim charges from public and invited testimony on the spending limit, business personal property tax, and monitoring HB 1525 (86th).

  • Spending Limit: Examine options and make recommendations for strengthening restrictions on appropriations established in Article VIII, Section 22, of the Texas Constitution, including related procedures defined in statute. Consider options for ensuring available revenues above spending limit are reserved for tax relief.
  • Business Personal Property Tax: Study the economic dynamics of the current business personal property tax. Consider the economic and fiscal effects of increased exemptions to the business personal property tax, versus its elimination. Following such study, make recommended changes to law.
  • Monitoring: House Bill 1525, relating to the administration and collection of sales and use taxes applicable to sales involving marketplace providers.

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

Spending Limit

Stewart Shallow, LBB

LBB Presentation

  • Texas has 4 Constitutional Limits on spending but last two apply to wider range – pay as you go and spending limit
  • Constitution leaves it with legislature to provide spending limit
  • Shallow continued to walk through the presentation
  • Nelson – asked how often spending limit is the controlling limit
    • Depends on legislature priorities regarding to controlling limit
  • Nelson – there are other indicators beside personal income growth to measure growth in state’s economy/ what is right measurement if goal of spending limit is to limit to taxpayer’s ability to pay?
    • Measure all income of Texas residents
  • Nelson – asked about other states and methods to limit appropriations?
    • Other states have spending limit, Colorado has both revenue and spending limit
    • Nelson – how do they refund to taxpayers in Colorado?
      • Believe its income tax credits
  • Hinojosa – What counts against the spending limit?
    • Hinojosa concern that paying down state debt – would it reduce funding available for other programs, believes debt grows each year
    • Hinojosa suggest instead of lowering taxes; pay down debt and not have it count toward spending limit
  • Would require a constitutional change to change spending limit or could keep current spending limit in place and adopt another statutory requirement
  • Nelson – gets why property tax relief counts again spending limit but how could they achieve intended goal of spending relief with discouraging tax relief
    • Appropriations that make school districts whole count against the spending limit

Tom Currah, State Comptroller Office

  • Documents provided to committee include personal income forecast which they provide to LBB
  • Last couple of session have also provided population plus inflation data
  • Nelson – five different orgs that provided estimates, how often do you update information?
    • Update on an as needed basis
  • Hinojosa – budget is still 2 years behind
    • On BRE making changes sometimes weekly but still projecting more than 2.5 years in the future, still a forecast with a lot of uncertainty
  • Hancock – questions growth of tax rate at ability to pay, so does that mean more successful the taxpayer is the more the government should grow?
    • Decision for legislature to make
  • Whitmire – median income doesn’t take into consideration Texans with high income and a large number that are barely making it, limits may not always paint an accurate picture of what needs are
  • Nelson – the healthier the economy the more we can help people
  • Whitmire – talks about healthcare spending needs and frustrated with process with emphasis on capping spending
  • Nelson asked about median again
    • Total personal income is what they measure
    • Hancock – that would be interesting, may need to break it down, it could be telling 

Business Personal Property Tax

Dale Craymer, Texas Taxpayer and Research Assoc.

  • High tax burden on capital intensive industry
  • 12 states do not include business personal property as part of tax base at all, 36 states take step of not taxing inventory
  • 20 different rendition forms a business may be subject to file, burden for business to fill out paperwork which can be particularly burdensome for small businesses
  • $3.5 billion a year if they exempted all business personal property so suggests the following options:
    • Could be phased in
    • Could choose categories
    • Smaller units of personal property – raise $500 threshold
    • Tax credit for property tax on corporate tax; a franchise tax credit from the personal property tax a business pays
  • Whitmire – should have real review of property tax rate, fairness and equality of it such as those that submit their own appraisal, wonders if there is more of a trade off in current environment
    • Lack of a personal income tax is a positive but he is correct that the trade off is property taxes
  • Whitmire – businesses want good transportation, health care and higher ed
    • Property tax and sales tax are what Texas relies more on
    • Business pay roughly 62% of total taxes in state which is reverse of what is seen in other states
    • Hear so much from business about abatement programs because it helps to complete for big projects
  • Whitmire – flooding issues, educational, all so dependent on viable revenue; already know there will be challenges on school finance matters (not planning to cut teachers raises or all-day Pre-K), not sure current revenue system is prepared to fund needs  
    • Would agree, reality is structure of economy
    • Don’t have a tax system that relatively captures growth in services
    • Our tax system is good at taxing stuff but type of work now in workforce is much more service oriented and digital
    • Tax system may do a less good job of taxing the economy 30 years from now
  • Hinojosa – business decisions made on many decisions such as 312, 313  
    • Care about bottom line, what is total amount they will pay
    • Texas is almost never the lowest tax state
    • Because of tort reform, right to work state, location are all reasons why business will choose us
  • Hinojosa – inventory issue for businesses seem to be real problem
  • Hancock – everything slows down in November (Oct-Dec) so they don’t have inventory because of our tax policy, has there been any analysis on the economic impact
    • It is clearly an issue for those that deal in inventory/raw materials
    • Have not seen any studies specific to it but will look into it
  • Campbell – for those states with lower property taxes how are they doing it?
    • Heavily resource states like Wyoming
  • Taylor – Harris county example that tax brought in pays 2/3rd administrative cost, agrees need to look at exemption; shouldn’t be spending almost as much money as brought in 
  • Hinojosa – back to $500 exemption, cost more to charge tax than to collect so couldn’t they set a higher threshold  
    • Inflation narrows down $500 and would not have disparity growing over time
    • Notes Harris County has research on this as well
  • Nelson – If you had to choose between franchise tax or business personal property tax, to get rid of one, which one would be preferred?
    • Depends on business itself
    • In regard to better for Texas, impact on greater number of business would be the personal property tax
    • The only way to pay property tax is by having property here
    • If you want to keep dollars in Texas, best way is to tackle property tax
  • Nelson – that franchise tax never brought in what it was supposed to bring in
  • Nelson – if going to phase in the exemption of business personal property tax, any recommendation
    • One of expediency, figure out what can afford
    • Property tax exemptions have to be written into the Constitution
  • Whitmire – wouldn’t admonishment be to look at other factors before putting in an exemption of a tax, not getting any smaller as state; how are we going to fund this state?
  • Part of attractiveness of doing a franchise tax credit – have more control/flexibility to adjust

Annie Spilman, NFIB

  • Nelson – which would businesses choose from franchise tax or property tax
    • Have seen credits go back into business and into the economy
  • Nelson – if could get rid of some of those additional forms could focus on what they went into business for
    • Yes, businesses operate on thin margins
    • Would agree with most of what Nelson said
    • Some may disagree on franchise tax exemption
    • Can agree business personal property tax structure is flawed
  • Hancock – Asked Craymer about rolling stock (truck trailer equipment) being taxed twice on asset? Double taxing
    • Double taxing occurs all over, even when building a building
    • Spilman – option for exemptions may be about exempting new equipment
  • Way tax is structured almost encourages people not to purchase more equipment and encouraged dishonest behavior    
  • Franchise tax will always be an issue for small business,
  • Would like to see state build a tax system, less complex and willing to pay
  • SB 2 is a beginning and appreciates it
  • Nelson – % of business in Texas that are small businesses
    • Like 98% 

House Bill 1525

Karey Barton, Associate Deputy Comptroller

  • July 1 begin registering, comment period on ruling closed on Sunday
  • Market place legislation was put into rule
  • Will need to aggregate sales to determine if they fall under safe harbor
  • If exceed $500k will be responsible for collection
  • Effective date of first collections were Oct 1, 2019 and reports Nov 20
  • 1,856 new remote seller registrations, 1,336 have chosen to use optional local rate
  • 310 marketplace providers have also registered
  • List of marketplace and remote seller list do change
  • New remote seller registrations are a bit harder to judge since at $500k but other states at $100k threshold
  • In areas of marketplace legislation, other fees or taxes collected by other entities for example retailers of battery also have to collect $2 fee so… who collects fee?
  • Telecom companies coming forward and looking at this issue such as 911 fees, push to either be excluded or marketplace providers collect 911
  • Lot of nationwide talk about refining definition of marketplace provider
  • HB 2153 – rate was 1.75% for Oct 1-Dec 31, rate will remain at 1.75%
  • Process of amending rule that deals with local sale and use taxes, language addresses how remote sellers can register for that rate
  • Nelson – how many waivers issued?
    • Food delivery and grocery delivery
    • 3 other marketplace providers have approached for extension until Jan1 and they were approved
  • Nelson – any reason to believe the revenue we will bring in will be less than fiscal note?
    • If anything it will be more
  • Hinojosa – how is sales tax distributed from buyer, local jurisdiction, etc
    • Amazon was used as an example, marketplace provider so state sales tax will be collected and local sales tax will be collected on where goods are shipped
    • Some discussion about optional local sales rate is 1.75% where potentially rate could be 2% – but all money coming in at 1.75% is all brand-new money
    • No one receiving less than what they would receive
  • Huffman – was threshold by legislation, are you comfortable with that 
    • No, it was set by rule
    • Chose that amount for two main reasons, cognizant of any undue burden that may be on the seller

Public Testimony

Teresa Sharp, Ryan LLC

  • Tangible property exemption process
  • Several states have put in place exemptions to assist small businesses (thresholds for value to exempt them from taxation but not reporting)
  • Difference between Texas and Georgia rate and freeport exemption across all cities, counties must apply
  • Other options beside just exemption, alternate valuations, weighted average and tax rates to different classes (retail/wholesale/etc) and phase in options
  • No vehicle taxes with exception of 5 states
  • Nelson – how have other states paid for exemption?
    • Increase in franchise tax
    • Transaction taxes increased such as Florida with tourism tax
  • Nelson – the trade off in Ohio, were businesses happy with that?
    • It did increase rates and there was a trade off

George Kelemen. Texas Retailers Assoc.

  • Appreciate members looking at Inventory property tax relief
  • Appreciate even incremental relief
  • Nelson – best way to help all Texans is to grow businesses

Jim Robinson, Harris County Appraisal Board 

  • Need to look seriously at personal property tax
  • It does generate a lot of money in Harris County – $2.95 billion total levy and $371 million for personal property tax would need to increase by 14% if exempted all personal property

Andy Myers, Fort Bend County Commissioner

  • Exemption would shift tax burden to homeowners
  • Believes best tax policy is to reduce the rate
  • Would encourage legislature not to change current structure

Russell Schaffner, Tarrant County

  • Business and personal property make up 13% of tax base
  • Tarrant County split means 58% burden for residential
  • If look at tax rolls, industrial and commercial are most heavily exempted tax bases

Chris Woolsey, City Council Corsicana

  • Business owners asked to bring message that the business personal property tax should be abolished
  • Example of one business that saw a 1500% increase, arbitrary value assigned to certain equipment, tax is repetitive and burdensome
  • Business owners should not have to pay rent to government simply for doing business
  • Nelson – is day job operating a business?
    • Project management at bakery
  • Flores – subjective property appraisals and no uniform standards, started working on this in SB 2 and should continue working on this in the next legislative session
    • As a start, uniform standards, appraisal reform is a needed change
    • Current process disincentivizes growing value or wealth
    • Another witness on panel also suggest possible sales price disclosure
  • Nelson – will keep appraisal reform on the front burner

Adam Haynes, Conference of Urban Counties  

  • Have made great strides in SB 2 and appreciate it
  • But shift in exemptions will impact homeowners

Charles Reed, Dallas County

  • Impact in Dallas County, shift would be on homeowners and commercial
  • Avg homeowner would see $68 increase and commercial would see $494 increase
  • Real problem with exemptions, every time you exempt you devalue other exemptions such as homestead exemption
  • Do think exemptions should exist but ask members to carefully consider this exemption and its impact on real property owners

Nelson – apologize for not giving greater notice but wanted to get one hearing done before the holidays