79th LEGISLATURE
HB3 passes without statewide property tax
Senate also includes sales-tax holiday, options on business tax.
AMERICAN-STATESMAN STAFF
Wednesday, May 11, 2005The Senate at about 2 a.m. today approved a major shift in state taxes, but only after changing two key components of the bill.
Senators approved House Bill 3, which cuts school property taxes while raising consumption and business taxes with a 21-10 vote. Today they’ll take up the second half of school finance reform, House Bill 2, which rewrites the formulas used to determine school funding, increases teacher pay and toughens regulations on charter schools.
The vote on the tax bill came after the Senate abandoned its long-held plan to replace the local property tax for schools with a statewide property tax. Lt. Gov. David Dewhurst and key senators described the state levy as the best way to ensure funding in the school funding system, but it ran into resistance with school groups and lawmakers who said it would take power away from school boards and only exacerbate the share-the-wealth nature of the current funding system.
Senators also scrapped their plans for a 4 percent corporate franchise tax on a business’ net income plus 25 percent of its payroll.
Under a change that senators approved during a lengthy debate Tuesday, companies will have two options. The first option will be to pay a franchise tax of 2.5 percent on net taxable income plus either half their payroll or all of their payroll, with the first $30,000 in salary for each employee exempt from the tax. The second option would be to pay a 1.75 percent payroll tax capped at $1,500 per employee.
The bill also increases the state sales tax over two years from 6.25 percent to 6.75 percent, boost the cigarette tax from 41 cents per pack to $1.16 and increases by 25 percent alcohol excise taxes and gross receipts taxes for bars and restaurants that serve hard liquor.
The tax increases will pay for a 23 percent reduction over two years in the maximum property tax rate for school maintenance and operations.
One change made on the floor should be popular with shoppers: The Senate voted to make the first weekend in December a sales-tax holiday, meaning there will be no state sales taxes charged on clothing and footwear bought that weekend as long as the items cost $100 or less. The tax holiday would resemble the one now in place before the start of school in August.
Of course, that provision and others still must survive a House-Senate conference committee.
In addition to the tax changes, the bill increases school funding by about $3 billion over two years with the help of some one-time revenue moves, such as tapping money from the state’s 1998 settlement with tobacco companies.
“With the passage of this bill we can tell Texans their property taxes are going to be lower, their schools are going to be better,” said Sen. Steve Ogden, R-Bryan.
Senators voted to give smaller property tax cuts than proposed, saying that in 2007, the maximum school property tax rate would be $1.15 per $100 in assessed property value instead of $1.10. Local voters could decide to set a slightly higher rate.
The maximum rate is now $1.50 per $100 in property value.
The removal of the state property tax eliminates a major barrier standing between the Senate and House, whose members are trying to agree on a new funding system for schools before the legislative session ends May 30.
Since the session began Jan. 11, Dewhurst and key senators had touted the state property tax as the fairest way to pay for education and the best way to protect the state from the school finance lawsuits that have dogged the system for decades.
The plan called for the Legislature to set the school property tax rate and for local collectors to gather payments from property owners and send them to the state, which would then distribute the money to school districts.
But the House steered clear of the state tax when it approved a pair of school finance bills in March, and some school groups vehemently opposed the Senate's movement toward the state levy.
Their arguments that it would take control away from locally elected school boards caught on with roughly half the Senate, more than enough to kill an idea in a chamber that requires a two-thirds vote to bring up a bill up for debate.
"We believed it was the best way to get out of the courts, at least on that issue," said Senate Education Committee Chairwoman Florence Shapiro, R-Plano. "But we don't seem to be able to garner enough support for it."
District Judge John Dietz ruled last year that the state system violated the constitutional ban on a state property tax, saying districts had little choice but to levy the maximum local rate because there was not enough state money in the system.
Dietz ordered the Legislature to enact a new system by Oct. 1, but his ruling is under review by the Texas Supreme Court.
Dewhurst and his lieutenants hoped to fix the problems by switching to the state tax, but to do so would have required a two-thirds vote in the House and Senate and a simple majority of the voting public.
With school officials opposed to the plan and voters unclear about its ramifications, its prospects were uncertain.
Shapiro said voters often confuse the idea of a statewide property tax with the politically unpopular idea of a personal income tax.
"If the superintendents and the school districts don't want it, it would be really hard to convince the general public that it's the right thing to do," she said, "even though it is the right thing to do."
The opposition to the state property tax picked up steam Friday, when Sen. Jane Nelson, R-Lewisville, declared that it would cause the "destruction" of public education in Texas.
Tuesday afternoon, Sen. John Carona, R-Dallas, said that he and at least a third of the Senate made it clear they would not vote to consider a bill that included the state tax.
"A statewide property tax has the potential to tie the hands of local school boards," Carona said. "It will result in less long-term funding for our schools."
Once senators removed the state property tax, the tax bill called for the maximum school property tax rate to go from $1.50 per $100 in property value to $1.30 this fall. Then, in fall 2007, the rate would fall to $1.15.
May 11, 2005, 2:49AM
Senate OKs bill that cuts school property taxes
Proposal for state property tax killed before package's approval
By CLAY ROBISON
Copyright 2005 Houston Chronicle Austin BureauAUSTIN - With the clock ticking on efforts to overhaul Texas' school funding system, the Senate early today approved a tax tradeoff that, sponsors said, would cut local school property taxes by more than $6 billion over the next two years in exchange for higher state taxes.
The measure was approved 21-10 at about 2 a.m. after seven hours of debate. Four Republicans, including Tommy Williams of The Woodlands, and six Democrats, including Rodney Ellis and Mario Gallegos of Houston, voted against the measure.
Before approving the package, senators made two major changes. They killed a controversial proposal to replace most local school taxes with a lower, state property tax, and they restructured a new business tax that had drawn strong opposition from the business community.
The new tax, which will apply to all forms of businesses except sole proprietorships, would allow a company to pay an expanded franchise tax or a payroll tax.
"With the passage of this bill, we can tell Texans that their property taxes are going to be lower and their schools are going to be better," said Senate Finance Chairman Steve Ogden, R-Bryan.
But Sen. Gonzalo Barrientos, D-Austin, cited a legislative analysis that only the wealthiest Texas households would realize a net savings from the tax tradeoff.
The Senate, he said, was "not only ensuring a permanent underclass, we're expanding it."
Senators rejected an amendment by Sen. Royce West, D-Dallas, that would have forced landlords to share their property tax savings with renters, who account for one-third of Texas residents and 53 percent of Houstonians, according to the Texas Apartment Association.
Senators also rejected an attempt to legalize video slot machines at racetracks and on Indian reservations, despite arguments by Gallegos, the amendment's sponsor, that the expanded gambling would raise $2 billion for education or other programs over the next two years.
Removal of the state property tax may make it easier for House and Senate negotiators to reach a compromise on a tax overhaul before legislators adjourn on May 30, Shapiro said. Speaker Tom Craddick has said there is strong House opposition to a state property tax.
Lt. Gov. David Dewhurst said most senators still favored a state property tax as the most equitable way to raise money for public education, but added, "at the end of the day we want to move the ball forward."
Senate Education Chairman Florence Shapiro, R-Plano, said it also would be difficult to sell a state property tax to Texas voters, who would have to approve it as a constitutional amendment. The proposal also had threatened local homestead exemptions, a form of tax break, for about 400,000 Harris County homeowners.
Without the state property tax, Ogden, the tax bill sponsor, amended the bill to reduce cuts in school property taxes from the 40 cents per $100 valuation initially planned by the 2006-07 school year to 35 cents.
Some see stalemate
The state property tax was only one of several significant differences between the House and Senate tax plans. Some Capitol insiders already are predicting the regular session will end without a new school funding plan, which the governor and legislative leaders have labeled a top priority.
But Shapiro disagreed.
The new franchise tax option would be 2.5 percent of a base that includes a company's taxable income plus employee compensation, with $30,000 per employee deducted from the base up to half of the total compensation.
The payroll tax option would be 1.75 percent up to $1,500 per employee.
The minimum tax a company would have to pay, however, would be equivalent to one-quarter of one percent of a company's gross receipts in Texas.
The Senate unanimously adopted the change which replaces a plan drafted by the Senate Finance Committee to tax a combination of a company's income and payroll.
The House has approved a tax bill that also offers an option to businesses, but unlike the Senate it doesn't set a minimum.
The Senate package also includes a half-cent per dollar increase in the sales tax, a 75-cents per pack increase in the cigarette tax and a 25 percent increase in alcoholic beverage taxes.
The bill sparked controversy with the release this week of a legislative analysis showing that the Senate tax trade-off, like a bill approved several weeks ago by the House, would provide a net tax cut for only the wealthiest Texans.
Dewhurst, however, said the Senate plan, which he played a key role in drafting, would provide significant cuts in local school property taxes, which are unpopular among many Texans.
Ogden blamed much of the inequity in the tax bill on the increase in the cigarette tax, which would dig deeper, proportionately, into the pockets of low-income smokers.
The increase would almost triple the current cigarette tax, now set at 41 cents per pack, but is less than the $1.01 per pack jump approved by the House.
According to an analysis by the Legislative Budget Board, only households with annual incomes of more than $140,853 would realize a net tax cut — an average of 1.52 percent — under the tax trade-off. Other income groups would see average tax increases ranging from about one-half of a percent to more than 4 percent.
Several hundred thousand families who use the Lone Star Card to receive food stamps and welfare benefits would receive a sales tax rebate worth about $10 a month in the form of cash or additional food stamps.
The same line of BS that was fed to us about the lottery!!!
This also tells me that this POS (my senator) did vote for this bill after several e-mails and phone calls from me.
I guess that they did not believe that when I told them that we would vote them out of office I meant it.