The 86th Texas Legislature did not pass many tax-related bills, but those that passed could have significant consequences.
Senate Bill 2, also known as the Texas Property Tax Reform and Transparency Act of 2019, lowers the tax rate most taxing authorities can adopt without voter approval (formerly known as the rollback rate; renamed as the voter approval tax rate) from an increase of 8% to 3.5%. A higher increase in the property tax rate now requires a mandatory election. Senate Bill 2 also requires taxing authorities to publish their budgets, tax rates, and tax rate calculation worksheets on their web sites.
House Bill 3 provides for a number of school finance reforms and works with Senate Bill 2 to provide $5 billion in property tax relief by raising the State’s share of education funding from 38% to 45%, thereby providing for a decrease in school district tax rates.
House Bill 3143 extends the expiration date for Chapter 312 (tax abatements) for 10 years and also provides some reforms of the tax abatement process.
The most significant sales tax legislation is in reaction to the 2018 U.S. Supreme Court decision known as Wayfair, which now allows a state to require out-of-state taxpayers (“remote sellers”) to collect and remit sales tax to that state even without a physical presence.
Although not a legislative action, effective October 1, 2019, the Comptroller amended its rules to require a remote seller (one with no Texas physical presence) with over $500,000 in Texas revenue for the preceding 12 months to collect and remit sales tax. To simplify the compliance burden, Texas allows remote sellers the option of using a single local rate (to be published by the Comptroller) instead of determining the local tax rate on a transaction-by-transaction basis.
House Bill 1525, also effective October 1, 2019, requires that sales tax on sales made through an online marketplace must be collected and reported by the marketplace provider (such as eBay, Amazon, or Wayfair). Marketplace sales are sourced by the Texas location to where the items are shipped or delivered or the location where the purchaser takes possession.
Although no significant legislation passed with respect to the franchise tax, House Joint Resolution 38 provides for a November 5, 2019 vote on a constitutional amendment that would ban the possibility of an “income tax.” Due to the wording of the resolution, if the amendment passes, there is a real possibility that it would make the existing Texas franchise tax unconstitutional.