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Texas Legislature's $18 Billion Tax Cuts: What Business Owners and Property Owners Should Know

Written by Jon Wellington, J.D. | Aug 22, 2023

What Happened?

It took a regular legislative session and two special sessions, but the Texas Legislature finally passed $18 billion in tax cuts that the Governor signed into law on July 22, 2023.  As discussed below, while the overwhelming majority of those tax cuts relate to property taxes, the legislation also provides for some significant franchise tax relief.  The property tax cuts actually require an amendment to the Texas Constitution, which will be voted upon November 7, 2023.

 

Senate Bill 2: Property Tax Cuts

Senate Bill 2 primarily increases the homestead exemption from $40,000 to $100,000 ($110,000 for seniors and disabled) and provides for a 23.8% rate cut to school district maintenance and operations taxes.  Senate Bill 2 also puts a 20% annual cap on raising the taxable value of non-homestead property valued under $5 million (through 2026) and adds 3 elected positions to large appraisal districts to increase accountability to property owners.  The owner of the average $330,000 homestead property can expect their property tax bill to decline 38%, from $3,305 to $2,039. The property tax reduction will take effect for 2023, so when you get your tax bill in the fall it would reflect these changes.

Quick Read:
  • Homestead exemption increased: $40,000 to $100,000 ($110,000 for seniors/disabled)
  • 8% rate cut on school district maintenance and operations taxes
  • 20% annual cap on non-homestead property value rise (< $5 million) through 2026
  • 3 elected positions added to large appraisal districts for property owner accountability
  • Example: Avg. $330,000 homestead property tax bill reduction by 38% ($3,305 to $2,039)

Are you a small business owner? You may want to check out the Proposed Small Business Jobs Act and see what incentives are in progress for business owners.

 

Senate Bill 3: Franchise Tax Relief 

Senate Bill 3 doubles the franchise tax’s small business exemption so that businesses with less than $2.47 million in total revenue will not owe franchise tax (eliminating 67,000 businesses, or about 40% of taxpayers).  And to the delight of taxpayers and tax practitioners, Texas will no longer require the filing of “no tax due” reports for such small businesses.  The Comptroller estimates that will eliminate the filing of 1.7 million “nuisance” franchise tax reports.

Quick Read:
  • Doubles small business exemption for franchise tax
  • Businesses with <$2.47 million total revenue exempt (eliminates 67,000 businesses or 40% of taxpayers)
  • Eliminates filing "no tax due" reports for such small businesses
  • Comptroller estimates 1.7 million "nuisance" franchise tax reports will be eliminated

 

Impact and Expectations

The anticipated reduction in property taxes is set to offer property owners in Texas a boost in disposable income. This financial cushion could potentially drive increased spending, savings, and investments. Small businesses will benefit from the legislative changes, which are designed to relieve them from the burden of franchise taxes. The weight of these taxes, coupled with administrative complexities, will be lifted, allowing small businesses to focus more on growth and operations.

Want to learn more about LGT and state and local tax? Check out our state and local tax services here!

 

 

Have questions? We would love to help!

If you have any questions or would like additional information about anything mentioned, please comment below or email us at askus@lgt-cpa.com.