Texas Legislature Approves Historic Tax Reductions

In a contentious fight that required two special sessions, the Texas House and Senate approved H.B. 3, a historic legislative package aimed at reducing property taxes and simplifying franchise tax reporting requirements throughout the state.

As part of the $18 billon deal, lawmakers unveiled a plan that reduces the school tax rate for both homeowners and businesses, increases the homestead exemption, creates a tax credit pilot program focused on non-homestead properties, and provides savings on the franchise tax for businesses.

“Reducing property taxes, providing relief to small business owners, and reforming our appraisal system will ensure economic grown and prosperity, and this agreement is a significant victory for all Texas,” said Speaker Dade Phelan.

More than $12 billion will be used to cover the cost of reducing the school tax rate and raising the homestead exemption from $40,000 to $100,000, a change that is expected to affect approximately 5.7 million Texas homeowners. On average, homeowners are expected to see estimated annual savings of $1,373. As part of a three-year pilot project, residential and commercial non-homestead properties valued at up to $5 million will receive a 20% circuit breaker on appraised values.

H.B. 3 also amends franchise tax provisions relating to revenue exemption and reporting requirements for small businesses.

Under current Texas law, all businesses with total revenue above $1.23 million must file a franchise tax return. For revenue below the threshold, Texas requires taxpayers to file a “No-Tax Due Report” that includes the reason for exemption and the entity’s total taxable margin.

To alleviate the burden on small businesses, H.B. 3 increases the revenue exemption amount from $1.23 to $2.47 million and eliminates the No Tax Due Report filing requirement if the taxpayer does not meet the revenue threshold. Small businesses will no longer be required to file a Public Information Report, a change that is expected to affect more than 67,000 small businesses.

H.B. 3 will take effect only if S.B.2 or similar legislation relating to the property tax relief becomes law. The bill has no effect if legislation relating to property tax relief is not passed.

“It may have taken overtime, but the process has produced a great bill for homeowners and businesses,” Lt. Gov. Dan Patrick stated in thanking legislators for their diligence in achieving this historic tax relief milestone.

The changes will take effect beginning with the 2023 tax year if Texas voters approve constitutional amendments on the November 2023 ballot.

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