Texas lawmakers passed a $209 billion dollar budget for the next two years that includes tax cuts for both businesses and homeowners. The $4 billion tax cut package lowers the business margins tax and also increases the homestead exemption on school property taxes.
The compromise plan was approved following weeks of negotiations between House and Senate leaders. The final deal includes the residential property tax relief that the Senate wanted, along with the version of business tax cuts the House wanted. The House's earlier push for a sales tax cut fell away early in the negotiations.
Margins Tax Cut by 25%
Texas' business franchise tax, also called the margins tax, was created in 2006. Companies with revenue above $1 million pay the tax on gross receipts. It requires businesses to pay the tax, even when they make little or no profit.
The new budget provides for a 25% across-the-board cut in the margins tax. It also raises the revenue threshold on the flat-rate portion of the tax from $10 million to $20 million, meaning that businesses with revenue levels over $1 million and up to $20 million can claim a tax rate of 0.331 percent. Businesses with revenue under $1 million will still avoid the tax altogether.
Higher Homestead Exemption
If approved by a statewide vote in November, homeowners can exempt $25,000 of their appraisal value from being taxed by local school districts, rather than the current $15,000. This saves the owner of an average priced home about $120 annually.
Leaders in both chambers had already agreed to ask Texas voters to approve a $10,000 increase in the homestead exemption. They had differed on when to hold the election, and whether the tax relief should be instituted for both years of the biennium or just the second year.
The Senate approved a bill that would set the election on Sept. 12 and institute the exemption increase for both years. The House favored moving the election to November, when counties already have an election planned, and instituting the tax relief beginning in the second year of the biennium, a move that would cut the cost of the tax relief by about $650 million.
As a compromise, the election will be held in November and the homestead exemption increase will be good for this year and subsequent years. County tax assessors will send out a provisional property tax bill before the election that shows what a homeowner will owe in property taxes if the constitutional amendment passes -- and if it doesn't.