Texas Bill Would Swap Sales for Property Taxes

(CN) – The author of a Texas bill proposing to raise the state sales tax rate by 1% made his case before a committee Wednesday, forecasting that within 10 years it would raise $10 billion annually to lower property taxes and help schools.

If passed by the Legislature and approved by Governor Greg Abbott, Representative Dan Huberty’s House Joint Resolution 3 would leave it to Texas voters to decide whether to amend the state constitution to raise the state sales tax rate 1% to 7.25%.

The rate would tie California for the highest in the U.S. and, when added to local sales taxes, would bring the rate to 9.25% for most of Texas.

The so-called tax swap would use the additional sales tax revenue to lower the taxes of property owners in a state that relies heavily on property taxes to finance schools and local governments because it does not impose a state income tax.

Huberty, a Houston Republican, told members of the Texas House Ways and Means Committee on Wednesday that HJR 3, combined with House Bill 3 – a proposal for the state to put up $9 billion, $6.3 billion for schools and $2.7 billion for property tax relief – would increase the state’s per-student contribution to school districts from $5,100 to $6,224.

Huberty said if these two bills don’t pass, Texas will provide just 33% of the funding for public schools for 2019 and 2020.

“Which is obviously unacceptable,” he said.

The Legislature meets every other year so it budgets for two-year cycles.

Property taxes are pricing some Texans out of their homes because school districts were forced to raise taxes after the state cut $5 billion in education funding in 2011. The population of Texas public school students, meanwhile, has grown from 2 million to 5.4 million since 1989.

“Bottom line is Texans are tired of their property taxes funding the biggest portion of education,” Huberty said.

He estimated that starting in 2020, the 1% sales tax spike would generate about $4.99 billion annually.

“By year 10 it’s probably $10 billion,” he said.

Critics claim the sales tax increase would hit the poor hardest because they’d pay a higher percentage of their income in sales taxes than more wealthy Texans.

Representative Ryan Guillen, D-Rio Grande City, said HJR 3’s passage could result in his constituents in rural South Texas paying more in combined sales and property taxes than they do now because many live in homes that are appraised at under $100,000.

“I know that the higher the property taxes that one pays the more they are going to save under something like this,” Guillen said. “But I wonder at what point … Anyone who’s paying property taxes under a certain line will actually end up paying the same or more through increased sales taxes.”

Huberty agreed it could be a wash for some homeowners, but he said $10,000 in spending would only be taxed at $100 more than it is now under HJR 3.

He said the benefits could also trickle down to apartment renters as apartment owners could offer more competitive rents if their property taxes decreased.

“The thing about property taxes is they are a certainty. You’re going to pay those. Sales taxes, you’re making choices as to what you want to spend your money on as you go forward,” Huberty said.

Representative Candy Noble, a Republican who represents a district in the suburbs of Dallas, said she’s heard arguments against HJR 3 in that it would benefit people who own property in Texas, but live elsewhere.

On the positive side, however, she asked Huberty if he has considered how many out-of-state visitors Texas has each year and how much sales tax they would contribute under HJR 3.

Huberty said he’s heard estimates the increased sales tax would bring in an additional $700 to $900 million annually from visitors to Texas. 

Governor Abbott and the leaders of the Texas House and Senate, all Republicans, have each endorsed HJR3.

But State Senator Paul Bettencourt – a Republican, licensed CPA and chair of the Senate Committee on Property Tax – told the Houston Chronicle on Monday that he generally frowns upon such tax swaps, and he’s hesitant to back HJR 3 because he’s unsure if all revenue from the sales tax increase would be used to pay down property taxes.

The legislative session ends May 27 so lawmakers have just six weeks to get property tax reform and school funding bills to Abbott’s desk. Abbott does have the option of calling them back for a special session if necessary to work on important legislation.

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