Texas House Approves $4.9 Billion in Tax Cuts

AUSTIN, Texas (CN) - In a historic vote, the Texas House tentatively approved the first ever reduction in the state sales tax rate, along with a cut in franchise taxes for businesses.

The legislative package, House Bills 31 and 32, would provide Texas consumers and businesses over $4.9 billion in tax relief over the next two fiscal years. A final vote in the House is expected late Wednesday afternoon.

Once passed by a final vote in House, the bills will move to the state Senate.

Both bills were authored by Rep. Dennis Bonnen, R- Angleton, who says the tax cuts will result in "permanent and meaningful tax relief to all Texans."

HB 31, which passed unanimously with a vote of 141-0, would reduce the state sales and use tax rate from 6.25 percent to 5.95 percent.

Current Texas law allows local taxing jurisdictions (cities, counties, special purpose districts, and transit authorities) to impose up to an additional 2 percent in sales and use tax to the current state rate of 6.25 percent, for a total of 8.25 percent. Thus HB 31 would result in a new allowable maximum sales tax rate of 7.95 percent.

Supporters of HB 31 say the decrease in tax burden will stimulate consumption, and in turn job growth. The bill could also attract new investment and more businesses to the state. Small businesses would be more likely to succeed because of the lower sales taxes.

Opponents of HB 31 say the bill's benefits would be insignificant for most people, with the average Texan receiving only $3.37 per month in tax relief. The bill would also cause the state to lose billions in tax revenue. This revenue could be used by the state to fund public education or invest in transportation.

HB 32 passed with a 116-29 vote and would grant an across-the-board 25 percent cut in franchise taxes for all taxable business entities in the state.

The franchise tax, also called the "margins" tax, applies to each taxable entity that does business or is organized in the state.

Supporters of HB 32 say the tax cut will encourage economic development because it will reduce compliance costs and overhead for businesses. The bill lowers compliance costs because thousands more businesses would be able to use the E-Z computation method to calculate their franchise tax. Computing the franchise tax due is typically a complex and burdensome task.

Opponents of HB 32 think its impact would be minimal for most Texans, with the tax cut being more beneficial to out-of-state consumers and businesses. The bill would also cost the state billions in lost revenue that could be used for transportation and public education.

House Speaker Joe Straus said yesterday: "Today the House voted to provide all Texans with tax relief that encourages job creation and economic growth. The House looks forward to a productive conversation with the Senate about how best to deliver results on this issue and the many others that matter to our economy and to Texas families."

HB 31 would take effect October 1, 2015, while HB 32 would take effect January 1, 2016.

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