The Texas Association of REALTORS® supports property-tax relief, but does not support new taxes and fees that single out the most steady contributor to our economy: real estate. We oppose measures that would diminish real estate’s contributions to the Texas economy or increase the cost of homeownership in the state.

Property Tax Relief

Highlights of the Texas Tax Reform Commission's plan

The Texas Tax Reform Commission’s plan will:

• Reduce property taxes for both residential and commercial property owners
• Apply a fair, low-rate business tax that does not target any single industry
• Provide new opportunities for thousands of Texas families to buy homes
• Create a better climate for more businesses to invest in Texas

Texas Tax Reform Commission plan highlights
Tax plan recommendations:
•     The Legislature should cut school district property taxes for maintenance and operations substantially. With many districts setting rates at or near $1.50 per $100 of valuation, Texans are clearly paying too much in property taxes. The rate should be lowered to $1 per $100 and permanently re-capped at no more than $1.30 per $100 by the 2007 tax year. Reductions for the 2006 tax year sufficient to comply with the Supreme Court’s mandate must be provided immediately
•     The Legislature should reform the state’s franchise tax by:

-    Broadening the base of businesses that pay into the system and eliminating loopholes that have allowed many businesses to avoid paying their fair share.
-     Cutting the franchise tax rate from 4.5% to 1% and changing the underlying base of the franchise tax.

•     Basing the franchise tax on a business’ margin by allowing each business to choose between two calculations: deducting either the cost of goods sold or employee compensation (including health insurance, pensions and other benefits) from its total revenue.
•     Doubling the small-business exemption from $150,000 to $300,000 in total revenue and exempting sole proprietors and non-corporate general partnerships.
•     The Legislature should raise tobacco taxes, including raising the tax on cigarettes by $1 per pack.
•     The Legislature should implement anti-fraud measures to boost state tax collections, including increasing the Comptroller’s audit and enforcement activities and implementing an improved tax system for the sale of used cars.

•     The Legislature should use a portion of the state surplus to buy down property taxes. Using some of the state’s surplus would avoid the need for increases in other fees and taxes, such as the state’s sales tax, which is already among the highest and broadest in the nation.
Benefits of the recommendations
•     Texans will get a $6 billion reduction in property taxes—the largest property tax reduction in history.
•     Homeownership would be more affordable for millions of Texans.
•     Recommended reforms to the franchise tax would encompass a broader cross-section of the state economy and be a fundamentally fairer way of funding our children’s education or providing additional property tax relief.
•     The reforms to the existing franchise tax would apply to those businesses with state-provided liability protection, as was originally intended.
•     Unlike earlier proposals for franchise tax reform, businesses would be rewarded for creating more jobs and providing health care and pensions.
•     The state would pick up an estimated 50% of the costs of funding public education, a dramatic increase over the 34% level expected for fiscal 2007.
•     Doubling the small-business exemption from $150,000 to $300,000 in total revenue would help small businesses prosper and grow.
•     The plan would reduce the amount of money recaptured and re-directed to other school districts by Robin Hood.
Source: Tax Fairness, report of the Texas Tax Reform Commission
 

Texas Tax Reform Commission: Proposed new alternative margins tax
Why is the Texas Association of REALTORS® supporting the Perry/Sharp proposed new business tax?
The Texas Association of REALTORS® has historically favored a low-rate, broad-based business tax to replace the current business franchise tax in Texas. The proposal from the Texas Tax Reform Commission is a low-rate, broad-based business tax that will close legal loopholes that have allowed some businesses in Texas to restructure simply to avoid any business tax liability. The commission’s proposal is exactly the type of new business tax structure TAR has been advocating.

It is rumored the state will enjoy a budget surplus of over $4 billion this fiscal year. Isn’t it better for the Legislature to use this surplus instead of voting for a tax bill?
In short, no. While it may be true that the state of Texas is running a budget surplus for this fiscal year, there are several unfunded obligations that still must be addressed, such as hurricane relief and other items that cannot be pushed off to another fiscal year.

Will all businesses in Texas be subject to the proposed new business franchise tax?
No. Currently, about 2.4 million businesses exist in Texas. Of this number, 60% or about 1.44 million are sole proprietors or general partnerships and are not included under the new proposal. Texas has a constitutional prohibition against a personal income tax and assessing a tax on sole proprietors or general partners would violate this constitutional provision.

We have all heard that one in 16 businesses in Texas currently pay the business franchise tax. Under this new proposal, how will this number change?
If the new proposal from the Texas Tax Reform Commission is passed in its current form, about one in eight businesses in Texas will pay a franchise tax. While the number of businesses paying a franchise tax will increase, because of the potential problem of taxing sole proprietors and general partnerships, all businesses will not pay the new proposed franchise tax.