House Passes $4.9B Tax Cut Plan That Includes Sales Tax Cut

The Texas House tentatively approved a $4.9 billion tax relief plan Tuesday that includes a cut to the state’s sales tax, marking a clear line in the sand against the Senate, which favors property tax cuts.

The House voted 141-0 for House Bill 31 by Ways and Means Chairman Dennis Bonnen, R-Angleton, which would cut the state sales tax rate from 6.25 percent to 5.95 percent. If the bill reaches the governor’s desk, it would be the first cut in the state’s sales tax in Texas history.

Bonnen presented his sales tax cut as more impactful than the Senate’s proposal, which would increase homestead exemptions to lower local school property taxes. The Legislature passed an even larger property tax cut in 2006 that was widely viewed as underwhelming by homeowners due to increases in property values and local tax rates. 

“A sales tax cannot be eroded by a local tax hike or rising appraisals,” Bonnen told the House. “We would be using our tax dollars for a tax that we control.”

Supporters of the Senate plan have noted that Texans complain far more about property taxes than the sales tax. Lt. Gov. Dan Patrick campaigned on passing a property tax cut and has said he will not support a budget that does not include one.

The House was less united in support for Bonnen’s House Bill 32, which would enact $2.6 billion in franchise tax cuts over the next biennium, largely through a 25 percent across-the-board cut. The Senate has proposed cutting the franchise tax by 15 percent and exempting businesses that make less than $4 million annually from the franchise tax altogether. 

HB 32 passed 116-29, with opposition coming from some House Democrats who argued that the cuts to the franchise tax were unwise given the state’s other obligations.

“When we cut the sales tax, we cut taxes for our Texas businesses,” state Rep. Trey Martinez Fischer, D-San Antonio, said. “But this $2.56 billion is a lot of money to give away when we have yet to meet our state’s needs.”

House Democrats have argued all session that lawmakers should be using robust state funds to expand state support for education and health care. At the same time, several Democrats have said they prefer Bonnen’s tax plan to the one passed by the Senate. 

The House considered about a dozen amendments on Bonnen’s bills, including one from state Rep. John Smithee, R-Amarillo, that would have mirrored the Senate proposal to increase the franchise tax exemption from $1 million to $4 milllion. Smithee argued that increasing the exemption would help small businesses like plumbers. Several House Republicans argued it would unfairly shift the tax’s burden onto larger businesses. A vote to table the amendment passed 120-16, with Speaker Joe Straus taking the rare step of participating in the vote to kill the amendment.

State Rep. Chris Turner, D-Grand Prairie, proposed having Bonnen’s franchise tax cut expire in two years, citing the low price of oil and other factors as reasons to be concerned about how the state’s economy will look in the next legislative session.

“It’s probably not smart for us to tie the hands of future legislators,” Turner said.

The House voted down the amendment 102 to 41.

Bonnen amended both of his bills to allow the comptroller to cut the sales tax and franchise tax rates even further if certain state revenue comes in higher than expected.

Both bills were expected to draw strong support following the release of a letter over the weekend signed by 90 of the chamber’s 98 Republican members touting the House tax cut plan as superior to the Senate proposal.

State Rep. Gary Elkins, R-Houston, said he didn’t sign the letter because his constituents are more burdened by high property taxes than the state’s sales tax. Nonetheless, he voted for both bills Tuesday.

“I will be supporting any tax we can cut because the only way to downsize government and stop the growth of government is to cut off their money,” Elkins said. “It’s just my district would rather have cuts to the property tax over the sales tax. Right now people are being priced out of their homes.”