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May 6, 2005     (512) 463-0300

SENATE FINANCE COMMITTEE PASSES TAX STRUCTURE REFORM BILL

The bill that would lower property taxes and expand the state's franchise tax is on its way to the Senate floor. The Finance Committee passed the bill, the Committee Substitute to House Bill 3, on Friday, and is set for floor debate on Tuesday. This bill is the second part of the Senate's plan to change the way the state pays for public education. The education reform component, in the form of CSHB 2, was passed out of the Senate Education Committee last week. Another component of tax reform, Senate Joint Resolution 38, would put several choice regarding sales tax, property tax, and franchise tax in the hands of the voters.

Perhaps the most important change to the state's tax structure proposed by CSHB 3 is the broadening of the business franchise tax. Lt. Governor David Dewhurst has been critical of the current franchise tax, saying certain loopholes in the statute cause the tax to apply to only one out of six Texas businesses, and places an unfair burden on those that do pay the tax. "On the business side, we've got an historic opportunity to create a level playing field with no loopholes," said Dewhurst. "Loopholes are what make businesses that pay the franchise tax have to pay more."

CSHB 3 would apply the franchise tax to all Texas businesses, excepting sole-proprietorships and partnerships that gross less than $300,000 per year. For a single business, the bill would lower the tax rate from 4.5 percent to 4 percent, and that amount would be applied to 15 percent of a business' payroll and all of the yearly net receipt. SJR 38, if approved by the voters, would raise the payroll component to 25 percent. The bill also raises several other taxes, including a 75 cent per pack sales tax increase on cigarettes, and a 25 percent sales tax increase on other kinds of tobacco and alcohol. It would also raise the sales tax in the state by one-quarter cent on the dollar. If the voters approve SJR 38, the overall sales tax increase would be one-half cent.

The bill includes savings for the poorest Texans, giving a 20 percent reduction on sales tax for purchases made with the Lone Star Card. Other Texans would see savings on property taxes through a 20 cent cut on local property taxes. Further property tax relief would come if the voters approve SJR 38, which would eliminate local property taxes and replace them with a state property tax, set at $1.10 per $100 valuation. Senate Finance Chair and author of both CSHB 3 and SJR 38, Senator Steve Ogden, says both measures represent a valid attempt at providing property tax relief while providing for Texas schools. "SJR 38 and CSHB 3 are balanced, are credible, and are a competent effort to address the issues with respect to excessively high state property taxes, and an adequate and equitable system of public school finance," said Ogden.

Wednesday, the Senate passed a bill that would eliminate de-regulation of tuition at state universities by 2008. Last session, the Legislature approved the de-regulation of tuition, allowing boards of regents at state colleges to set their own tuition rate. Since that time, the cost of a public university education has risen significantly, in some instances as much as 100 percent. Many lawmakers thought that the increased tuition has made the price of a higher education too high for too many Texans.

SB 1228, by Plano Senator Florence Shapiro, was written to require universities to give yearly reports with respect to the effectiveness of initiatives to increase the participation and success of poor and minority students at Texas colleges. Senator Rodney Ellis of Houston, added an amendment to the bill that would require the Legislative Oversight Commission to examine the status of tuition de-regulation, and repeal de-regulation unless a law was passed to extend de-regulation next session. The bill passed the Senate with the amendment attached.

Ellis has long been an opponent to tuition de-regulation, and believes this amendments will benefit those who are least able to afford college. "With virtually everything we do with regard to higher education, we must ask ourselves: are we closing the gap or widening the gap," said Ellis. "I think it's an appropriate process to have a comprehensive study, to have the debate. I think the timetable for the repeal is appropriate because it gives us enough time to decide if we want to keep de-reg in place."

Session video and all other webcast recordings can be accessed from the Senate website's audio and video archive pages.

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