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March 1, 2006     (512) 463-0300

SENATE FINANCE LOOKS OVER STATE SALES TAX POLICY                     

With a special session looming over how the state pays for public education, the Senate Finance Committee today reviewed the state's sales tax system. Throughout the past two regular sessions and several special sessions on public school finance reform, one goal has remained the same: to reduce the state's reliance on property tax as a means for funding education. In order to make up the shortfall in educational budgets that a property tax reduction would bring, the Legislature must consider other taxing options. Since a state income tax is all but off the table, lawmakers will have to turn to the other remaining tax sources, which are the sales and franchise taxes.

Texas began levying a sales tax in 1961, and then, as now, most professional and business services were exempted. Texas charges sales tax on most purchased goods. Notable exceptions include water, medicine, groceries, and products taxed through other statutory means, such as automobiles and agricultural machinery. The state also loses revenue on products purchased in Texas by foreign nationals, who are not subject to sales taxes. The Director for Tax Administration for the Comptroller's office, Mike Resick, testified that the state loses about $400 million each year in catalog and internet sales made from other states. Texans are still responsible for paying sales tax on items they buy via the internet or catalogs, but few do.

The committee also looked to other states to find a workable tax model that relies mainly on the sales tax. Burt Waisenen, of the National Conference of State Legislatures, pointed to New Mexico, where a broadened sales tax, that includes some services, is one of the chief revenue streams for the state. He said that one benefit of this system was that the revenue from sales tax was stable, and did not significanlty vary in relation to the strength of the economy.

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

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