Texas House Bill HB2220

Texas 2025 - 89th Regular

• Filed: 1/29/25

Caption

Relating to the repeal of or limitations on certain state and local taxes, including school district maintenance and operations ad valorem taxes, the enactment of state and local value added taxes, and related school finance reform; imposing taxes.

Impact

The proposed changes would notably impact school funding mechanisms in the state. Specifically, the bill aims to halt the imposition of school district maintenance and operations taxes by January 1, 2030, unless a constitutional amendment is approved by voters to allow such taxes. In place of these ad valorem taxes, school districts may implement a school district enrichment value added tax which allows for a maximum rate of 0.5%. The revenue from the enrichment tax is earmarked exclusively for enhancing educational facilities and programs, a move that could significantly alter how educational budgets are managed and funded.

Summary

House Bill 2220 proposes significant reforms to the taxation structure in Texas, particularly concerning state and local taxes. The bill intends to repeal or limit certain state and local taxes, including school district maintenance and operations ad valorem taxes, while introducing a new framework for state and local value added taxes. This value added tax (VAT), set at a rate of 6.72%, would apply to businesses that supply services or property in the course of trade. The revenue generated from this tax will be deposited into the general revenue fund, evidencing a shift towards a consumption-based tax model aimed at stabilizing tax revenues for the state.

Contention

While proponents argue that the introduction of a state VAT and the elimination of ad valorem taxes will lead to a more equitable and efficient tax structure, opponents express concerns about the potential loss of local control over taxation and the adequacy of funding for educational programs. Critics worry that the reliance on a VAT, which may disproportionately affect low-income families, could exacerbate existing inequities in school funding. There are also apprehensions regarding the transition phase for school districts adjusting to these new financial frameworks, as they shift from reliance on local taxes to state funding mechanisms.

Texas Constitutional Statutes Affected

Tax Code

• Chapter 142. Simplified Sales And Use Tax Administration Act
  • Section: New Section

Education Code

• Chapter 45. School District Funds
  • Section: 0032

• Chapter 48. Foundation School Program
  • Section: New Section

• Chapter 49. Options For Local Revenue Levels In Excess Of Entitlement
  • Section: New Section