Texas House Bill HB116

Texas 2025 - 89th 1st C.S.

• Filed: 7/17/25

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, related school finance reform, and directing the comptroller to identify alternatives to local ad valorem taxes; imposing taxes.

Impact

The proposed changes in HB 116 would significantly impact public education financing and local governance. By transitioning from property taxes to a VAT, school districts would have to find alternative funding sources for operations that have historically relied on property tax revenues. Local governments would also face restrictions in their taxation powers, shifting reliance away from traditional ad valorem taxes. This could streamline the tax structure but might also create uncertainty in funding for various local services that currently depend on property tax revenue.

Summary

House Bill 116 aims to fundamentally alter the tax landscape in Texas by repealing certain state and local taxes, particularly targeting the maintenance and operations (M&O) ad valorem taxes levied by school districts. The bill proposes the introduction of a state-wide value-added tax (VAT) set initially at 6.72%, which would be introduced on January 1, 2030, contingent upon the approval of a related constitutional amendment by voters that would prevent school districts from imposing M&O property taxes. The revenue generated from the VAT would be allocated exclusively to funding public education operations, effectively replacing the funding previously procured from M&O taxes.

Contention

Debate surrounding HB 116 is expected to focus on the implications of limiting local tax authority and the reliability of VAT as a long-term solution for funding public education. Supporters argue that the VAT could provide a more stable and equitable revenue source compared to property taxes that can fluctuate with real estate markets. However, critics contend that the bill could disproportionately affect lower-income households and potentially erode funding for local needs, as the complexity of local VAT implementation could lead to inadequate revenue generation for vital services.

Texas Constitutional Statutes Affected

Education Code

• Chapter 48. Foundation School Program
  • Section: New Section
  • Section: 2551
  • Section: 2552
  • Section: 2553
  • Section: 275

• Chapter 45. School District Funds
  • Section: 0032

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

Tax Code

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