Texas House Bill HB41

Texas 2025 - 89th 1st C.S.

• Filed: 7/14/25

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

Significantly, the bill includes provisions to repeal certain state and local taxes, particularly school district maintenance and operations ad valorem taxes. This change will fundamentally alter how school districts can fund their operations, placing an emphasis on the newly established value added tax as the primary source of revenue. The move aims at reforming school finance by focusing on wealth redistribution through a more uniform tax framework, which proponents argue will improve financial equity across districts.

Summary

House Bill 41 (HB41) proposes a comprehensive overhaul of various state and local tax regulations, primarily focusing on the introduction of a new value added tax (VAT) scheme. Under this proposal, a state value added tax rate of 6.72% would be imposed on all services and property supplied in the course of trade for profit. The legislation will also permit local jurisdictions to implement a local value added tax, with strict limitations on the maximum rate, aiming to streamline tax structures while maintaining essential public services funding.

Contention

However, HB41 faces notable opposition regarding its implications for local governance and funding mechanisms for public schools. Critics argue that the reliance on a VAT may disproportionately impact lower-income households and potentially destabilize long-standing local tax structures that schools and public services depend upon. Additionally, the proposed prohibition on school district ad valorem taxes raises concerns about the adequacy of funding for local educational needs, especially if the revenue from the new VAT does not meet the demand for quality education resources.

Texas Constitutional Statutes Affected

Tax Code

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

Education Code

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