Texas House Bill HB2194

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 implications of HB 2194 are significant for local taxation and school funding. By prohibiting school districts from levying ad valorem taxes for maintenance and operations after January 1, 2030, the bill seeks to encourage reliance on state-level funding mechanisms. It signals a shift towards a centralized funding model where the state appropriates the necessary funds for school districts, potentially redefining the relationship between local educational entities and state government. Moreover, the introduction of the school district enrichment value added tax offers districts new revenue opportunities to enhance educational services, provided they secure voter approval.

Summary

House Bill 2194 seeks to fundamentally reshape the tax landscape in Texas by repealing or limiting certain state and local taxes, particularly targeting school district maintenance and operations ad valorem taxes. In place of these traditional taxes, the bill proposes the enactment of state and local value added taxes (VATs). This new taxation system aims to create a more modern tax framework that aligns with contemporary economic practices. One of the primary rates proposed for the VAT is set at 6.72%, applicable to services and property supplied in the normal course of business. Notably, small businesses and specific organizations would be exempt from these new taxes, aiming to mitigate financial burdens on them.

Contention

Despite the anticipated benefits touted by supporters of HB 2194, there are concerns regarding local control and the effectiveness of the proposed funding mechanisms. Critics argue that the bill could diminish the ability of school districts to raise necessary funds tailored to local needs and that the transition to the new VAT system may not provide adequate revenue for enrichment programs. Proponents reference the necessity for tax reform to reduce outdated and burdensome tax structures; however, these proposed changes present the risk of destabilizing local funding infrastructures that have been historically utilized. The ultimate success of this legislation will depend on the structural changes made to school financing and on how effectively the proposed VAT systems are implemented.

Texas Constitutional Statutes Affected

Education Code

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

Tax Code

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