Relating to the abolition of ad valorem taxes and the creation of a joint interim committee on the abolition of those taxes.
Should this bill be enacted, it will significantly alter the tax landscape of Texas. The repeal of ad valorem taxes, which are taxes based on property values, will require local governments to explore alternative means of generating revenue. This change is expected to prompt debates regarding the adequacy and fairness of sales taxes as a substitute for ad valorem taxes, which could impact various public services funded by the latter. The bill acknowledges that while the abolition is set to take effect on January 1, 2026, it outlines a phased approach where tax liabilities from ad valorem taxing continue until January 2020, allowing for a gradual transition.
House Bill 698 proposes the abolition of ad valorem taxes in Texas and establishes a joint interim committee tasked with exploring how to replace the lost revenue with local sales and use taxes. The bill outlines the formation of a committee comprising ten legislative members—five from the House and five from the Senate—who are to be appointed by their respective leaders. This committee is mandated to conduct a comprehensive study on the implications of abolishing ad valorem taxes and how to implement the transition to alternative tax revenue sources effectively.
The most notable point of contention surrounding HB 698 is the potential impact of abolishing ad valorem taxes on local governments' ability to finance essential services. Supporters argue that replacing property taxes with sales and use taxes could simplify tax administration and enhance fairness, as sales taxes are levied based on consumption rather than property ownership. However, critics may voice concerns about the equity of sales taxes, particularly for lower-income residents, who could be disproportionately affected by increases in sales tax rates as local governments adjust to recover the revenue losses from the abolished ad valorem taxes.