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Featured, center, Sen. Juan “Chuy” Hinojosa, D-McAllen, along with Roxanne De La Garza, who serves on Hinojosa’s legislative and McAllen district staffs, greet Alex Ríos, District Director for Rep. Terry Canales, D-Edinburg, on Tuesday, August 26, 2014 prior to the groundbreaking of The University of Texas-Rio Grande Valley’s $54 million Medical Academic Building in Edinburg, the first new construction for the UT-RGV School of Medicine.

Photograph By MARK MONTEMAYOR

The House of Representatives is considering a $4.6 billion tax relief package, approved by the Senate on Wednesday, March 25, which its supporters, including Sen. Juan “Chuy” Hinojosa, D-McAllen, say is designed to benefit homeowners and small businesses. Hinojosa is a joint author of Senate Bill 1, Senate Bill 7, and Senate Bill 8, which would give many Texas homeowners a bigger break on their school property taxes, and provide more small business owners with relief from the amount of franchise tax they must pay. “I am proud to joint-author these tax relief bills giving our hard-working families and small business owners much-needed tax cuts,” said Hinojosa. “These bills make good economic sense and will provide critical tax relief on a statewide level for our Texas families so they will be able to keep more of the dollars they earn.” The first measure, SB 1 by Sen. Jane Nelson, R-Flower Mound, would decrease school property taxes for homeowners by increasing the homestead exemption, a move which lowers the value of a home for the purpose of paying those property taxes. The result would be reducing school property taxes on the primary residence by about $220 a year over the next two years, according to Lt. Gov. Dan Patrick, R-Houston. During that period, school districts would be entitled to additional state aid to the extent current formulas do not fully reimburse them for the local tax revenue losses from SB 1. The state would use more than $2.1 billion from the state budget surplus over the next two years to make up for the revenue losses by local school districts. Property tax in Texas is a locally assessed and locally administered tax, according to the Texas Comptroller of Public Accounts. Texas law allows a variety of partial or complete exemptions from local property taxes. A partial exemption removes a percentage or fixed dollar amount of the property’s value from taxation. An absolute or total exemption excludes the entire property from taxation. Currently, all school districts in Texas are required to offer a $15,000 exemption on residence homesteads. But under SB 1, as approved by the Senate, the homestead exemption for school district taxes would significantly improve from its current $15,000 level to 25 percent of Texas home median market value. The exemption amounts are estimated to be $33,625 in 2016 and $35,979 in 2017, according to Hinojosa. “SB 1 will specifically benefit homeowners with immediate and long-term economic relief by raising the homestead exemption and decreasing the property taxes homeowners will have to pay,” Hinojosa said. If SB 1, and a related measure, Senate Joint Resolution 1, also by Nelson, are approved by the Legislature and the governor, a statewide election would be held on Saturday, September 12, 2015, which would give Texas voters the final say on more than doubling the school property tax exemption for homeowners. SJR 1 is the constitutional amendment required to implement SB1, and like all proposed amendments would put the question of the new exemption before the voters in September, according to Texas Senate News, the public information arm of the Texas Senate. SJR 1 also contains language to exempt the state money necessary to cover the cost of the tax cut from the state spending cap. The state constitution forbids the state budget growing faster than the state economy, which Nelson has said in the past hinders the ability of lawmakers to cut taxes. In addition, SJR 1 would constitutionally prohibit the establishment of any tax on real estate sales, thus preventing future Legislatures – without another statewide election – from taxing the sales of homes in order to generate more money for the state government, Hinojosa added. Nelson, who serves as Chair of the Senate Finance Committee – on which Hinojosa serves as Vice-Chairman – also filed legislation to make all tax cuts and debt relief appropriations exempt from the spending cap, but SJR 1 is only a one-time exemption for the estimated $2.1 billion needed to cover the cost of SB 1. The two other tax-relief proposals being championed by Hinojosa are SB 8, which establishes a $4 million total revenue exemption from the state’s business franchise tax for small businesses, and SB 7, which reduces the franchise tax rate by 15 percent for those over the $4 million threshold. “SB7 and SB 8 will similarly give small business owners a tax reduction. Small businesses create jobs and drive our economy; they are the backbone of our Texas economy. For many small businesses struggling to survive, the franchise tax represents an unnecessary and burdensome tax that limits job growth and economic investment,” Hinojosa explained. “SB 8 will exempt more than 61,000 small businesses in Texas that would otherwise pay the franchise tax. These small businesses represent over 52 percent of all businesses in Texas required to remit payment under the current franchise tax structure.” The Texas franchise tax is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas, with the exception of most sole proprietorships. The owners of businesses which pay the franchise tax receive key benefits, such as liability protections under the state law, where their personal assets can be shielded against potentially-devastating legal judgments against their businesses. A sole proprietorship, on the other hand is an unincorporated business with one owner who pays personal income tax on profits from the business, according to Investopedia.com. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self contractors or business owners.

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Senate awaiting action by House of Representatives on $4.6 billion tax cut package endorsed by Sen. Hinojosa

By DAVID A. DÍAZ
Legislativemedia@aol.com

The House of Representatives is considering a $4.6 billion tax relief package, approved by the Senate on Wednesday, March 25, which its supporters, including Sen. Juan “Chuy” Hinojosa, D-McAllen, say is designed to benefit homeowners and small businesses.

Hinojosa is a joint author of Senate Bill 1, Senate Bill 7, and Senate Bill 8, which would give many Texas homeowners a bigger break on their school property taxes and provide more small business owners with relief from the amount of franchise tax they must pay.

“I am proud to joint-author these tax relief bills giving our hard-working families and small business owners much-needed tax cuts,” said Hinojosa. “These bills make good economic sense and will provide critical tax relief on a statewide level for our Texas families so they will be able to keep more of the dollars they earn.”

The first measure, SB 1 by Sen. Jane Nelson, R-Flower Mound, would decrease property taxes for homeowners by increasing the homestead exemption, a move which lowers the value of a home for the purpose of paying property taxes to a school district.

SB 1 would lower school property taxes on the primary residence by about $220 a year over the next two years, according to Lt. Gov. Dan Patrick, R-Houston.

During that period, school districts would be entitled to additional state aid to the extent current formulas do not fully reimburse them for the local tax revenue losses from SB 1.

The state would use more than $2.1 billion from the state budget surplus over the next two years to make up for the revenue losses by local school districts.

Property tax in Texas is a locally assessed and locally administered tax, according to the Texas Comptroller of Public Accounts. Texas law allows a variety of partial or complete exemptions from local property taxes. A partial exemption removes a percentage or fixed dollar amount of the property’s value from taxation. An absolute or total exemption excludes the entire property from taxation.

Currently, all school districts in Texas are required to offer a $15,000 exemption on residence homesteads.

But under SB 1, as approved by the Senate, the homestead exemption for school district taxes would significantly improve from its current $15,000 level to 25 percent of Texas home median market value.

The exemption amounts are estimated to be $33,625 in 2016 and $35,979 in 2017, according to Hinojosa.

“SB 1 will specifically benefit homeowners with immediate and long-term economic relief by raising the homestead exemption and decreasing the property taxes homeowners will have to pay,” Hinojosa said.

TEXAS VOTERS WOULD HAVE FINAL SAY IN SEPTEMBER ELECTION

If SB 1, and a related measure, Senate Joint Resolution 1, also by Nelson, are approved by the Legislature and the governor, a statewide election would be held on Saturday, September 12, 2015, which would give Texas voters the final say on more than doubling the school property tax exemption for homeowners.

SJR 1 is the constitutional amendment required to implement SB1, and like all proposed amendments would put the question of the new exemption before the voters in September, according to Texas Senate News, the public information arm of the Texas Senate.

SJR 1 features language to exempt the state money necessary to cover the cost of the tax cut from the state spending cap. The state constitution forbids the state budget growing faster than the state economy, which Nelson has said in the past hinders the ability of lawmakers to cut taxes.

Nelson, who serves as Chair of the Senate Finance Committee – on which Hinojosa serves as Vice- Chairman – also filed legislation to make all tax cuts and debt relief appropriations exempt from the spending cap, but SJR 1 is only a one-time exemption for the estimated $2.1 billion needed to cover the cost of SB 1.

SJR 1 also would constitutionally prohibit the establishment of any tax on real estate sales, thus preventing future Legislatures – without another statewide election – from taxing the sales of homes in order to generate more money for the state government, Hinojosa added.

“SMALL BUSINESS TAX RELIEF ACT”

The two other tax-relief proposals being championed by Hinojosa are SB 7 – whose main author also is Nelson – which reduces the franchise tax rate by 15 percent for those over the $4 million threshold, and SB 8, which establishes a $4 million total revenue exemption from the state’s business franchise tax for small businesses.

SB 7 provides about $1.8 billion in business tax relief by reducing the business franchise tax rate, also known as the margins tax, by 15 percent. It would also increase the availability of the E-Z tax calculation to businesses with revenue of $20 million or less, decrease the E-Z tax rate by 40 percent, and directs the Comptroller’s office to provide the Legislature with a report on how the franchise tax could be eliminated completely.

SB 8, whose main author is Sen. Charles Schwertner, R-Georgetown, reduces the franchise tax rate by 15 percent for those over the $4 million threshold.

“SB 7 and SB 8 will similarly give small business owners a tax reduction. Small businesses create jobs and drive our economy; they are the backbone of our Texas economy. For many small businesses struggling to survive, the franchise tax represents an unnecessary and burdensome tax that limits job growth and economic investment,” Hinojosa explained. “SB 8 will exempt more than 61,000 small businesses in Texas that would otherwise pay the franchise tax. These small businesses represent over 52 percent of all businesses in Texas required to remit payment under the current franchise tax structure.”

The Texas franchise tax is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas, with the exception of most sole proprietorships. The owners of businesses which pay the franchise tax receive key benefits, such as liability protections under the state law, where their personal assets can be shielded against potentially-devastating legal judgments against their businesses.

A sole proprietorship, on the other hand, is an unincorporated business with one owner who pays personal income tax on profits from the business, according to Investopedia.com. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self contractors or business owners.

Proponents of SB 8 contend that while the current structure of the franchise tax exempts $1 million from a taxable entity’s total revenue, there are many additional small businesses that have total revenue of more than $1 million.

“These small businesses find the franchise tax difficult to calculate and are liable for the tax even if operating at a loss,” said Schwertner. “Accordingly, the state’s current total revenue exemption is burdensome to small businesses, impedes growth, and discourages Texans from starting businesses that contribute to our economy.”

According to estimates by the Office of the Comptroller of Public Accounts of the State of Texas, had the new proposed exemption been in effect in 2013, it would have amounted to a $380 million tax cut and eliminated the franchise tax burden for 61,000 of the 117,000 businesses subject to franchise taxation.

SB 8 would cost the state about $760 million over the next two years in lost revenue.

In promoting those Senate measures, Nelson told colleagues that now is the perfect time to give taxpayers relief.

“When our economy is healthy, when we have billions of dollars in our coffers, I feel like we ought to give some of that back to the people that sent it to us,” she said. “Tax cuts have been a major priority for Senate leadership, with Lt. Gov. Dan Patrick promising meaningful tax relief in his first press conference of the session and (Republican) Gov. Greg Abbott promising to reject any budget that lacked significant tax reduction.”

ADDITIONAL DETAILS ON SCHOOL PROPERTY TAX EXEMPTIONS

SB 1 would amend Chapter 11 of the Tax Code, regarding property taxation and exemptions, to increase the mandatory homestead exemption for school districts from $15,000 to an amount equal to 25 percent of the median market value of all residence homesteads in the state, and to require that the tax limitation for taxpayers who are 65 years of age or older or disabled (tax ceiling) be reduced to reflect the additional exemption.

The Legislative Budget Board (LBB) would be required to determine the median market value in each tax year based on appraisal district homestead values in the preceding tax year, and publish that value in the Texas Register not later than February 1.

For the 2015 tax year, LBB would be required to determine and publish the median market value not later than August 1. School districts would be prohibited from repealing or reducing existing optional homestead exemptions until 2025.

SB 1 would amend Chapter 25 of the Tax Code, regarding local appraisal, to require that certain 2015 appraisal records submitted to the appraisal review board reflect the median published by the LBB.

SB 1 would amend Chapter 26 of the Tax Code, regarding assessment, to require school district assessors to determine two 2015 taxable values; the first based on a homestead exemption of $15,000, and the second based on the exempt amount published by the LBB under the bill.

Two sets of school district effective and rollback tax rates would be calculated based on these taxable values. The governing body of a taxing unit would be required to adopt a tax rate for the 2015 tax year before the later of October 31 or the 60th day after the date the certified appraisal roll is received by the taxing unit (one month later than current law). This requirement would expire December 31, 2016.

SB 1 would amend Chapter 31 of the Tax Code, regarding property tax collections, to require for residence homesteads qualified for the tax ceiling, that a school district tax assessor mail the 2015 tax bill by December 1, 2015, or as soon thereafter as practicable (two months later than required under current law). This provision would expire December 31, 2016.

SB 1 would amend Chapters 41, 42 and 46 of the Education Code, regarding equalized wealth level, the Foundation School Program, and assistance with instructional facilities and payment of existing debt, to require that the state hold school districts harmless for tax revenue losses resulting from the additional homestead exemption amount, including maintenance and operations revenue losses, and interest and sinking fund revenue losses related to existing debt.

School districts would be entitled to additional state aid to the extent current formulas do not fully reimburse them for the tax revenue losses. The Comptroller would be required to provide 2014 school district taxable values calculated as if the proposed new residence homestead exemption and reduction in tax ceilings had been in effect in tax year 2014.

SB 1 would amend Subchapter M, Chapter 403, of the Government Code, regarding the Comptroller’s study of school district property values to require the Comptroller to calculate final taxable values for school districts based on the proposed new residence homestead exemption and reduction in tax ceilings.

The provisions of the bill requiring constitutional authorization would take effect on the date the corresponding constitutional amendment (SJR 1) takes effect.

The provisions not requiring constitutional authorization would take effect immediately upon enactment, assuming that the bill receives the requisite two-thirds majority votes in both houses of the Legislature.

Otherwise, these provisions would take effect on the 91st day after the last day of the legislative session. The bill would apply to each tax year that begins on or after January 1, 2015.

SB 1’s provision requiring the Comptroller to calculate the school district property values to be used in school funding formulas as if the additional homestead exemption amount were implemented one year before the bill’s effective date would minimize the adverse effect on school districts of using lagged year property values in the funding formulas.

Further, the SB 1’s hold harmless provision would require the state to offset any school property tax revenue losses resulting from the additional homestead exemption amount.

SB 1’s provision setting the residence homestead exemption amount at 25 percent of the median market value of all Texas homesteads would result in an exemption of $31,373 in fiscal year 2016. The taxable value (market value after exemptions) of many homesteads is less than that amount.

Less than the full exemption amount would be required to reduce the taxable value of these properties to zero. To reflect this, the gross amount of the additional homestead exemption was multiplied by a homestead exemption absorption factor to estimate the net value loss to the additional exemption.

The loss from the proposed tax ceiling reductions was included. Projected tax rates were applied through the five-year projection period to estimate the school district loss that would be transferred to the state.

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Sen. Juan “Chuy” Hinojosa, D-McAllen, represents the counties of Nueces, Jim Wells, Brooks, and Hidalgo (part). Hinojosa serves as the Senate President Pro Tempore of the Texas Senate in the 84th Texas Legislature. Hinojosa currently serves as Vice-Chairman of the Senate Committee on Finance, and serves on the Senate Committees on Natural Resources & Economic Development, Criminal Justice, Agriculture, Water & Rural Affairs as well as the Legislative Budget Board (LBB), and the Sunset Advisory Commission.

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