The $18 billion package includes two bills and a constitutional amendment. In order for the tax cuts to show up on this year’s tax bill, Texans must approve the constitutional amendment during the Nov. 7 election.
The legislation was approved unanimously in the 31-member Senate and garnered a few dissenting votes in the 149-member House. The package now heads to the desk of Gov. Greg Abbott, who said he “[looked] forward to signing this legislation into law to provide Texans with the largest property tax cut in Texas history.”
Here’s what each portion of the tax relief plan means for Texans.
Homestead exemption
All Texas homeowners currently receive a $40,000 tax exemption on their primary home. Seniors and people with disabilities receive an additional $10,000 exemption.
Under Senate Bill 2, homeowners will receive a $100,000 exemption, with $110,000 for seniors and people with disabilities.
This means people whose homes are worth $100,000 or less will not pay any property taxes to their local school districts. This will largely impact homeowners in rural areas.
According to the Texas Taxpayers and Research Association, the average home value is less than $100,000 in 397 of the state’s 1,014 public school districts.
“Every homestead in the state of Texas, from the Red River to the Rio Grande. will receive a 41.5% reduction in their property taxes [this] year,” said Sen. Paul Bettencourt, R-Houston, the author of the Senate bills.
The average homeowner’s tax bill would be about $1,260 smaller this year and $1,312 smaller in 2024, according to Bettencourt’s office. An average Texas home is worth about $331,000.
School district tax rate compression
Lawmakers set aside $12.7 billion to “compress,” or reduce, school property tax rates. SB 2 cuts school district maintenance and operations taxes, which make up the majority of a homeowner’s tax bill, by nearly 24%.
Schools will receive money from the state to ensure they do not lose revenue as local tax rates fall.
However, overall school funding will not change. Democrats from both chambers proposed various amendments July 13 to send more money to schools and increase pay for teachers. All of those amendments were shot down.
Sen. Roland Gutierrez, D-San Antonio, proposed giving teachers a one-time bonus of $2,000 in large districts and $6,000 in small districts. His amendment was rejected on the argument that it was not in line with the tax-cut legislation.
“Without question, the members in the Senate and House want to give the teachers their pay raise,” Lt. Gov. Dan Patrick said. “We will have time in the fall, I believe, to give them a permanent raise, and not just a one-time raise.”
Lawmakers are expected to return to Austin for a third special session in September or October. They will likely discuss teacher pay raises, school funding and the use of state funds to send students to private schools.
Nonhomestead appraisal cap
In order to help more property owners, the Legislature introduced a three-year, 20% appraisal cap for commercial and residential property worth $5 million or less. This means that the value of the property can not increase by more than 20% per year.
The program, which is part of SB 2, applies to property other than someone’s primary home.
“We have approximately 13 million property taxpayers, or parcels, that are every single nonhomestead real property in the state of Texas,” Bettencourt said. “That is every conceivable piece of land: second home, rental home, multifamily, commercial property.”
The cap goes into effect in 2024 and runs through 2026. After it ends, lawmakers can choose to extend, modify or stop the program.
Business franchise tax exemption
Senate Bill 3 eliminates the state franchise tax for businesses that make less than $2.47 million per year. Roughly 67,000 small and midsize businesses will no longer have to pay the tax or submit a “no tax due” form, Bettencourt said.
According to the Legislative Budget Board, eligible business owners will collectively save about $300,000 annually.
“Small businesses operate on thin margins, so in an economy where every penny counts, this tax cut will provide significant savings to business owners,” said Annie Spilman, the Texas director of the National Federation of Independent Businesses. “Those savings will go towards job creation, raised wages and expanded benefits.”
Will renters see tax relief?
Bettencourt called the legislation “property tax relief that every Texan will feel because every Texan deserves it.”
He argued that landlords who receive tax relief would pass the savings onto renters.
But Dick Lavine, a senior fiscal analyst for the progressive advocacy group Every Texan, said “this does nothing for them at all.”
“We've looked into this before, and it's pretty clear that in most cases, rent is set by the market; it's set by supply and demand,” Lavine said. “So if in Austin, [a landlord] can get $2,400 for a one-bedroom apartment... [if] your taxes are cut, but you can still get that $2,400, you're gonna keep asking for it.”
After the legislation was approved, Reps. Trey Martinez Fischer, D-San Antonio; Victoria Neave Criado, D-Dallas; and Ron Reynolds, D-Missouri City, released a statement condemning Republican leadership for providing more tax relief to certain groups.
“Texas Democrats fought hard for the millions of Texans who rent, who are teachers, or who send their children to public schools but they were entirely neglected in the process by Republican leadership,” the statement said. “As proposed today, the property tax package had billions of dollars for boardrooms but nothing for classrooms.”
