On July 13, 2023, the Texas Legislature concluded its second special session by approving a record tax relief package that increases the no-tax-due threshold for franchise tax and provides more than $18 billion in tax cuts for property owners. Passage of the agreed-to legislation comes after a monthslong standoff between the House and Senate as to the most effective means for providing relief.
The final package consists of three instruments: Senate Bill 2 (Sen. Bettencourt), which provides additional rate compression, an increased homestead exemption, and a temporary 20% appraisal cap on certain real property valued at $5 million or less; Senate Bill 3 (Sen. Bettencourt), which increases the no-tax-due threshold for Texas franchise tax; and House Joint Resolution 2 (Rep. Metcalf), which is the constitutional amendment required to increase the homestead exemption, permit the temporary appraisal cap, and exclude the appropriations made for property tax relief from the state’s spending limit calculation.
Governor Abbott has stated he intends to sign the legislation; however, the law changes are contingent upon Texas voters approving the constitutional amendment included in House Joint Resolution 2 on November 7, 2023.
Senate Bill 2
- Provides 10.7 cents of additional school district maintenance and operation (M&O) rate compression for tax year 2023, and this reduction will be reflected in the school district maximum compressed rate calculation each successive year.
- Increases the mandatory school district homestead exemption from $40,000 to $100,000, starting with tax year 2023. It also reduces the capped tax payments owed by homeowners who are 65 and older, or disabled, to reflect both this new increase and the $15,000 homestead exemption increase passed in 2021. Further, any school district, city, or county that granted an optional homestead exemption in tax year 2022 is prohibited from repealing or reducing the exemption until after the 2027 tax year.
- Implements an appraisal cap pilot program: for tax years 2024, 2025, and 2026, the appraised value of certain non-homestead real property (i.e., commercial property, minerals, rental houses) valued at $5 million or less (indexed for inflation) may not increase by more than 20% from the preceding tax year. Both the statutory and constitutional provisions authorizing this pilot program expire on December 31, 2026.
- In counties with a population of 75,000 or more:
- The Appraisal District Board of Directors will be expanded to nine directors: five appointed by the taxing units, three elected by a majority vote at a general election in the county, and the assessor-collector serving as an ex officio director. Elected and appointed directors will serve four-year terms.
- Appraisal Review Board (ARB) members will now be appointed by the Board of Directors, and appointments will require a majority vote with at least two of the majority votes coming from elected members of the board.
Senate Bill 3
- Increases the no-tax-due threshold for Texas franchise tax from $1 million to $2.47 million in total revenue (indexed for inflation).
- Eliminates the requirement for taxable entities that owe no franchise tax because their total revenue is equal to or below the no-tax-due threshold to file an annual “No Tax Due” report with the Comptroller. However, these entities are still required to file the annual public information report.
House Joint Resolution 2
- Amends the Constitution to authorize the Legislature to limit the appraised value of non-homestead real property to the lesser of its most recent market value or 120% (or a greater percentage) of its appraised value for the proceeding tax year. This is the authorization required for the 20% appraisal cap pilot program included in Senate Bill 2, and it expires December 31, 2026.
- Amends the Constitution to increase the mandatory school district homestead exemption from $40,000 to $100,000 and to adjust the tax payments owed by homeowners who are 65 and older, or disabled, to reflect any increases in the homestead exemption (applies to the $15,000 increase passed in 2021 and to all subsequent increases).
- Amends the Constitution to authorize the Legislature to provide that members of the governing body of an appraisal entity in a county with a population of 75,000 or more serve terms not to exceed four years.
- Amends the Constitution to permanently exclude appropriations made for property tax relief from counting against the state’s constitutional spending limit.
Ryan’s Texas tax experts are here to help you navigate the complexities of these changes. Please contact the individuals listed below to assist you.
TECHNICAL INFORMATION CONTACTS:
Holly Reed
Principal
Ryan
972.934.0022
holly.reed@ryan.com
Scott Retzloff
Principal
Ryan
210.377.3200
scott.retzloff@ryan.com
Matt Grabner
Director
Ryan
512.476.0022
matthew.grabner@ryan.com
Robert Hoyt
Director
Ryan
512.476.0022
robert.hoyt@ryan.com
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