Tax Policy News

Looking back, the Regular Session of the 88th Legislature was destined to be unusual — as were subsequent special sessions. Lawmakers started out with an extraordinary amount of funds available. Everyone had ideas for how to spend the influx of tax revenues, but we must make prudent decisions about spending the tax dollars that come from Texans’ pockets to guarantee the state’s resilience and strength into the future.

During the Regular Session, important legislation was passed to address some of the state’s most pressing needs, including an innovative model for funding community colleges based on outcomes, funding for semiconductor research and manufacturing in the state, and measures that will help my agency achieve its goal of expanding high-speed internet access to all Texans. Each of these is important for workforce development, ensuring Texans have the skills necessary for high-demand jobs in our current and future economy.

Other funding seeks to provide adequate water for a growing population, while also protecting our infrastructure from devastating floods. The New Water Supply for Texas Fund, one of these initiatives, still must pass voter approval later this year. Important funds also were allocated to address the opioid crisis; this has taken too many lives, and the measures adopted can help keep families together.

Once again, the Legislature is working overtime in special sessions. Their efforts have resulted in a noted property tax relief bill that, if passed by voters in November, will assist homeowners and businesses.

The economy has continued to defy expectations. We’ve all experienced the effects of high inflation, with the hope that the peak is behind us. We’ve also seen continued job growth; Texas recently reached a record civilian labor force of 15 million. Through it all, my agency is closely monitoring the data and will continue to report updates to the Legislature and taxpayers.

The dedicated staff who publish Tax Policy News are an integral part of our agency’s work. In this issue, please find details on changes to tax-related matters resulting from the most recent legislative session.

Prohibition on Certain E-cigarette Containers
House Bill 4758
Effective Jan. 1, 2024

House Bill (HB) 4758 provides that, for purposes of prohibited e-cigarette products, an e-cigarette product includes any substance containing nicotine from any source that is intended for use in an e-cigarette.

HB 4758 makes it a Class B misdemeanor to market or sell e-cigarette products if the product’s containers are appealing to minors. The container cannot depict cartoon-like fictional characters aimed at entertaining minors; imitate or mimic trademarks of products that have been primarily marketed to minors; include symbols that are primarily used to market products to minors; include images of a celebrity; or include images that resemble food products, including candy or juice.

The bill does not ban flavored e-cigarettes or vape products, only products in containers that are appealing to minors.

Adds Health and Safety Code Section 161.0876

Update of Terminology Used in Statute to Refer to Intellectual Disability
House Bill 446
Effective Sept. 1, 2023

House Bill 446 amends the franchise tax statute to replace the term “mental retardation” with the term "intellectual disability" in the definition of “health care institution” under the exclusion from total revenue for health care institutions.

Amends Tax Code Section 171.1011(p)(2)

Land Services Performed by a Landman
Senate Bill 604
Effective for reports originally due on or after Jan. 1, 2024

Senate Bill 604 amends the definition of “landman services” to include services related to “other energy sources.” “Other energy sources” are added to the list of interests that are eligible to be excluded from total revenue as subcontracting payments for landman services.

Amends Tax Code Section 171.1011(g-11)

Treatment of Proceeds from Certain Grants and the Related Expenses for Broadband Deployment in Texas
Senate Bill 1243
Effective May 23, 2023

Senate Bill (SB) 1243 allows taxable entities to exclude from total revenue, to the extent included, proceeds from certain grants for broadband deployment in Texas.

SB 1243 allows taxable entities to include any expense paid using proceeds from these grants as either a cost of goods sold as allowed under Section 171.1012 or as compensation as allowed under Section 171.1013.

The bill applies to franchise tax reports originally due on or after Jan. 1, 2023.

Adds Tax Code Section 171.10132

Increase to the No Tax Due Threshold and Removal of Filing Requirements
Senate Bill 3, Second Called Session
Effective Jan. 1, 2024

Senate Bill (SB) 3 increases the no tax due revenue threshold to $2.47 million. Taxable entities with annualized total revenue less than or equal to $2.47 million owe no franchise tax. SB 3 also provides that entities that owe no tax based on the revenue threshold do not have to file a no tax due report. Note that taxable entities with annualized total revenue less than or equal to the no tax due threshold must still file a Public Information Report or Ownership Information Report.

The bill also repeals the requirement for a new veteran-owned business to file a no tax due report during its initial 5-year exemption period. Note that a new veteran-owned business is not required to file a Public Information Report or Ownership Information Report during its initial 5-year exemption period.

The bill applies to franchise tax reports originally due on or after Jan. 1, 2024.

Amends Tax Code Sections 171.002(d)(2) and 171.204(b) and repeals Tax Code Section 171.204(d)

Franchise Tax or Insurance Premium Tax Credit for Certain Housing Developments
House Bill 1058
Effective for reports due on or after Jan. 1, 2026, and before Jan. 1, 2036

House Bill 1058 provides a franchise tax or insurance tax credit for a taxable entity that owns an interest in a qualified low-income housing development. A qualified development is a low-income housing development in Texas for which the Texas Department of Housing and Community Affairs (TDHCA) awards or allocates a federal tax credit, is the subject of a recorded restrictive covenant requiring the development to be maintained and operated as a qualified development, and meets all the applicable requirements of the qualified allocation plan, as defined by Section 2306.6702, Government Code.

TDHCA may award no more than $25 million of credits each report year. The credit may be claimed in equal installments for a period of 10 tax years beginning with the tax year in which the building that is part of a qualified development is placed in service. The credit may be carried back for not more than three years or forward for not more than 10 consecutive reports. A qualified development that is subject to the recapture of a portion of the federal tax credit is also subject to the recapture of the same percentage of Texas credit awarded.

A taxable entity receiving a credit that is a federal pass-through entity may allocate the credit to its owners in any manner agreed to by the entities.

Adds Tax Code, Chapter 171, Subchapter K, and Insurance Code, Chapter 233

Franchise Tax or Insurance Tax Credit for Rehabilitation of Certified Historic Structures
Senate Bill 1013
Effective Sept. 1, 2023

Senate Bill 1013 moves the certified rehabilitation of certified historic structures credit from Subchapter S (Tax Credit for Certified Rehabilitation of Certified Historic Structures) of Chapter 171 to new Chapter 172, Tax Code. The bill also expands the exception to the depreciation and tax-exempt use provisions of Section 47(c)(2), Internal Revenue Code, to all entities exempted from federal income tax under Section 501(a), Internal Revenue Code.

Amends Tax Code Section 172.102

Adds Tax Code Chapter 172 and transfers Subchapter S, Chapter 171, Tax Code, to Subtitle F, Title 2, Tax Code, Chapter 172

2020 U.S. Census
House Bill 4559
Effective Sept. 1, 2023

House Bill 4559 updates various population brackets found in Tax Code Chapters 156 and 351 to ensure that the brackets continue to apply to the intended municipalities by taking into account the 2020 U.S. Census.

Amends Tax Code Sections 156.2512(c)(1); 351.001(7); 351.101(a), (i), (j), (o)-(p); 351.1015(b); 351.102(e); 351.104(a); 351.1066(a); 351.10692(a); 351.1071(a); 351.10712(a); and 351.152

Subchapter C, Chapter 351 Projects – Kemah, Waco, Recapture, and Reporting
House Bill 3727
Effective June 12, 2023
Senate Bill 1420
Effective June 2, 2023

House Bill (HB) 3727 and Senate Bill 1420 amend the definition of a multipurpose convention center facility project for the city of Kemah to require a parking shuttle or transportation system to be used primarily by tourists.

HB 3727 adds the city of Waco to the list of cities eligible for a municipal hotel and convention center project.

Both bills require that for certain cities, the Comptroller’s office recapture lost state tax revenue in the event the total amount of state tax revenue received by a city from the state during the first 10-year rebate period exceeds the amount of revenue received by the state from the same sources over the following 10 years.

Both bills also require the Comptroller’s office to provide a biennial report by Dec. 1 of each even-numbered year relating to the status of each qualified project. The report must provide information including the location and description of the project and the total amount of tax revenue received by a municipality. The Comptroller’s office is required to post a copy of the report on its website and provide a copy of the report to each member of the legislature.

Amends Tax Code Sections 351.001(2), (6), (8), (10), 351.009, 351.101, 351.1021(a)(3), 351.103(a)-(c), 351.110(c), 351.152, and 352.009; adds Tax Code Sections 351.101(f-1), 351.161, 351.162, and 351.163; and repeals Tax Code Sections 351.103(d)-(e) and 351.110(b)

Eligible Coastal Municipalities
House Bill 4494
Effective June 11, 2023

House Bill 4494 adds the cities of Surfside and Jamaica Beach to the definition of eligible coastal municipality.

Amends Tax Code Section 351.001(3)

Subchapter C, Chapter 351 Projects – San Antonio
Senate Bill 627
Effective June 18, 2023

Senate Bill (SB) 627 adds the city of San Antonio to the list of cities that are eligible to receive the additional entitlement of state sales tax revenue from restaurants, bars, spas, retail establishments, and swimming pools and swimming facilities.

SB 627 also exempts the city from the requirement that the city own the qualified convention center facility and the land beneath the qualified hotel in Subchapter C of Chapter 351. The bill allows the city to have a nonprofit corporation, including a public facility corporation, act as or on behalf of the city for purposes of satisfying the ownership requirement for a qualified establishment.

The bill requires the Comptroller’s office recapture lost state tax revenue in the event the total amount of state tax revenue received by a city from the state during the first 10-year rebate period exceeds the amount of revenue received by the state from the same sources over the following 10 years.

Amends Tax Code Sections 351.153(a) and 351.157(a)-(c), and adds Tax Code Section 351.161

Project Financing Zones – Houston
Senate Bill 1057
Effective Sept. 1, 2023

Senate Bill 1057 adds the city of Houston to the cities eligible to establish a project financing zone. The bill also provides that a local government corporation that has authority to collect a municipal hotel occupancy tax and is located in Harris County may act as a municipality and is considered a municipality for purposes of a project financing zone. The bill provides that a qualified project for Houston’s local government corporation includes a venue and any related infrastructure.

Amends Tax Code Section 351.1015(b) and adds Tax Code Section 351.1015(j)

Project Financing Zone – San Antonio
Senate Bill 2220
Effective Sept. 1, 2023

Senate Bill (SB) 2220 adds the city of San Antonio to the cities eligible to establish a project financing zone. The bill also expands the definition of a qualified project to include a venue and any related infrastructure. SB 2220 authorizes a local government corporation to act as a municipality and considers a local government corporation to be a municipality for purposes of a project financing zone. The bill also provides a specific definition of qualified project for the city of San Antonio.

Amends Tax Code Section 351.1015(a)(5) and (b), and adds Tax Code Sections 351.1015 (j)-(k)

Omnibus Hotel Project Legislation
House Bill 5012
Effective Sept. 1, 2023

House Bill (HB) 5012 amends Chapter 351 of the Tax Code (Municipal Hotel Occupancy Taxes) relating to the authority of certain municipalities to receive tax revenue derived from a hotel and convention center project and to pledge certain tax revenue for the payment of obligations related to the project. It also updates the population brackets the same as HB 4559.

Project Financing Zones
HB 5012 clarifies that revenues from municipal hotel and convention center projects are excluded from state tax revenues collected in a project financing zone. It adds the cities of Corpus Christi and Austin to the cities eligible for a project financing zone and clarifies the definition of a qualified project as it applies to the City of Corpus Christi.

Municipal Hotel and Convention Center Projects
The bill adds the cities of Allen, Brownsville, Seguin, Mansfield, Beaumont, Bastrop, Waco, Little Elm, Denton, Grapevine, Mesquite, Terrell, McKinney, Kaufman, Temple, Austin, Carthage, Rosenberg, and Eagle Pass to the list of cities eligible for a municipal hotel and convention center project.

The bill adds the cities of The Colony, Allen, Brownsville, Mansfield, Little Elm, Denton, Mesquite, and McKinney to the list of cities eligible for an additional entitlement of state tax revenue from restaurants, bars, retail establishments, and swimming pools and swimming facilities. The bill adds an exception from the requirement that the city own the convention center and the land beneath the hotel for the City of McKinney. The bill also adds the provisions in SB 627 for the City of San Antonio.

Recapture
HB 5012 adds the same provisions regarding recapture of lost state tax revenue found in HB 3727, SB 627, and SB 1420.

Amends Tax Code Sections 351.1015(a)-(b), (e); 351.152; 351.153(a); and 351.157(a)-(b); adds Tax Code Sections 351.1015(j); 351.157(c-1); and 351.161; and repeals Tax Code Section 351.157(c)

Secondary Wine Sales
Senate Bill 1932
Effective Sept. 1, 2023

Senate Bill 1932 allows certain wine collection sellers to sell directly to certain permitted restaurants. The wine must be at least 20 years old and be in the sealed original packaging. The restaurants can then resell the wine to an ultimate consumer for on premise consumption.

Adds Alcoholic Beverage Code Chapter 111

Motor Fuels Tax Exemption for Nonprofit Food Banks
House Bill 3599
Effective Sept. 1, 2023

House Bill (HB) 3599 defines a nonprofit food bank and generally exempts them from motor fuels tax. Specifically, the bill exempts gasoline and diesel fuel sold to a nonprofit food bank and delivered into either the fuel supply tank of a motor vehicle that is owned by the nonprofit food bank and used to deliver food, or into a storage facility from which gasoline will be delivered solely into the fuel supply tanks of those motor vehicles.

HB 3599 also entitles a nonprofit food bank to file a claim with the comptroller for a refund in the amount of taxes paid for gasoline or diesel delivered into the fuel tank of qualifying vehicles.

Amends Tax Code Sections 162.001, 162.104, 162.125, 162.204, and 162.227 and adds Tax Code Sections 162.1276 and 162.2276

Motor Fuels Tax Lawful and Unlawful Purchase
House Bill 3651
Effective Sept. 1, 2023

House Bill 3651 amends various provisions related to motor fuels tax to clarify the lawful and unlawful acquisition of motor fuel, making it easier for prosecutors to charge criminal activity. The bill also amends the definition of “motor fuel” so that the definition is not limited to only those products that power gasoline and diesel engines.

Amends Tax Code Sections 162.001, 162.101, 162.103, 162.201, and 162.203

Increase in Motor Vehicle Crime Prevention Authority Fee
Senate Bill 224
Effective May 29, 2023

Senate Bill 224 increases the Motor Vehicle Crime Prevention Authority Fee imposed on insurers from $4 to $5. The additional $1 will go to the general revenue fund to be used only for coordinated regulatory and law enforcement activities intended to detect and prevent catalytic converter theft in Texas.

Amends Transportation Code Section 1006.153

Tags, Permits, and License Plates
House Bill 718
Effective July 1, 2025

House Bill 718 requires a motor vehicle dealer to issue metal license plates obtained from the Texas Department of Motor Vehicles (TxDMV) for vehicles sold by the dealer and eliminates the issuance of temporary paper buyer's, dealer’s, and converters tags. Metal license plates must also be issued instead of paper for One-Trip and 30-Day permits. The bill establishes a onetime, $10 fee for the issuance of a dealer's temporary license plate and makes other conforming changes related to the administration and distribution of metal plates to motor vehicle dealers.

Amends Tax Code Sections 152.027 and 152.042; Transportation Code Sections 501.022(d); 501.0236(b), (d); 502.095; 501.147(a); 502.410(b); 503.008(a); 503.038(a), (c); 503.061(a); 503.0618(b)-(c); 503.062(a); 503.063; 503.0631(a)-(d); 503.065(a)-(e); 503.066(d); 503.068(b)-(d); 503.069(a); 504.901(a)-(b); 548.052; 601.002(12); adds Transportation Code Sections 501.147(a-1); 503.0631(c-1), (d-1), (d-2); 503.0633; 503.0671; 503.069; 504.901(b-1); 520.0055; and repeals Transportation Code Sections 502.092; 502.477; 503.062(d); 503.0625; 503.0626; 503.0632; 503.067; 503.068(a); 503.094(d); 504.901(c)-(e)

Exemption for Gas Produced that Would Otherwise Have Been Lawfully Vented or Flared
House Bill 591
Effective Sept. 1, 2023

House Bill (HB) 591 exempts gas that is consumed within 1,000 feet of a qualifying well and would otherwise have been lawfully vented or flared from the gas production tax. The well operator and pipeline operator must apply to the Railroad Commission for certification of a qualifying well and the person responsible for paying the tax must apply annually to the comptroller for the exemption. HB 591 also gives the Comptroller’s office and the Railroad Commission the authority to adopt rules necessary to implement and administer the exemption.

Adds Tax Code Section 201.061

Fireworks
House Bill 608
Effective Sept. 1, 2023

House Bill 608 adds the period beginning five days before the first day of Diwali and ending at midnight on the last day of Diwali to the dates a county commissioner may allow the sale of fireworks.

Amends Occupations Code Section 2154.202(h)

Qualified Employee for Enterprise Zone
House Bill 1515
Effective Sept. 1, 2023

House Bill 1515 amends the definition of a qualified employee. It adds the requirement that the employee be a Texas resident and allows the employee to qualify if they engage in services off-site and reside within 25 miles of the qualified business site. This provision applies prospectively, as well as to an enterprise project that is under audit or subject to audit by the Comptroller's office, on or after the effective date of the bill.

Amends Government Code Section 2303.003(7)

Public Facility Corporations
House Bill 2071
Effective June 18, 2023

House Bill 2071 exempts from the sales and use tax purchases of materials by certain persons to improve the real property of a public facility corporation because the materials are for the benefit of the corporation.

Adds Local Government Code Section 303.0421(f)(1)

Information Service
Senate Bill 65
Effective Oct. 1, 2023

Senate Bill 65 excludes the furnishing of an academic transcript from the definition of an information service for sales and use tax purposes.

Adds Tax Code Section 151.0038(c)

Exemption From Sales and Use Tax for Certain Family Care Items
Senate Bill 379
Effective Sept. 1, 2023

Senate Bill 379 exempts from sales and use tax wound care dressings, adult or children’s diapers, baby wipes, feminine hygiene products, maternity clothing, breast milk pumping products, and baby bottles.

Amends Tax Code Section 151.313, and adds Sections 151.3132, 151.3133, 151.3134, and 151.3135

Taxability of Certain Medical Services Performed to Determine Worker's Compensation Benefits
Senate Bill 1122
Effective June 18, 2023

Senate Bill 1122 excludes from the definition of taxable insurance services a medical service, examination or test required or authorized under Chapter 408 of the Texas Labor Code (Workers’ Compensation Benefits) for the purpose of determining the appropriate level of benefits under that chapter.

Amends Tax Code Section 151.0039

Sexually Oriented Business Fee Increase
House Bill 3345
Effective Sept. 1, 2023

House Bill 3345 increases the fee imposed on sexually oriented businesses from $5 to $10 for each customer entry. The bill allocates one percent of revenue received under the mixed beverage gross receipts tax and the mixed beverage sales tax to the credit of the sexual assault program fund.

Amends Business and Commerce Code Section 102.052; Government Code Section 420.008; Tax Code Section 183.023; and adds Tax Code Section 183.054

Rulemaking
House Bill 139
Effective June 13, 2023, for notice; Sept. 1, 2023, for summary

House Bill (HB) 139 requires a state agency to provide notice of a proposed rule to be adopted. The notice only applies to rules that are proposed to be adopted by a state agency under statutory authority that specifically authorizes the agency to adopt the rule and that became law during the preceding four-year period.

The notice must be provided to the current primary author and sponsor of the legislation not later than the third day after the agency files notice with the Secretary of State. Failure to provide notice does not invalidate the rule. The required notice must be provided electronically to the primary author's and sponsor's designated Capitol e-mail address or to another e-mail address provided to the agency for the purpose of receiving the notice.

HB 139 also adds that failure by a state agency to publish on the agency's internet website a summary of a proposed rule written in plain language in both English and Spanish does not invalidate a rule adopted by a state agency or an action taken by the agency under that rule.

Amends Government Code Sections 2001.023; 2001.024; and adds Government Code Section 2001.0261

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