General Tax Policy
Texas state and local governments must balance public needs and wants against their affordability. Taxes cause economic harm by adding to the cost of living and doing business. That harm is offset and justified if those funds are used prudently to support cost-effective public services necessary to create a positive foundation for economic and social prosperity, but the harm is magnified if those funds are used for inefficient programs or those of marginal need.
A “tax” is a forced extraction of funds from individuals and businesses. A “tax increase” is a measure which increases net tax revenues by:
- raising tax rates, or
- expanding existing tax bases by reducing or eliminating exemptions, deductions, credits, or refunds.
Texas’ absence of a personal income tax is a positive reflection of the state’s conservative fiscal policy. It makes Texas an attractive location for individuals and helps foster small business growth. However, Texas must rely on property and sales taxes, which are among the highest in the nation and fall heavily on business. Consequently, Texas is a relatively high tax state for business—particularly those that are capital intensive or that produce or sell goods.
- be balanced in a manner that reflects the participation and interests of ALL Texans and does not divide taxpayers into competing groups;
- be structured so that Texas is competitively positioned among the states and nations to attract employment and investment;
- be composed of stable elements that function well together as a logical system, without undue pyramiding;
- reflect real world, as opposed to purely academic or theoretical, considerations.
- TTARA supports reasonable tax exemptions that minimize economic distortions and promote growth;
- TTARA opposes tax changes that increase the state’s already heavy reliance on businesses to shoulder the bulk of the state’s tax burden;
- TTARA opposes the replacement of property taxes with an enhanced sales or consumption tax, but may withdraw its opposition if the following conditions are met:
- the net tax burden on business does not increase;
- the new taxes are economically neutral, do not distort economic decision-making, and can be reasonably administered;
- the new system allows local governments reasonable financial stability and discretion; and
- should some portion of the property tax be retained, sufficient safeguards are provided to ensure that levies do not rise to offset the amount of tax relief.
Budget and Fiscal Policy
Principles. Texas state and local governments exist to provide necessary services to the public that are not available from the private sector. Programs created in support of that mission should be periodically reviewed to ensure that they are efficient and effective to address an ongoing public need. Funding should be based on whether an imperative public need exists, and not simply on whether money is available. Budgeted expenditures should be aligned with current revenues to minimize structural gaps in subsequent years. Debt is an acceptable method of financing infrastructure needs, but should be used carefully and sparingly and the period to retire the amount borrowed should not exceed the useful life of the property being financed. Texas governments should evaluate their capacity to issue debt based on appropriate measures of their economic ability to retire the debt in a prudent term.
The assets most critical to the long-term prosperity of the state, and those that should be given priority in the budget are:
- an educated workforce,
- safe communities, and
- quality public infrastructure.
- TTARA supports a balanced budget financed without a general tax increase, payment deferrals, or revenue speed-ups.
- TTARA supports the state’s efforts to improve our transportation network and water infrastructure.
- TTARA supports wise and judicious use of the state’s Rainy Day Fund to meet critical needs.
- TTARA supports rational limitations on governmental expenditures that provide appropriate protections for taxpayers.
- TTARA supports the compression of school tax rates as property values rise. Rising values place a greater burden on local property owners when financing our public schools, contributing to Texas being a high property tax state. Compressing tax rates would help mitigate this burden and make Texas more competitive with other states.
Principles. The property tax is a direct barrier to business investment and to homeownership. Given the extraordinary harm the tax can create, particular care must be taken to ensure that property taxes are as low as possible. Property taxes should be equal and uniform and based on professionally determined market values. Exemptions to existing property should be used sparingly, as they can simply shift the tax burden onto other taxpayers. However, given Texas’ extraordinarily high property tax burden, abatements and deferrals may be an appropriate tool for encouraging new investment.
Property owners have the right to a fair and impartial review to ensure that their property is correctly valued. The process by which local jurisdictions adopt their budgets and corresponding tax rates should be open, accessible, and understandable to the public so that taxpayers can meaningfully and intelligently participate in those decisions. Local jurisdictions raise taxes when they use rising appraisals to increase their revenues.
- TTARA supports an open and understandable local tax and budget process that allows taxpayers to see how local fiscal decisions directly impact their tax bills.
- TTARA supports a professional system of property valuation free from the influence of politics.
- TTARA supports a fair and impartial valuation appeals process with unfettered access to administrative and judicial remedies.
- TTARA supports exempting business inventories and other business personal property from the property tax so that our tax base better matches that of competitor states.
- TTARA supports requiring direct voter approval of property tax increases above a reasonable level.
- TTARA supports state oversight to ensure that:
- appraisal districts employ uniform and generally accepted appraisal standards,
- appraisal review boards provide unbiased resolution of valuation protests,
- tax rates are proposed in a clear manner with reasonable notice to the public and adopted in accordance with the procedures specified in law, and
- dedicated revenues are used for their intended purposes.
- TTARA opposes appraisal caps, assessment ratios, or expanded exemptions for certain types of existing property that simply shift the tax burden onto remaining taxpayers.
- TTARA opposes the issuance of any type of tax-supported debt without voter approval.
- TTARA opposes a split property tax roll that treats business and residential property differently.
Sales and Use Tax
Principles. The sales tax, or any consumption tax, should be limited to the purchase and use of an item by its final consumer. Taxes on intermediate sales cause tax pyramiding—unduly adding tax on top of tax while hiding the total burden from the final consumer. Sales taxes should be applied as uniformly as possible to avoid creating an arbitrary advantage or disadvantage for certain sellers. Sales tax exemptions may be appropriate to mitigate harmful economic consequences.
- TTARA supports the current timely-filer and prepayment discounts as a way of partially offsetting the cost of mandated sales tax collection.
- TTARA supports the exemption for materials and equipment used in manufacturing and processing to minimize tax pyramiding and to remain competitive with other states.
- TTARA supports a level playing field for all sellers. The Supreme Court’s Wayfair decision gives states new authority to collect sales taxes on remote sellers but provides little guidance as to how states should do so. States should coordinate administrative activities to avoid the imposition of excessive compliance burdens.
- TTARA opposes any increase in the maximum allowable two percent total local tax rate.
- TTARA opposes separate audits by multiple taxing authorities.
Principles. The franchise tax, the state’s general business tax, should apply to all forms of business receiving liability protections from the state. A reasonable small business exemption is acceptable in order to limit the administrative burdens and compliance costs of this complex tax; however, the exemption should not be used to advance a policy of selected tax relief, creating inequities in the application of the tax.
- TTARA supports reductions in the franchise tax rate to provide relief for all franchise taxpayers if sufficient revenue is available.
- TTARA supports reasonable changes that simplify the calculation of the franchise tax without unduly benefitting or harming certain taxpayers relative to their competitors.
- TTARA opposes changes that arbitrarily narrow the number of businesses subject to the tax.
- TTARA opposes changes to the tax and its apportionment, allocation, or sourcing provisions that may penalize businesses for locating facilities in the state.
State Tax Administration
Principles. A system of state tax administration that appropriately balances the state’s interests in effective tax collection with that of taxpayers in non-burdensome compliance is essential to fairness and efficiency. A readily accessible process for timely resolving disputes must be provided. Similarly situated taxpayers should be subject to the same rules and regulations. Onerous or biased collection methods adversely impact efforts to promote economic expansion.
- TTARA supports appropriate penalties for failure to pay tax lawfully due; however, interest is the time value of money, the rate of which should be equal for both delinquent payments to the state and refunds paid to taxpayers.
- TTARA supports the right of taxpayers to an impartial review of disputed liabilities without having to pay amounts in dispute, which may ultimately be adjudicated in their favor.
- TTARA supports the confidentiality of taxpayer records. The power to tax should not include the power to publicly expose proprietary aspects of a business’ operations.
- TTARA supports giving taxpayers reasonable and adequate time to respond to administrative requests without jeopardizing their rights to a refund of overpaid taxes.
- TTARA opposes contingent fee audits, as they threaten the objectivity of the auditor.
Principles. Texas businesses compete in a national and global marketplace. It is critical that the cost of doing business in Texas be low to encourage new investment; however, Texas’ heavy reliance on sales and property taxes makes Texas a relatively high tax state for business. Consequently, it is entirely reasonable that the state make judicious use of economic incentives that prove to yield a positive return, be it economic, fiscal, or intangible (such as showcasing Texas). Tax and economic incentives can be an effective and necessary tool to attract investment and stimulate job growth in Texas.
- TTARA supports the continued funding of the state’s economic incentive programs.
- TTARA supports the continuation of Chapter 312 of the Tax Code, which allows cities, counties and special districts to offer temporary property tax abatements on new investments.
- TTARA supports the continuation and simplification of Chapter 313 of the Tax Code, which allows school districts to offer temporary limitations on the taxable value of new investments.
- TTARA supports simplifying and centralizing the application and reporting requirements of the state’s current incentive programs.
Principles. The state’s primary role over unclaimed property is to aid in returning it to its rightful owners; it is not to raise money for the state or to punish businesses. Amounts turned into the state should be tied to specific records and not based on sampling.
- TTARA supports reasonable requirements for businesses to maintain unclaimed property records for a period not to exceed seven years.
- TTARA opposes the use of third-party contractors to audit unclaimed property records.
School Finance and Education
Principles. All Texans are entitled to a quality education that provides them with the skills needed to achieve their greatest potential. School curricula must be rigorous and rewarding, meeting the diverse needs of our students, economy and society. Schools should have relatively equal access to a level of funds that enables the provision of a desired level of measurable academic achievement through an efficiently-managed system. School districts should be accountable to taxpayers and their communities for the money they spend and the results they achieve. Educators and administrators should work collaboratively within and across school districts to ensure that all may learn and benefit from best practices and shared services.
- TTARA supports voter approval of taxes levied for enrichment purposes above a reasonable level.
- TTARA supports a sufficient and appropriate level of funding necessary to efficiently provide an education that allows all students to be successful.
- TTARA supports updating elements of the formulas used in calculating school funding if there is a reasonable expectation that it will result in increased student achievement or student skills.
- TTARA opposes changes that would lessen the current level of funding equity in the school finance system.
- TTARA opposes financing public schools with a split property tax roll that treats business and residential property differently.