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TTIA Legislative Update 
July 22, 2015

 

 























 

 



We offer this Legislative Update to provide information on items vetoed by Governor Greg Abbott, information on the Franchise Tax and an update on the Public School Finance lawsuit currently be considered by the Texas courts.

As always, if you have any questions about the information contained within this Update, or any other legislative matter, please contact Homero Lucero, Senior VP of Government Relations at [email protected] or 512-328-8842.

 

Vetoed Bills

Gov. Greg Abbott vetoed 41 bills - 32 House bills, nine Senate bills - and one concurrent resolution. Article IV, Section 14 of the Texas Constitution states that if the governor vetoes a bill the governor is required to give notice in the form of a proclamation. The complete list of vetoed bills and the accompanying proclamations may be found here: Vetoes for the 84th Regular Legislative Session.

 

Abbott's 42 vetoes is the highest number since the 2007 session, when then Governor Perry issued 56 vetoes. Generally, Governor Abbott's vetoes addressed growth in state government, the favoring of one part of the state over another and supporting the current law in the elections and criminal justice arena.

 

Of some interest, specific bills vetoed included requiring the Texas Department of Transportation to conduct a study for the need to replace fallen or damaged highway mile markers (HB 1119), requiring a correctional facility to comply with water conservation measures (HB 2788), changing how the Texas Economic Development Act applied to certain projects located in two or three school districts (HB 2826), removing the requirement a school district apply to the commissioner of education to provide a flexible school day program for students who were at risk of dropping out (SB 496), and permitting a bank or credit union to offer a savings promotion raffle (HB 1628).

 

Abbott also made several line-item vetoes to HB 1, the appropriations bill, and HB 2 the supplemental appropriations bill.

 

 

Business Franchise Tax

HB 32 by Rep. Dennis Bonnen, Chairman of the House Ways and Means committee, impacts the computation and rates of the business franchise tax. The franchise tax was created in its current form in 2006 when lawmakers were facing a possible shutdown of Texas schools, the tax is a cross between a tax on gross receipts and a tax on income, though according to tax experts, not quite either. 

 

HB 32 decreases the franchise tax on retailers or wholesalers from 0.5 percent to 0.375 percent, a 25% reduction and sets a tax rate of 0.75 percent for taxable entities not primarily engaged in retail or wholesale trade, down from current law which is 1.0 percent, also a 25% reduction.

 

The bill authorizes a taxable entity with no more than $20 million in total revenue, increased from the $10 million in current law, the option to choose to pay the franchise tax under the E-Z computation and rate provisions, resulting in a decrease in the tax rate from 0.575 percent to 0.331 percent.

 

According to the Texas Comptroller's Texas Franchise Tax web site, taxable entities that file using the E-Z Computation may not:

  • deduct cost of goods sold;
  • deduct compensation;
  • take any economic development credits;
  • take any temporary credits; or
  • carry over that year's credit for business loss carry forward to a future period.

 

Additionally, HB 32 requires the comptroller of public accounts to conduct a comprehensive study to identify revenue growth options to promote efficiency and sustainability in meeting the revenue needs of the state. The comptroller shall provide the results of the study to the governor and the Legislative Budget Board. 

 

 

School Start Date: Public School Finance

The Texas Supreme Court will hear oral arguments on September 1st in the case challenging the state's school finance system, Williams v. Texas Taxpayer & Student Fairness Coalition.  Texas school districts have challenged the constitutionality of the school finance system since 1968; the Williams case represents the 6th legal challenge of the method of finance of the state's school finance system.

 

If the Court issues its opinion in 2016, there is broad agreement education stakeholders (including those who support an earlier school start date) will urge Governor Abbott to call a special session of the Texas Legislature.  Nonetheless, the issue of public school finance will dominate the deliberations of the 84th Legislative Session which will convene in January of 2017.

 

More than 600 Texas school districts sued the state in October 2011 after lawmakers cut funding for public education amidst a legislative budget shortfall session. 

 

State District Court Judge Dietz ruled in favor of the plaintiffs in 2013, finding the state's school finance system operated as an unconstitutional statewide property tax and distributed funding unevenly among rich and poor districts.

 

Judge Dietz reopened testimony in January 2014 to determine whether lawmakers' efforts to restore the budget and improve parity among districts during an intervening legislative session had solved the problem. In August 2014, he ruled the system still did not meet constitutional muster despite the Legislature restoring funding and relaxing some graduation and testing requirements. Then Attorney General Greg Abbott appealed the ruling directly to the state Supreme Court.

 

Williams v. Texas Taxpayer & Student Fairness Coalition Timeline:

  • October 2011: After the Legislature cuts more than $5 billion from school funding, 400 property poor school districts sue the state, arguing the school finance system is inequitable and inadequate for meeting the state's accountability system.
  • February 2013: Judge Dietz rules verbally that the school finance system is unconstitutional stating it does not provide adequate funding and does not distribute funding fairly.
  • January 2014: Dietz reopens school finance trial after Legislature restores most of the 2011 funding cuts.
  • August 2014: In a written opinion, Dietz reaffirms his earlier ruling and also holds that the system amounts to an unconstitutional statewide property tax.
  • September 2014: To expedite the legal process Texas Attorney General Greg Abbott appeals to the Texas Supreme Court Judge Dietz's finding that the state's school finance system is unconstitutional.
  • January 2015: Texas Supreme Court agrees to hear the state's appeal regarding Dietz's finding in Williams v. Texas Taxpayer & Student Fairness
  • July 2015: Texas Supreme Court sets oral arguments for Sept. 1st  for Williams v. Texas Taxpayer & Student Fairness