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In the early hours of Wednesday, May 11, the Texas Senate passed a Tax Plan that is similar in components to what the Texas House passed several weeks ago. In the Senate substitute, school maintenance and operations taxes are reduced to $1.30 in school year 2005-06. In 2006, the rate would be lowered to $1.15. The Senate plan does allow for a local enrichment capped at a maximum of 15 cents, provided there is a local election. This is very similar to provisions in HB 3 passed by the House.
The Senate has a Franchise tax mechanism that would be extended to all forms of businesses with the exception of a sole proprietorship, which would be the equivalent of a personal income tax. The Senate offers a choice for businesses for taxation purposes. The choice is between a reformed franchise tax and 1.75 percent payroll tax capped at $1,500 per employee. Additionally, the Senate adds a gross receipts tax of .25 percent. The new business tax is to be paid annually based on the previous year's business activity.
In the Senate bill, the state sales tax is increased to 6.50 percent, which is an increase of .25 percent. The effective date could be as early as July 2005. The sales tax rate is increased to 6.75 percent in 2006. The sales tax rate on motor vehicles and boats is increased to 6.75 percent as well. There is also an additional sales tax holiday added in December on clothing.
Cigarette taxes are also affected by an increase of $.75 per pack, which creates a new rate of $1.16 per pack. Other tobacco products will have a new rate of 25 percent. Alcohol taxes are increased by 25 percent. Mixed beverages will be taxed at a rate of 17.5 percent.
The Texas Infrastructure fund is extended in both the House and Senate Bills to 2011. Electronic bingo is also authorized in the Senate substitute.
The bill will now go to a conference committee to be negotiated between the House and Senate. The conference committee will have until May 27 to reach a compromise.
The Senate also approved its version of HB 2, the Comprehensive Education Reform bill May 11. Many provisions are similar to the earlier- passed House version, particularly relating to student, teacher and school district accountability. Additionally, both bills provide salary increases for teachers and funding for teacher incentive programs.
While rural House members use transportation formulas to address expected funding reductions in rural schools brought on by updates to the Cost of Education Index, rural Senators use increases in the Small and Mid-Size School Allotment formulas. Both methods would assist rural schools in supplementing the normal funding provided for students in order to offset the greater costs per student associated with smaller schools.
Both the House and Senate also approved language moving the school start date. Current law establishes the start date as the week containing August 21. The bills under consideration would instead open schools immediately following Labor Day. This change was supported by students, parents and employers with summer seasonal demands, but was opposed by many educator groups.
Conferees from both chambers are expected to be appointed quickly and begin efforts to iron out any remaining differences. The prospects for final passage, which earlier this week looked bleak at best, have now improved considerably. However, there is still a considerable amount of work to be done in the few remaining days of the session.
