Taxes and Revenue in Texas

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Taxes and Revenue in Texas

• GOVT 2306

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This section outlines the various sources of
revenue in the state.By running through this,
you should get an idea of what types of taxes are
imposed in the state, and what other way the
state of Texas obtains revenue.
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The material here is drawn from various sources.
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One is Chapter Two of the Fiscal Size Up Revenue
Sources and Economic Outlook.You can access the
document by clicking here it takes you to the
Legislative Budget Board then hit Budget on
the drop down menu, then Fiscal Size Up.
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Another is this document created by the House
Research Organization Sources of State Revenue
in Texas.
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This page from the Comptrollers Office Texas
Taxes should also be helpful. Among other
things the Comptroller is the official tax
collector for the state.
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Still another is Article 8 of the Texas
ConstitutionIt covers Taxation and Revenue
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We will run through the subject of Article 8 and
then the previous documents.
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Section One EQUALITY AND UNIFORMITY TAX IN
PROPORTION TO VALUE INCOME TAX EXEMPTION OF
CERTAIN TANGIBLE PERSONAL PROPERTY FROM AD
VALOREM TAXATION.
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This section allows for the collection of sales
taxes ad valorem taxation - by the state and
local governments.Taxess have to be uniform
throughout the state.It details what entities
are exempt from sales taxes theres lots of
language concerning exemptions. This is a common
subject of amendments.
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Section One contains over a dozen subsections
detailing exemptions to sales and property taxes
that have been authorized by voters in past
elections.A handful of more exemptions are
proposed in the amendments offered in the
election of November 2013.
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Of special note is the homestead exemption which
is the subject of Section 1-b. The state is
protective of primary residences.
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Note also that Section 1-e prevents the state
from levying property taxes they are reserved
for local governments.Sec. 1-e. ABOLITION OF AD
VALOREM PROPERTY TAXES. No State ad valorem taxes
shall be levied upon any property within this
State.
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Section Two OCCUPATION TAXES EQUALITY AND
UNIFORMITY EXEMPTIONS FROM TAXATION
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Section Three GENERAL LAWS PUBLIC PURPOSES.
Taxes shall be levied and collected by general
laws and for public purposes only.
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Section Four SURRENDER OR SUSPENSION OF TAXING
POWER. The power to tax corporations and
corporate property shall not be surrendered or
suspended by act of the Legislature, by any
contract or grant to which the State shall be a
party.
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Section Five was repealed in 1999
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Section Six WITHDRAWAL OF MONEY FROM TREASURY
DURATION OF APPROPRIATION. No money shall be
drawn from the Treasury but in pursuance of
specific appropriations made by law nor shall
any appropriation of money be made for a longer
term than two years.
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Section 7 BORROWING, WITHHOLDING, OR DIVERTING
SPECIAL FUNDS. The Legislature shall not have
power to borrow, or in any manner divert from its
purpose, any special fund that may, or ought to,
come into the Treasury and shall make it penal
for any person or persons to borrow, withhold or
in any manner to divert from its purpose any
special fund, or any part thereof.
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Sec. 7-a. REVENUES FROM MOTOR VEHICLE
REGISTRATION FEES AND TAXES ON MOTOR FUELS AND
LUBRICANTS PURPOSES FOR WHICH USED.Sec. 7-b.
REVENUES FROM FEDERAL REIMBURSEMENT PURPOSES FOR
WHICH USED.
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Section 8 RAILROAD COMPANIES ASSESSMENT AND
COLLECTION OF TAXES.All property of railroad
companies shall be assessed, and the taxes
collected in the several counties in which said
property is situated, including so much of the
roadbed and fixtures as shall be in each county.
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Section 9 MAXIMUM STATE TAX COUNTY, CITY, AND
TOWN LEVIES COUNTY FUNDS LOCAL ROAD LAWS. (a)
No county, city or town shall levy a tax rate in
excess of Eighty Cents ( .80) on the One Hundred
Dollars (100) valuation in any one (1) year for
general fund, permanent improvement fund, road
and bridge fund and jury fund purposes.
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This section caps the tax rates local governments
can charge.
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Section 10 RELEASE FROM PAYMENT OF TAXES. The
Legislature shall have no power to release the
inhabitants of, or property in, any county, city
or town from the payment of taxes levied for
State or county purposes, unless in case of great
public calamity in any such county, city or town,
when such release may be made by a vote of
two-thirds of each House of the Legislature.
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Section 11 PLACE OF ASSESSMENT VALUE OF
PROPERTY NOT RENDERED BY OWNER. All property,
whether owned by persons or corporations shall be
assessed for taxation, and the taxes paid in the
county where situated, but the Legislature may,
by a two-thirds vote, authorize the payment of
taxes of non-residents of counties to be made at
the office of the Comptroller of Public Accounts.
And all lands and other property not rendered for
taxation by the owner thereof shall be assessed
at its fair value by the proper officer.
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Sec. 12. (Repealed Aug. 5, 1969.)
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Section 13 SALES OF LANDS AND OTHER PROPERTY FOR
TAXES REDEMPTION. (a) Provision shall be made
by the Legislature for the sale of a sufficient
portion of all lands and other property for the
taxes due thereon that have not been paid.
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You can lose your land if you do not pay taxes on
it.
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Section 14 ASSESSOR AND COLLECTOR OF TAXES.
The qualified voters of each county shall elect
an assessor-collector of taxes for the county,
except as otherwise provided by this section.
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The tax assessor is a locally elected political
office.
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Section 15 LIEN OF ASSESSMENT SEIZURE AND SALE
OF PROPERTY. The annual assessment made upon
landed property shall be a special lien thereon
and all property, both real and personal,
belonging to any delinquent taxpayer shall be
liable to seizure and sale for the payment of all
the taxes and penalties due by such delinquent
and such property may be sold for the payment of
the taxes and penalties due by such delinquent,
under such regulations as the Legislature may
provide.
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Sec. 16. (Repealed Nov. 6, 2001.)
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Section 17 SPECIFICATION OF SUBJECTS NOT
LIMITATION OF LEGISLATURE'S POWER. The
specification of the objects and subjects of
taxation shall not deprive the Legislature of the
power to require other subjects or objects to be
taxed in such manner as may be consistent with
the principles of taxation fixed in this
Constitution.
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Section 18 EQUALIZATION OF VALUATIONS SINGLE
APPRAISAL. The Legislature shall provide for
equalizing, as near as may be, the valuation of
all property subject to or rendered for taxation,
and may also provide for the classification of
all lands with reference to their value in the
several counties.
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Section 19 FARM PRODUCTS, LIVESTOCK, POULTRY,
AND FAMILY SUPPLIES EXEMPTION. Farm products,
livestock, and poultry in the hands of the
producer, and family supplies for home and farm
use, are exempt from all taxation until otherwise
directed by a two-thirds vote of all the members
elect to both houses of the Legislature.
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Section 20 FAIR CASH MARKET VALUE NOT TO BE
EXCEEDED DISCOUNTS FOR ADVANCE PAYMENT.
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No property of any kind in this State shall ever
be assessed for ad valorem taxes at a greater
value than its fair cash market value nor shall
any Board of Equalization of any governmental or
political subdivision or taxing district within
this State fix the value of any property for tax
purposes at more than its fair cash market value.
. .
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Section 21 INCREASE IN TOTAL PROPERTY TAXES
NOTICE AND HEARING CALCULATION.
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Subject to any exceptions prescribed by general
law, the total amount of property taxes imposed
by a political subdivision in any year may not
exceed the total amount of property taxes imposed
by that subdivision in the preceding year unless
the governing body of the subdivision gives
notice of its intent to consider an increase in
taxes and holds a public hearing on the proposed
increase before it increases those total taxes.
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Section 22 RESTRICTION ON APPROPRIATIONS. In
no biennium shall the rate of growth of
appropriations from state tax revenues not
dedicated by this constitution exceed the
estimated rate of growth of the state's economy.
The legislature shall provide by general law
procedures to implement this subsection.
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This places a cap on the rate of growth of state
government.
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Section 23 APPRAISAL OF PROPERTY ENFORCEMENT OF
STANDARDS. There shall be no statewide
appraisal of real property for ad valorem tax
purposes however, this shall not preclude
formula distribution of tax revenues to political
subdivisions of the state.
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Section 24 PERSONAL INCOME TAX DEDICATION OF
PROCEEDS. (a) A general law enacted by the
legislature that imposes a tax on the net incomes
of natural persons, including a person's share of
partnership and unincorporated association
income, must provide that the portion of the law
imposing the tax not take effect until approved
by a majority of the registered voters voting in
a statewide referendum held on the question of
imposing the tax. The referendum must specify the
rate of the tax that will apply to taxable income
as defined by law.
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This section states that an income tax cannot be
imposed on the state unless it is approved by the
voters in a statewide referendum. It does not
prohibit a state income tax, but creates a high
bar for it to be imposed.
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Texas is one of a small number of states that do
not collect state income taxes.
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States with no state income tax.
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Thats enough for the Article 8 of the Texas
Constitution.Now lets run through detail from
other sources for info on state taxes.
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These two graphics should help get a preliminary
idea of where funds are collected in the
state.They are from the Fiscal Size Up 2012-13.
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Major Point 38.9 of revenues in Texas come
from federal funds.61.1 come from taxes and
other sources imposed in the state.
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Heres a little background on Federal Funds.
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Federal Funds are distributed to the state
largely through grant in aid programs unique to
each spending item.They are used to entice
states or compel them to provide services
they might not otherwise. Often these are
programs that provide benefits to the poor.
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States might not otherwise provide those
policies.The next slide shows where federal
funds are spent in the state.
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As you can see, most federal funds are used to
fund health and human services in the state.
The next largest item is education.
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The Supreme Court has ruled that control over
these funds can be used by the national
government to influence state policy.
Controversies exist depending on the degree of
discretion given to states in how they can
implement a given policy.Are there conditions
attached to these items?
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Here are two types of grants Categorical
GrantsBlock Grants
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There is an important difference between the
two.Categorical Grants can only be used for
narrowly defined purposes.Block Grants are
given with general provisions provided regarding
how they should be spent.
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Texas tends to prefer block grants to categorical
grants.It makes sense since it gives the states
more control than they would otherwise have.
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Now for a closer look at the way revenue is
collected in Texas.
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Not all revenue is collected in taxes.Some is
collected in fees, fines, income and other
sources.Heres a run through
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TaxesSales TaxOil and Gas Production
TaxesMotor Fuels TaxMotor Vehicle Sales and
Rental TaxFranchise TaxCigarette and Tobacco
TaxesAlcoholic Beverage TaxesInsurance
Occupation TaxesUtility TaxInheritance
TaxHotel Occupancy Tax
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Plus other taxesOther taxes are levied on a
variety of items such as cement, sulphur,
attorney services, coin-operated machines, and
bingo rental receipts. CPA estimates these taxes
will generate 375.1 million in the 201213
biennium, an increase of 9.0 percent from 201011
biennial collections of 344.2 million.
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Here is a list of non-tax revenuesFederal
ReceiptsFees, Fines, Licenses, and
PenaltiesInterest and Investment IncomeLottery
RevenueLand IncomeTobacco Settlement Revenue
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Plus other revenueThe remaining 9.7 billion,
or 5.3 percent, of state revenue comes from a
variety of sources sales of goods and services,
child support collections, revenue from unclaimed
property, settlement of claims, and various
federal programs. CPA estimates that collections
of other revenue in the 201213 biennium will be
0.8 percent less than the 201011 biennial
collections.
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Heres a quick run through the types of taxes
that are collected in the state.The number in
parenthesis is the percentage of state revenues
collected by that tax.
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Sales Taxes (24.8)
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What is a sales tax?A sales tax is a tax paid
to a governing body for the sales of certain
goods and services. Usually laws allow (or
require) the seller to collect funds for the tax
from the consumer at the point of purchase.
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A sales tax is a type of excise tax, which
collects revenue by adding a cost to various
items that are sold on the market. They are
imposed by the producer or retailer, and
indirectly paid by the consumer.Some items are
exempt from taxes, notable items that are
considered to be essential, like non-processed
food.
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The sales and use tax continues to comprise most
of the states tax revenue. The current state
tax rate is 6.25 percent, the same rate in place
since 1990. Subject to certain exemptions, the
state sales and use tax is imposed on retail
sales, leases, and rentals of goods purchased
within or brought into the state, as well as some
taxable services.
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Click here for the page in the Comptrollers
website on sales and use taxes.
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Texas allows other lower levels of government
to collect sales taxes as well, but places a
limit on how much can be collected in total
Texas cities, counties, transit authorities and
special purpose districts have the option of
imposing an additional local sales tax for a
combined total of state and local taxes of 8 1/4
(.0825)
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Sales taxes are controversial because they are
argued to be regressive. The poor pay a higher
percentage of their income in sales taxes than
the wealthy.I cant really vouch for the
numbers on the following chart, but it shows the
percentage of income paid in sales taxes by
different income categories.
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From The Hill Practically every state charges a
higher share of taxes from lower- and
middle-class families than the highest earners, a
new study from a liberal-leaning group
found.The Institute on Taxation and Economic
Policy found that the bottom 20 percent of
earners paid an effective tax rate of 11.1
percent to state and local governments, while the
top-earning quintile paid about half as much, 5.6
percent. The middle 20 percent pays a rate of 9.4
percent.
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Since many states use sales taxes, state tax
systems are commonly argued to be more regressive
than those on the national level.The national
government uses the income tax, which tends to be
progressive. The higher the income, the higher
the tax. We cover this in GOVT 2305, but click
here for a reminder of how the national income
tax is collected.
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Franchise Tax (4.5)
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What is a franchise tax?A tax levied at the
state level against businesses and partnerships
chartered within that state. In some states,
companies with operations in that state may also
be liable for the tax even if they are chartered
in another state. This is a privilege tax that
gives the business the right to be chartered
and/or operate within that state.
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The Comptrollers Office defines the Franchise
Tax this way The Texas franchise tax is a
privilege tax imposed on corporations, including
banking corporations and limited liability
companies, that are chartered in Texas. The tax
is also imposed on non-Texas corporations that do
business in Texas.
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The current franchise tax was established in 2006
in a special session of the 79th Legislature. The
value of businesses subject to taxation was
changed. This has been controversial every since
because the revenue collected from the revision
was lower than what was collected before. Click
here for background on the controversy associated
with the franchise tax.
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From the HRO Report
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The margins tax replaced the franchise tax in
2006, when the 79th Legislature, in its third
called session, enacted HB 3 by J. Keffer. The
margins tax was designed to generate more revenue
by applying to a broader base of businesses.
According to the comptroller, the new tax applied
to 180,000 more business entities and lowered the
tax rate that taxable businesses would pay. It
was created to help generate revenue for the
Property Tax Relief Fund, which helps the state
pay for reductions in local school district
property taxes.
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In fiscal 2008-09, the margins tax generated 8.7
billion. In fiscal 2010-11, it is expected to
generate 5.8 billion, and in fiscal 2012-13,
5.3 billion. According to studies by the
comptrollers business tax advisory commission,
the tax is bringing in less revenue because more
businesses than anticipated are calculating it
using total revenue minus cost of goods sold.
Proposals to change the margins tax include
clarifying what can and cannot be claimed under
the various exemptions, increasing the rates on
which the margin is taxed, and expanding the
types of business entities required to pay the
tax.
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Motor Vehicle Sales and Rental Taxes (3.5)
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The motor vehicle sales tax is levied at a rate
of 6.25 percent on the price of a vehicle, less
the value of any trade-in. The rental tax rate is
10 percent for rentals of 30 days or fewer, and
6.25 percent for rentals exceeding 30 days. Also
included in motor vehicle sales and rental taxes
is the tax on manufactured housing. This tax is
levied at a rate of 5 percent of 65 percent of
the manufacturers selling price.
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Motor Fuel Taxes (3.4)
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Texas taxes three major types of motor fuel
gasoline, diesel fuel, and liquefied petroleum
gas (LPGpropane, butane, or compressed natural
gas). Currently, gasoline and diesel fuel are
taxed 0.20 per gallon LPG is taxed at a rate of
0.15 per gallon. In the 201011 biennium, motor
fuels tax collections totaled 6.1 billion. CPA
estimates that fuel tax collections will grow 2.6
percent, forecasting 6.3 billion in revenue for
the 201213 biennium. Historically, motor fuel
taxes have accounted for about 10 percent to 12
percent of total state tax collections however,
in the 201011 biennium the motor fuel taxes
accounted for only 8.3 percent of total tax
collections. Motor fuel taxes are expected to
comprise 7.8 percent of total tax collections for
the 201213.
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Severance Taxes (2.6)
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What is a Severance Tax?Severance taxes are
incurred when non-renewable natural resources are
extracted (or severed) within a taxing
jurisdiction. Resources that typically incur
severance taxes when extracted are oil, natural
gas, coal, uranium, and timber. Some
jurisdictions use other terms like gross
production tax.
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In Texas, this applies mostly toOil and Gas
Production Taxes
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The state levies an oil production tax at 4.6
percent of value, a natural gas production tax at
7.5 percent of value, and an oil regulation tax
of three-sixteenths of one cent per barrel of oil
produced. During the 201011 biennium, annual oil
production was approximately 324.8 million
barrels in fiscal year 2010 and 377.7 million
barrels in fiscal year 2011. Oil was taxed at a
price of approximately 72.75 per barrel in
fiscal year 2010 and 87.85 per barrel in fiscal
year 2011. Annual natural gas production was 7.1
trillion cubic feet in fiscal year 2010 and 7.3
trillion cubic feet in fiscal year 2011, while
taxable natural gas prices were 3.96 per
thousand cubic feet (mcf) in fiscal year 2010,
and approximately 4.13 per mcf in fiscal year
2011.
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This is the source of funds that are deposited
into the rainy day fund.Otherwise known as the
Economic Stabilization Fund.
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Cigarette and Tobacco Taxes (1.6)From the
Comptrollers office A tax is imposed on cigars
and tobacco products when a permit holder
receives them for the purpose of making a first
sale in this state
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From the HRO Report
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Excise taxes on tobacco products and alcoholic
beverages are among the oldest and most common
taxes in the world. Texas has taxed liquor since
the days of the republic and cigarettes since the
Great Depression. All 50 states and the federal
government impose these so-called sin taxes.
Tobacco and alcohol taxes. Texas levies two
separate tobacco taxes one on cigarettes and
another on cigars and other tobacco products,
including chewing tobacco, smoking tobacco, and
snuff. Taxes on cigarettes are levied per
package.Taxes on cigars and other tobacco
products are set by weight. The state levies
separate taxes on package sales of liquor
(distilled spirits), beer, malt liquor, and wine
and on by-the-drink sales of mixed drinks.
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Most tobacco and alcohol tax revenue goes into
the General Revenue Fund. Some tobacco tax
revenues are dedicated to special purposes, such
as to property tax relief or to the Physician
Education Loan Repayment Program. The program
provides loan repayment funds to physicians who
agree to practice in a Health Professional
Shortage Area, usually an underserved rural area,
for at least four years.
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A word on sin taxes.
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Cigarette and alcohol along with others like
the pole tax are focused on behaviors
considered by some to be undesirable. The
revenue is sometimes earmarked for projects
associated with the consequences of the activity
like lung cancer research or funding for
victims of domestic violence.
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Some argue that Texas could increase revenue by
legalizing and taxing casino gambling and
marijuana.While this may be true, there are
political forces opposed to both moves.
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Insurance Occupation Taxes (1.6)
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Alcoholic Beverage Taxes (1.0)
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From the Comptroller A gross receipts tax is
imposed on the amount received from the sale,
preparation or service of mixed beverages and
from the sale, preparation or service of ice or
nonalcoholic beverages that are sold, prepared or
served for the purpose of being mixed with an
alcoholic beverage and consumed on the premises
of the mixed beverage permittee.This is also
considered a sin tax.
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Utility Tax (0.5)
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Hotel Occupancy Tax (0.4)
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From the Comptroller A tax is imposed on a
person who pays for a room or space in a hotel
costing 15 or more each day. Local hotel taxes
apply to sleeping rooms costing 2 or more each
day. The tax covers hotels, motels and bed and
breakfasts, as well as condominiums, apartments
and houses rented for less than 30 consecutive
days. Persons leasing their houses or rooms in
their house must collect hotel occupancy tax from
their customers, in the same way a hotel or motel
collects the tax from its patrons.
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These are popular taxes especially in
municipalities because they impose taxes on
visitors, not residents.
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Inheritance Tax (0.0)
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Texas once had an estate tax, but it is being
phased out. No Texas inheritance tax is due on
estates with date of death on or after January 1,
2005.
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Two links from the Comptrollers office explain
the shift here and here.
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Other TaxesOther taxes are levied on a
variety of items such as cement, sulphur,
attorney services, coin-operated machines, and
bingo rental receipts. CPA estimates these taxes
will generate 375.1 million in the 201213
biennium, an increase of 9.0 percent from 201011
biennial collections of 344.2 million.
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Non Tax RevenuesAs you probably guessed, these
are revenues received by the state through
sources other than taxes
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Fees, Fines, Licenses, and PenaltiesThese
accounted for 8.2 of total revenue in 2012-2013.
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Interest and Investment IncomeThis accounted
for 1 of total 2012-2013 revenue
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Lottery Revenue1.9 of state revenue came from
the sale of lottery tickets.Click here for the
Wikipedia on Texas Lottery.
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The voters approved an amendment to the Texas
Constitution in November 1991 authorizing lottery
sales in Texas. It is overseen by the Texas
Lottery Commission, which was established in
1993.
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From Wikipedia According to the Texas Lottery
Commission, the allocation of lottery sales is as
follows- 63 percent is paid out in prizes-
Approximately 25 percent is paid to the
Foundation School Fund, which is used to support
public education in Texas- 5 percent is paid as
retailer commissions- 5 percent is retained to
cover Lottery Administration costs-
Approximately 2 percent (specifically, the value
of unclaimed prizes) is transferred to the Texas
Legislature for allocation to other programs in
Texas
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Controversy The lottery was sold as benefiting
public education, but is it really?- Lottery a
tiny share of school funding.- Is the Texas
Lottery really funding education?- Texas School
Funding at a Glance.- Transfers top 15 billion.
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Land IncomeThis accounted for 0.8 of state
2012-2013 revenue
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Tobacco Settlement Revenue
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From the TDSHS In 1996, Texas filed a federal
lawsuit accusing the tobacco industry of
violating conspiracy, racketeering, consumer
protection, and other provisions of state and
federal law. The state sought to recover billions
of tax dollars it had spent to treat
tobacco-related illnesses. In settling the
lawsuit, the industry agreed to pay the state 15
billion over 25 years and to pay about 2.3
billion through 2003 to Texas counties and
hospital districts based on their provision of
indigent health care.
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Other RevenueThe remaining 9.7 billion, or 5.3
percent, of state revenue comes from a variety of
sources sales of goods and services, child
support collections, revenue from unclaimed
property, settlement of claims, and various
federal programs. CPA estimates that collections
of other revenue in the 201213 biennium will be
0.8 percent less than the 201011 biennial
collections.
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This is plenty.Hopefully this section gives you
an idea of the nature of taxation in the state.