Small business get tax relief in Texas Property Tax Reform

If you haven’t been following the Texas legislature, and I wouldn’t blame you if you haven’t, they just concluded their second called Special Session on July 14, 2023. Special sessions can only be called by the Governor and are limited to topics that the Governor lists in his announcement calling the sesssion.

This time the Governor’s focus was on property tax relief because homeowners are really feeling the squeeze from very high property taxes, and at the same time, the state has a surplus of over $30 billion this session. The Governor’s target was to reduce this surplus by $18 billion through reductions to property taxes. The interesting thing to me is they included tax relief for small businesses.

Here are the four main components of the property relief tax bill:

  1. Increase the annual homestead exemption from $40,000 to $100,000. For seniors over 65, there is an extra $40,000 homestead exemption. There are two critical things to note about these exemptions
    • The exemptions are only eligible for the property owner’s primary residence.
    • The homestead exemption is written in the Texas Constitution, so voters will have to approve this change in a constitutional amendment election in November 2023.
  2. Over $12 billion was appropriated to be sent to school districts so they can reduce the amount they have to collect through property taxes. This is a good change because over the years, the state government has slowly reduced the amount of funding they provide from the general fund.
  3. The threshhold for the no-tax-due franchise tax has been increased from $1.23 million to $2.47 million.
  4. A “circuit breaker” pilot program to limit the annual increase of the taxable value of non-homestead property valued at $5 million or less to 20%. I’m not sure why this is a pilot program or how it will work, but this should help reduce the property tax increases on a lot of rental properties and second homes. For those of you not aware, there is already a limit on homestead property to limit the increase in taxable value to 10% per year.

We’re still going to learn a lot about this legislation, but I haven’t been following the debates closely and was surprised to see the small business tax relief buried in the property tax reform bill. This will be good news for some of my clients.

For more information see this article from the Texas Society of CPAs.