As the Texas Legislature wraps up its legislature session today, June 1, 2015, the Texas Legislature has approved a number of tax cuts to be sent to Governor Abbott. These tax cuts are expected to provide $3.8 billion in relief to Texas businesses and homeowners.

First, the Texas Legislature adopted H.B. 32, which creates a permanent 25% reduction to the franchise (margins) tax.  The bill was approved 133-10 in the House and 24-6 in the Senate.  Notably, while in the Senate, an amendment to phase out the franchise (margins) tax completely by 2025 failed by a vote of 21-7.

Second, the Texas Legislature adopted S.B. 1 (on the last day of the session), which increases the homestead exemption by $10,000, raising the exemption to $25,000. The additional exemption is expected to produce approximately $126 in annual savings for Texas homeowners. The increased exemption, however, is subject to approval in the state-wide election in November of this year.

Finally, the Texas Legislature adopted S.B. 1760, which requires a 60% supermajority vote by local governing bodies, including counties and cities, to increase property tax revenue.

These tax cuts come in response to Governor Abbott’s threat to veto any budget that did not include tax cuts for businesses. The House and the Senate, however, disagreed over which taxes should be cut.  The House proposed a rate cut to the Texas state sales tax along with the 25% cut to the franchise (margins) tax rate. The Senate proposed a 15% cut to the franchise (margins) tax rate and increased homestead exemptions, to be indexed with inflation, but no sales tax cut Ultimately, each chamber prevailed with respect to one of its proposals, although the Senate was unable to pass the homestead exemption inflation adjustment.

The Texas Legislature’s debate over which taxes to cut differs markedly from the ongoing debate in the Louisiana Legislature, which is struggling to address a projected $1.6 billion budget shortfall. Louisiana taxpayers must continue to wait and watch as the Louisiana Legislature seeks to find the right ingredients for the budget it is trying to make.