S.B. No. 32 proposes significant changes to the ad valorem taxation of tangible personal property used for income production by increasing the exemption amount from less than $2,500 to $25,000. The bill amends Section 11.145 of the Tax Code to define key terms such as "inventory," "related business entity," and "unified business enterprise," and clarifies that the exemption applies to each separate location where the property is held or used. It also allows for the aggregation of property owned by related business entities to determine taxable value and ensures that individuals who lease tangible personal property are entitled to the same exemption. The bill is contingent upon the approval of a constitutional amendment and is set to take effect on January 1, 2026.

Additionally, the bill introduces a franchise tax credit for the payment of certain related ad valorem taxes, establishing a new subchapter in the Tax Code. This credit is calculated as the lesser of the total franchise tax due after applying other credits or 20% of the aggregate ad valorem taxes from the previous year on inventory located in the state, with a cap of $500 million on total credits awarded annually. The application process for the credit requires taxable entities to submit documentation electronically, and the comptroller is granted authority to verify eligibility. Certain inventory types, such as a dealer's motor vehicle inventory, are excluded from the definition of "inventory" for credit purposes, and the provisions will apply only to reports due on or after January 1, 2026.

Statutes affected:
Introduced: Tax Code 11.145, Tax Code 22.01, Tax Code 22.24, Chapter , Tax Code 37.10, Tax Code 31.01 (Chapter , Tax Code 37, Tax Code 11, Tax Code 31, Tax Code 22)
Senate Committee Report: Tax Code 11.145, Tax Code 22.01, Tax Code 22.24, Chapter , Tax Code 37.10, Tax Code 31.01 (Chapter , Tax Code 37, Tax Code 11, Tax Code 31, Tax Code 22)
Engrossed: Tax Code 11.145, Tax Code 22.01, Tax Code 22.24, Chapter , Tax Code 37.10, Tax Code 31.01 (Chapter , Tax Code 37, Tax Code 11, Tax Code 31, Tax Code 22)