The bill, H.B. No. 116, proposes significant changes to the taxation system in Texas, specifically targeting school district maintenance and operations (M&O) ad valorem taxes. It aims to repeal the authority of school districts to levy M&O taxes starting in the 2030 tax year, with all related provisions being repealed effective January 1, 2030. In place of these taxes, the bill introduces a state value-added tax (VAT) at an initial rate of 6.72%, which will be imposed on the value added to goods and services at each stage of production or distribution. The revenue generated from this VAT will be allocated exclusively to fund public education operations that were previously supported by M&O property taxes. The implementation of this VAT is contingent upon the approval of a constitutional amendment by voters that prohibits school districts from imposing M&O ad valorem taxes.

Additionally, the bill mandates the comptroller of public accounts to conduct a comprehensive study on the feasibility of replacing all local property taxes with local value-added taxes. This study will assess various factors, including revenue needs, rate structures, and economic impacts, and is to be completed by December 1, 2026. The legislature intends to use the findings from this study to draft legislation aimed at eliminating remaining local ad valorem taxes and replacing them with local VATs, effective January 1, 2030. The bill also includes provisions for the repeal of certain sections of the Tax Code and Education Code, which will take effect only if the primary article of the bill is enacted.

Statutes affected:
Introduced: Subtitle E, Title , Tax Code 1.02, The following provisions of the Tax Code 2.01, The following provisions of the Education Code 2.02 (Subtitle E, Title , Tax Code 1, The following provisions of the Tax Code 2, The following provisions of the Education Code 2)