Tax Policy News

Since stepping into the role of Acting Comptroller on July 1, it’s been an honor to serve Texas taxpayers in a new capacity, and I appreciate the opportunity to share this update on the important work coming out of the 89th Legislature.

As you may know, nearly 1,200 bills were signed into law following the regular session, touching everything from property tax relief to public education.

The state’s new two-year budget, Senate Bill 1, delivers $51 billion for property tax relief, invests $5 billion to strengthen our power grid with more dispatchable energy, and makes a historic $8.5 billion commitment to our public schools.

The Comptroller’s office was entrusted with 12 new programs, including launching education savings accounts, backed by $1 billion, so Texas families can take the lead in directing their children’s education. We will also be rolling out grants to help local governments cover costs for assisting with federal immigration enforcement and boosting ambulance services in rural communities.

In November, Texans will vote on 18 proposed constitutional amendments — 11 of them tied to state taxes. One proposal would raise the residence homestead exemption from $100,000 to $140,000, a change that would provide meaningful tax relief for homeowners and families. A separate proposal for a personal property exemption could provide relief to businesses as well.

We’re glad to be able to report that Texas’ economy continues to outpace the nation. Over the past year, total state employment rose 1.7 percent compared to 1.3 percent nationwide, and our real gross state product grew 3.6 percent in 2024 versus 2.8 percent for the U.S. Inflation has slowed, and our office will keep a close watch on these trends to keep both lawmakers and taxpayers informed.

I’d like to express my appreciation to the Tax Policy News team, whose work ensures clear, timely updates. This issue takes a closer look at the tax-related measures passed during the 89th Legislature, Regular Session, and I hope you find it both informative and easy to follow.

Prohibition on Certain Signs, Logos, and Designs in Advertising or Marketing Cigarettes, E-Cigarettes, or Other Tobacco Products
Senate Bill 1313
Effective Sept. 1, 2025

Senate Bill 1313 makes it a Class B misdemeanor for cigarette, e-cigarette, or tobacco product retailers to use any signs, logos, or design marks in their marketing, advertising, or sales that are primarily aimed at or marketed towards minors. This includes depictions of cartoon-like characters, imitations of certain trademarks and symbols, images of celebrities, and images resembling food products, such as candy or juice.

Adds Health and Safety Code Section 161.124.

Prohibition on E-Cigarette Advertising in Certain Locations
Senate Bill 1316
Effective Sept. 1, 2025

Senate Bill 1316 prohibits the advertising of e-cigarettes within 1,000 feet of churches and schools.

Amends Health and Safety Code Sections 161.121 and 161.122.

Prohibition on Marketing, Advertising, Offering for Sale, or Selling Certain E-Cigarette Products
Senate Bill 2024
Effective Sept. 1, 2025

Senate Bill 2024 makes it a Class A Misdemeanor to market, advertise, sell, offer for sale, or cause to be sold certain e-cigarette products.

Adding to an existing prohibition on e-cigarette products whose product containers appeal to minors, the bill prohibits e-cigarette products whose containers’ designs or shapes disguise them to appear as alternative products, including school supplies, phones, smart devices, clothing, cosmetics, and toys.

The bill also prohibits e-cigarette products that are wholly or partially manufactured in China or any foreign adversary as well as any e-cigarette products that contain or are mixed with any cannabinoids, alcohol, kratom, kava, mushrooms, tianeptine, or any derivatives of those substances.

Lastly, the bill amends the definition of e-cigarette and e-cigarette product by removing the requirement that e-cigarettes or e-cigarette products contain nicotine. E-cigarettes and e-cigarette products now mean any consumable liquid solution or other material aerosolized or vaporized during the use of an electronic cigarette, regardless of whether the liquid solution or material contains nicotine.

Amends Health and Safety Code Sections 161.081 and 161.0876.

Sales to the Public by Retail Fireworks Permit Holders in Certain Counties
House Bill 1629
Effective June 20, 2025

House Bill 1629 amends provisions regarding the sale of fireworks. Fireworks sales from May 1-5 were previously allowed if the sale was made not more than 100 miles from the Texas-Mexico border and the location’s county commissioner’s court has approved the sale of fireworks. The bill extends the distance allowed from 100 miles to 150 miles.

Amends Occupations Code Section 2154.202(g)

Sales of Fireworks on and Before the Lunar New Year Holiday
House Bill 5084
Effective Sept. 1, 2025

House Bill 5084 allows fireworks sales from five days before the Lunar New Year until midnight on Lunar New Year in counties where the commissioner’s court has approved the sale of fireworks.

Amends Occupations Code Section 2154.202(g)

Sales of Fireworks on or Before the Juneteenth Holiday
House Bill 554
Effective May 26, 2025

House Bill 554 allows fireworks sales from June 14 until midnight on June 19 in counties where the commissioner’s court has approved the sale of fireworks.

Amends Occupations Code Section 2154.202(g) and Local Government Code Sections 352.051(b) and (d)

Fireworks Sales to the Public by Retail Fireworks Permit Holders on Certain Dates
Senate Bill 996
Effective Sept. 1, 2025

Senate Bill 996 allows fireworks sales on Sunday, July 5, 2026, from 12:01 a.m. to 11:59 p.m. This provision expires on Sept. 1, 2026.

Adds Occupations Code Section 2154.202(g-1)

Classification of Certain Entities as Primarily Engaged in Retail Trade
Senate Bill 2774
Effective Jan. 1, 2027

Senate Bill 2774 amends the definition of “retail trade” to include activities involving the rental of industrial uniforms, industrial garments, and industrial linen supplies that are classified as Industry 7213 or 7218 of the 1987 Standard Industrial Classification Manual published by the Federal Office of Management and Budget.

The bill applies to franchise tax reports originally due on or after Jan. 1, 2027.

Adds Tax Code Section 171.0001(12)(G)

Franchise Tax Credit for Research and Development Expenses
Senate Bill 2206
Effective Jan. 1, 2026

Senate Bill 2206 repeals the existing research and development (R&D) credit in Subchapter M, Chapter 171, and replaces it with a new R&D credit in Subchapter T, Chapter 171. The bill also repeals the sales tax exemption for certain property used in research and development activities.

The bill defines “qualified research expense” to be the portion of the amount reported by a taxable entity as the entity’s total qualified research expenses on line 48 of Form 6765 that is attributable to research conducted in Texas.

The bill authorizes a taxable entity that incurs qualified research expenses during a period for which the entity owes no tax under Chapter 171 to calculate the amount of the credit to which the entity would otherwise be entitled to on a report and receive that amount as a refundable credit.

The bill applies to franchise tax reports originally due on or after Jan. 1, 2026.

Repeals Tax Code, Chapter 171, Subchapter M and Section 151.3182

Amends Tax Code Section 171.212(a)

Adds Tax Code, Chapter 171, Subchapter T

Strong Families Franchise Tax Credit
Senate Bill 2018
Effective June 1, 2026

Senate Bill 2018 adds a two-year pilot program for a new franchise tax credit. The credit is based on designated contributions to eligible organizations, as determined by the OneStar Foundation. The bill limits the total amount of credits awarded each year to $5 million and limits each taxable entity to $1 million. The credit will be awarded on a first-come, first-served basis, with an enrollment period and application deadline.

The credit applies to designated contributions made on or after June 1, 2026, and to franchise tax reports originally due on or after June 1, 2026.

The provision is effective until Jan. 1, 2029.

Adds Tax Code, Chapter 171, Subchapter P

Increasing Access to Internet Services
Senate Bill 1405
Effective July 1, 2025

Senate Bill 1405 expands the list of funds related to qualifying broadband grants that can be excluded from total revenue. Costs otherwise eligible for a taxable entity’s cost of goods sold or compensation deductions that are paid for from such funds are still allowable when calculating those deductions. The bill amends the definition of “qualifying broadband grant” to include a grant for broadband deployment in this state received by a taxable entity from the Comptroller’s office under Subchapter S, Chapter 403, Government Code, or Chapter 490I of that code. The bill also provides that a reimbursement award received by a taxable entity under Subchapter S, Chapter 403, Government Code, is considered a grant for broadband development in this state.

The bill applies to franchise tax reports originally due on or after Jan. 1, 2026.

Adds Tax Code Sections 171.10132(a)(8) and 171.10132(a-1)

Exclusion of Certain Securities Transaction Payments From Total Revenue for Registered Securities Market Operators
Senate Bill 1058
Effective Jan. 1, 2026

Senate Bill 1058 excludes transaction rebate payments made by a registered securities market operator to a broker or dealer as part of a securities transaction from the operator’s total revenue.

The bill applies to franchise tax reports originally due on or after Jan. 1, 2026.

Adds Tax Code Sections 171.1011(y) and (z)

Computation of Cost of Goods Sold by Television and Radio Broadcasters
Senate Bill 263
Effective June 20, 2025

Senate Bill 263 clarifies that the provision allowing for a cost of goods sold deduction for taxable entities whose principal business activity is broadcasting only applies to television and radio broadcasting.

Amends Tax Code Section 171.1012(o)

Five-Year Exemption From Franchise Tax for Veteran-Owned Businesses
Senate Bill 346
Effective Sept. 1, 2025

House Bill 346 ensures that new veteran-owned businesses will continue to receive a five-year franchise tax exemption. The bill repeals provisions which would have ended the current five-year franchise tax exemption for new veteran-owned businesses effective Jan. 1, 2026.

Amends Tax Code Sections 171.0001(4), 171.0005, 171.001(d), 171.063(g), and 171.204(d)

Expenditures by Public Institutions of Higher Education and University Systems Eligible for the Credit for Rehabilitation of Historic Structures
House Bill 4044
Effective Jan. 1, 2026

House Bill 4044 adds costs and expenses incurred by an institution of higher education or university system as eligible costs and expenses for the certified rehabilitation of certified historic structures, if the other provisions of Internal Revenue Code Section 47(c)(2) are met.

The provision applies only to costs and expenses incurred on or after Jan. 1, 2026.

The provision is effective until Jan. 1, 2035.

Amends Tax Code Section 172.102(b)

Subchapter C, Chapter 351 Projects – Midland
Senate Bill 529
Effective May 30, 2025

Senate Bill 529 allows the city of Midland, Texas to have two qualified projects and adds it to the list of cities that are eligible to receive the additional entitlement of state sales tax revenue from restaurants, bars, retail establishments, and swimming pools and swimming facilities.

Adds Tax Code Sections 351.155(c-1) and 351.157(b-1)

Project Financing Zones – Corpus Christi and Lubbock
House Bill 2313
Effective Sept. 1, 2025

House Bill 2313 allows the boundaries of a project financing zone to be a continuous geographic area, the total area of which is less than or equal to a three-mile radius for the municipality of Corpus Christi, Texas; and adds the municipality of Lubbock, Texas to the list of cities eligible for a project financing zone.

Amends Tax Code Sections 351.1015(a)(4) and 351.1015(b)

Update of Terminology Used in Statute to Refer to Workers’ Compensation Maintenance Tax
Senate Bill 1455
Effective Jan. 1, 2026

Senate Bill 1455 replaces the term “maintenance tax” in sections related to workers’ compensation maintenance tax with the term “surcharge.” This will reduce the retaliatory tax paid to other states by Texas workers’ compensation insurers. The bill also prevents the imposition of additional retaliatory tax on foreign workers’ compensation insurers doing business in Texas.

Amends the headings to Insurance Code, Title 3 and Title 3, Subtitle C and Labor Code, Subchapter G, Chapter 407A

Amends Insurance Code Sections 201.001, 201.051(a) and (d), 251.001(a), 251.002, 251.003, 251.004, 255.001, 255.002, 255.003, 255.004, 255.005, and 281.006

Amends Labor Code Sections 402.076, 403.001, 403.002, 403.003, 403.004, 403.005, 403.007, 405.003, 407.103, 407.104, 407A.252, 407A.301, 407A.302, and 407A.303

Adds Labor Code Section 403.0055

Authorization of a Catastrophe Surcharge on Certain Policyholders
House Bill 3689
Effective Sept. 1, 2025

House Bill 3689 authorizes a catastrophe surcharge on insurers and insurance companies. The Texas Department of Insurance sets the catastrophe surcharge as a percentage of premium. The catastrophe surcharge is then assessed by insurers on all policyholders of applicable policies.

The surcharge collected from policyholders is not subject to premium tax.

Adds Insurance Code, Chapter 2210, Subchapters M-1 and M-2

Exemption of the Texas Windstorm Insurance Association and the Texas FAIR Plain Association from Certain Insurance Taxes
House Bill 2517
Effective Sept. 1, 2025

House Bill 2517 exempts the Texas Windstorm Insurance Association and the Texas FAIR Plain Association from the premium tax imposed under Insurance Code, Chapter 221 (Property and Casualty Insurance Premium Tax) and the maintenance tax imposed under Insurance Code, Chapter 252 (Fire and Allied Lines Insurance).

Amends Insurance Code Sections 221.001(b) and 252.005

Authorization of a Fee to Fund the Health Impact, Cost and Coverage Analysis Program
House Bill 138
Effective June 20, 2025

House Bill 138 creates a new annual fee on health benefit plan issuers subject to Insurance Code, Chapters 843 or 1301 to fund the Health Impact, Cost and Coverage Analysis Program under Insurance Code, Chapter 28, Subchapter J. The Comptroller’s office will assess the amount based on the cost estimate developed by the Center for Health Care Data at The University of Texas Health Science Center at Houston and prorate the assessment based on the number of covered lives attributed to each applicable health benefit plan issuer.

The fee must be paid by a health benefit plan issuer no later than Aug. 1 of each year, except for the 2025 calendar year. For the 2025 calendar year, a health benefit plan issuer must pay the fee as soon as practicable after the date the Comptroller’s office assesses the fee.

Adds Insurance Code, Chapter 38, Subchapter J

Motor Fuels Tax Exemption for Counties
House Bill 1109
Effective July 1, 2025

House Bill 1109 exempts gasoline and diesel fuel sold to a Texas county if it is for the county’s exclusive use.

The bill also provides that if a county pays tax for exempt gasoline or diesel fuel, the county may file a refund claim with the comptroller in the amount of the taxes paid.

Amends Tax Code Sections 162.104, 162.125, 162.204, and 162.227

Motor Fuels Tax Refund or Credit on Diesel Fuel Used in Auxiliary Power Units or Power Take-Off Equipment
Senate Bill 771
Effective Sept. 1, 2025

Senate Bill 771 entitles a person to file a claim for a refund, or a license holder to file a claim for a credit, with the Comptroller’s office in the amount of taxes paid for diesel fuel used in auxiliary power units or power take-off equipment.

Amends Tax Code Section 162.227

Motor Fuels Tax Exemption for Certain Metropolitan Transit Authorities
Senate Bill 1371
Effective June 20, 2025

Senate Bill 1371 revises the existing tax exemption for compressed natural gas (CNG) and liquefied natural gas (LNG) when delivered into the fuel supply tanks of specific transit company vehicles. The bill expands on the types of vehicles that can access a refueling facility without affecting the CNG and LNG tax exemption.

Amends Tax Code Section 162.356

Motor Vehicle Tax Exemptions for Nonprofit Food Banks and Providers of Housing and Related Services
House Bill 4226
Effective Sept. 1, 2025

House Bill 4226 provides an exemption from the motor vehicle taxes imposed by Chapter 152 for a vehicle purchased, used, or rented by a nonprofit food bank that is used primarily by the food bank for its purposes. The bill also exempts a vehicle purchased, used, or rented by an entity providing housing services that primarily uses the vehicle as housing for individuals who are experiencing homelessness.

Adds Tax Code Sections 152.094 and 152.095

Motor Vehicle Tax Exemption for Vehicles Transferred From a Decedent’s Estate
Senate Bill 2064
Effective Sept. 1, 2025

Senate Bill 2064 provides an exemption from the motor vehicle taxes imposed by Chapter 152, including the $10 gift tax, on the transfer of a motor vehicle to a person from a decedent or decedent’s estate.

Amends Tax Code Sections 152.025(a) and 152.062(b-2) and adds Tax Code Section 152.094

Convenience Processing Fee for Processing Electronic Payments for Motor Vehicles
House Bill 4134
Effective Sept. 1, 2025

House Bill 4134 provides that a holder of a retail installment contract for a motor vehicle or the holder’s agent may collect a convenience fee for processing a retail buyer’s electronic payment under the contract providing certain conditions are met. A fee allowed by this bill is part of “total consideration” under Tax Code Section 152.002 and is subject to motor vehicle sales tax.

Adds Finance Code Section 348.416

Titling, Registering and Operating a Miniature Vehicle
Senate Bill 1816
Effective June 20, 2025

Senate Bill 1816 amends current law relating to the titling, registration and operation of miniature vehicles, and provides clarity about their operations in Texas. Prior to this bill, miniature vehicles were not considered motor vehicles and were subject to sales and use tax as tangible personal property. After this bill, certain miniature vehicles now meet the definition of motor vehicle and will be subject to motor vehicle sales tax and not sales and use tax.

Adds Transportation Code Sections 501.009, 502.001(21-a), 502.006, and 545.429

Exemption for Exotic Animals and Game Animals
House Bill 135
Effective May 13, 2025

House Bill 135 exempts exotic animals, as defined in Property Tax Code Section 23.51, and game animals, as described by Parks and Wildlife Code Section 63.001, from sales and use tax.

Amends Tax Code Section 151.316(a)

Deduction for Texas Farm-Raised Oysters
House Bill 3486
Effective Oct. 1, 2025

House Bill 3486 allows a food service establishment to deduct $5 for every 100 Texas farm-raised oysters purchased for preparation and service at the establishment from the taxable sales reported on its sales tax return.

Adds Tax Code Section 151.433

Deduction for Oyster Shell Recycling
House Bill 3487
Effective Oct. 1, 2025

House Bill 3487 allows a food service establishment to deduct $2 for each 50 pounds of oyster shells collected at the establishment and provided to a qualified oyster shell recycling program from the taxable sales reported on its sales tax return.

Adds Tax Code Section 151.434

Sales Tax Holiday for Clothing and Footwear
Senate Bill 1415
Effective Sept. 1, 2025

Senate Bill 1415 changes the sales tax holiday date for certain clothing, footwear, school supplies, and backpacks to the first Friday in August beginning at 12:01 a.m. and ending at midnight the following Sunday.

Amends Tax Code Section 151.326(a)(2)

Repeal of Sales Tax Exemption for Certain Property Used in Research and Development
Senate Bill 2206
Effective Jan. 1, 2026

Senate Bill 2206 repeals the exemption for certain property used in research and development activities. This repeal will not affect tax liabilities accruing before Jan. 1, 2026, which will continue in effect as if the exemption had not been repealed.

Repeals Tax Code Section 151.3182

Removal of Internet Access Services from Taxable Services
Senate Bill 1405
Effective July 1, 2025

Senate Bill 1405 revises the definition of internet access service to remove the reference to the sales tax exemption for the first $25 of a monthly charge for the service. The bill also removes internet access service from the list of services subject to sales and use tax and repeals the exemption for the first $25 of a monthly charge for the service.

Amends Tax Code Sections 151.00394(b),(c) and 151.0101(a) and repeals Tax Code Section 151.325

Severance Tax Exemption for Oil and Gas Produced From Certain Previously Inactive Restimulation Wells
House Bill 3159
Effective Jan. 1, 2026

House Bill 3159 adds a new severance tax exemption for “restimulation wells” certified by the Railroad Commission of Texas. The bill exempts hydrocarbons produced from a qualifying well for up to 36 months; or until the well’s tax exemptions equal the lesser of $750,000 or the eligible restimulation costs – whichever event occurs first.

Adds Tax Code Section 202.062

Exemption of Central Texas Water Alliance Bonds, Notes and Other Obligations From Taxation
Senate Bill 1194
Effective May 15, 2025

Senate Bill 1194 creates the Central Texas Water Alliance and authorizes it to issue bonds, notes, and other obligations. A bond, note, or other obligation issued under Special District Local Laws Code, Chapter 11020 (Central Texas Water Alliance), a transaction related to the bond, note, or other obligation, the interest on the bond, note, or other obligation, and the profit from the sale of the bond, note, or other obligation are exempt from taxation by Texas or a political subdivision of Texas.

Adds Chapter 11020 to Subtitle X, Title 6, Special District Local Laws Code

Non-Substantive Clarifications
House Bill 1620
Effective Sept. 1, 2025

House Bill 1620 is a generalized “cleanup” bill. It amends Sections 151.359(k) and 151.3595(j) to conform with the expiration of Chapter 313, makes non-substantive revisions to Section 351.1015(b) and 351.1015(j), and redesignates Section 351.161 as Section 351.1621.

Amends Tax Code Sections 151.359(k), 151.3595(j), 351.1015(b), and 351.1015(j), Redesignates Section 351.161 as Section 351.1621

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