How it works
Replacing property taxes with economic growth
A simple, transparent system that replaces municipal and county M&O property taxes with local economic growth.
Economic activity occurs
Consumers spend money at businesses across Texas. Taxable sales and services generate state sales and use tax revenue.
The state collects sales tax
The State of Texas collects sales and use tax and deposits it into the Replacement Revenue Fund established by Chapter 325A.
Formula distribution by the Comptroller
The Texas Comptroller calculates each municipality's and county's share using a uniform, formula-based method based on local taxable economic activity.
Funds returned locally
Revenue is returned to the municipality or county where the economic activity occurred.
Property tax reductions
Local governments reduce their M&O property tax rate as replacement revenue is certified. Over time, M&O property taxes can be eliminated.
Fiscal responsibility
Built-in safeguards
Certified revenue only
Property tax reductions are allowed only to the extent that certified replacement revenue is available.
Stabilization reserve
A portion of revenue builds a stabilization reserve to help local governments weather economic downturns.
Equalization funding
Additional funding is available to help communities with limited taxable sales growth.
Rate reduction triggered
Once the stabilization reserve reaches its statutory limit, excess revenue triggers a review of reducing the statewide replacement sales tax rate, so Texans benefit from lower taxes.
Protecting lower-income Texans
To offset the regressive nature of sales tax, the Bill provides a refundable Low-Income Tax Credit for eligible households at or below 130% of the federal poverty guidelines.
The long-term result
A path to eliminating M&O property taxes
- 01Local economic activity grows.
- 02Local sales tax collections grow.
- 03More replacement revenue is returned locally.
- 04Property tax rates continue to decline.
- 05M&O property taxes can eventually be eliminated.
Transparent
Clear formulas and public accountability.
Predictable
Stable funding that grows with the Texas economy.
Sustainable
Shifts the burden from property ownership to economic activity.