According to the Legislative Budget Board (LBB), HB 3504 would have a negative fiscal impact of $11.36 million on General Revenue Related Funds through the 2026–27 biennium. Because the bill takes effect September 1, 2026, the LBB estimates no fiscal impact in fiscal year 2026, followed by an $11.36 million General Revenue loss in fiscal year 2027. The bill would also reduce revenue to the Tax Reduction and Excellence in Education Fund by $411,000 in the 2026–27 biennium; the LBB notes that this loss must be replaced with an equal amount of General Revenue to fund the Foundation School Program.

The fiscal impact grows in later years because the exemption would recur annually and the bill includes CPI-based adjustments to the qualifying price caps every five years beginning January 1, 2027. LBB projects General Revenue Related losses of $14.72 million in fiscal year 2028, $15.4 million in fiscal year 2029, and $16.1 million in fiscal year 2030. The cost driver is foregone sales and use tax revenue from exempt purchases of qualified tools and equipment during the Labor Day weekend tax holiday.

The bill would also reduce local sales and use tax collections. For fiscal year 2027, LBB estimates losses of $2.15 million to cities, $710,000 to transit authorities, and $530,000 to counties and special districts. By fiscal year 2030, those projected local losses rise to $3.05 million for cities, $1.01 million for transit authorities, and $750,000 for counties and special districts. LBB states that its estimate is based on Comptroller data regarding the market size of eligible items, apportioned to Texas, adjusted for the exemption period and price caps, adjusted for projected CPI increases, and extrapolated forward.

Texas Policy Research recommends that lawmakers vote NO on HB 3504. The bill provides tax relief, but it does so through a narrow, state-selected sales tax holiday rather than through a broad, permanent tax reduction. The bill would exempt certain tools and equipment from sales and use tax during a limited Labor Day weekend period, with eligibility based on item type, price caps, and timing of purchase. The bill analysis states that the purpose is to help address skilled labor shortages by lowering the cost of tools for workers entering skilled trades, but the mechanism remains a targeted tax preference rather than neutral tax relief.

The bill does not directly grow the size of government in the conventional sense. It does not create a new agency, office, grant program, criminal offense, penalty, or express rulemaking authority. The committee bill analysis specifically states that the bill does not expressly grant additional rulemaking authority and does not create or increase a criminal penalty. However, it does expand the scope of government-directed tax policy by adding another selective exemption to the Tax Code. Instead of reducing the sales tax rate for all taxpayers, the bill authorizes the state to favor certain goods, certain buyers, and certain transactions during a specific period. That broadens the government’s role in choosing which economic activity receives preferential treatment.

The bill also increases taxpayer exposure by reducing recurring state and local revenue without pairing that reduction with a corresponding spending reduction or broader tax reform. The Legislative Budget Board estimates a negative impact of $11.36 million to General Revenue Related Funds through the 2026–27 biennium, along with a $411,000 loss to the Tax Reduction and Excellence in Education Fund that must be replaced with General Revenue for the Foundation School Program. LBB also projects revenue losses for cities, transit authorities, counties, and special districts. While lower taxes are desirable, a temporary carveout that leaves spending obligations intact can shift pressure elsewhere in the budget rather than structurally reducing government.

The bill does not meaningfully increase the regulatory burden on individuals or businesses in the way a licensing bill, mandate, reporting requirement, or compliance regime would. Consumers are not required to buy anything, and sellers are not directly subjected to a new occupational or operational regulation. Still, tax holidays create practical compliance complexity for retailers because they must determine which items qualify, apply price thresholds, distinguish covered from uncovered products, and administer the exemption during a narrow window. The committee substitute also includes automatic five-year CPI-based adjustments to the price caps, which adds an ongoing complexity to the tax code.

A limited-government objection is that the bill demonstrates the state can temporarily go without collecting this tax revenue, but only grants that relief on terms chosen by government. If the state can forgo sales tax on selected work tools during one weekend, the better policy question is why taxpayers should not receive a broader and more durable reduction in the overall sales tax burden. Government should not operate as a revenue-maximizing entity that keeps taxes in place by default while selectively suspending them for politically favored categories.

The bill’s tax-relief intent is preferable to a spending or regulatory expansion, but its structure reinforces a tax code based on exemptions, timing incentives, and government-selected preferences. A more liberty-oriented alternative would be a permanent, broad-based sales tax rate reduction, paired with spending restraint, rather than another temporary holiday that narrows relief to selected goods and selected purchase dates.