According to the Legislative Budget Board (LBB), the fiscal implications of HB 3684 reflect a modest but measurable revenue loss to the state, specifically affecting the Property Tax Relief Fund. While the bill does not have a direct impact on General Revenue-related funds over the next five fiscal years (2026–2030), it will reduce revenues to the Property Tax Relief Fund by $560,000 in the 2026–27 biennium, with that loss gradually increasing to $620,000 by 2030.

This loss occurs because the bill allows registered securities market operators to exclude transaction rebate payments from their total revenue, thereby lowering their taxable margin under the state franchise tax. Since revenue from the franchise tax is allocated in part to the Property Tax Relief Fund, the exclusion results in reduced tax collections. Importantly, under current law, any shortfall in this fund must be offset by General Revenue to ensure continued funding for the Foundation School Program. Thus, although the General Revenue fund does not show an immediate deficit, it could indirectly bear the cost of the bill through backfilling the reduced Property Tax Relief Fund.

The Comptroller’s estimate incorporates plans for two new stock exchanges to operate in Texas, including a proposed Texas Stock Exchange and the potential reincorporation of the Chicago NYSE as the Texas NYSE. The fiscal note assumes these exchanges will generate transaction rebate payment volumes equivalent to approximately 5% of those generated by NASDAQ. The first report year in which these changes are expected to affect revenue is 2027, with full implementation of the bill taking effect on January 1, 2026.

Overall, while the fiscal impact is relatively limited in scale, the bill creates a clear, ongoing reduction in state revenue tied to a specific sector’s tax obligations, requiring compensatory funding mechanisms to maintain fiscal balance in public education support.

HB 3684 presents a narrowly tailored correction to the Texas franchise tax framework by excluding from total revenue certain transaction rebate payments made by registered securities market operators to brokers or dealers. The bill's purpose is to ensure that the franchise tax is assessed on actual income rather than gross revenue that includes pass-through payments that do not represent retained earnings. This clarification is particularly relevant as Texas prepares for the launch of new stock exchanges in the coming years, and the legislation will help prevent these entities from being taxed on non-income transactions that are essential to modern securities market operations.

The substitute bill improves upon the originally filed version by refining its language and scope to focus on registered securities market operators—those regulated by the SEC or CFTC and classified under a specific NAICS code. This change narrows the eligibility to entities formally engaged in market-making activities, promoting greater tax clarity and alignment with federal regulatory definitions. By eliminating language in the original bill that could have allowed both exchanges and their members to claim exclusions, the committee substitute ensures a more administratively sound application of the exemption.

From a fiscal standpoint, the bill is expected to result in a relatively small revenue loss to the Property Tax Relief Fund—estimated at $560,000 in the 2026–27 biennium—due to the exclusion of rebate payments from taxable revenue. However, this impact is modest in scale and must be offset with General Revenue to maintain public education funding, per existing law. Given that the bill does not expand government, infringe on individual liberties, or burden taxpayers in other sectors, it aligns well with principles of free enterprise and limited government. Overall, the bill offers a prudent adjustment that supports financial innovation and accuracy in tax administration, and as such, Texas Policy Research recommends that lawmakers vote YES on HB 3684.

• Individual Liberty: The bill does not directly affect individual freedoms, civil rights, or privacy. It is strictly a tax policy adjustment for specific business entities and does not impose any new restrictions or liberties on individual Texans.
• Personal Responsibility: There is no direct impact on individual behavior or responsibility. The bill deals with business-to-business rebate structures and tax treatment rather than incentives for responsible individual conduct or accountability.
• Free Enterprise: The bill advances free enterprise by ensuring that registered securities market operators are not taxed on pass-through rebate payments that do not represent actual income. These payments are standard in the securities industry and are used to incentivize market liquidity. By clarifying that such payments are excluded from total revenue for franchise tax purposes, the bill helps keep Texas competitive as a financial hub, especially as new exchanges are preparing to launch in the state. This fosters a pro-business environment that encourages innovation and growth in financial markets.
• Private Property Rights: The bill does not address ownership, transfer, or use of private property. It neither enhances nor restricts property rights, but it does promote an environment where businesses retain more of their rightfully earned income, indirectly reinforcing financial autonomy.
• Limited Government: The bill reduces the effective reach of government taxation by refining the definition of taxable revenue in a very narrow and industry-specific context. Rather than expanding regulation or creating new oversight mechanisms, it removes a potential over-taxation scenario that could disincentivize certain financial operations in Texas. The bill does not grow government or increase enforcement obligations, and it uses existing federal definitions to minimize redundancy and maintain clarity.

• SB 1058 (Same As)