According to the Legislative Budget Board (LBB), the fiscal implications of SB 32 primarily arise from two mechanisms: a significant expansion of the business personal property tax exemption and the introduction of a new franchise tax credit for businesses paying inventory-related ad valorem taxes.

First, the bill increases the existing ad valorem tax exemption for income-producing tangible personal property from $2,500 to $25,000 per location within a taxing unit. This change is expected to reduce the taxable property base for many local governments, particularly affecting revenue collected from small and mid-sized businesses. The impact will be spread across taxing units, including cities, counties, school districts, and special districts, all of which levy property taxes on business personal property. While this offers broad tax relief to businesses, it may necessitate adjustments in local budgets or tax rates to compensate for reduced revenues.

Second, SB 32 creates a franchise tax credit equal to 20% of the ad valorem taxes paid by a business on inventory, capped statewide at $500 million annually. The Comptroller is tasked with allocating these credits on a pro-rata basis if demand exceeds the cap. This provision directly impacts the state’s General Revenue Fund by reducing franchise tax collections. To manage this fiscal exposure, the bill authorizes the Comptroller to require supporting documentation and potentially audit businesses claiming the credit. Additionally, the credit is not refundable, transferable, or eligible for carryforward, limiting the long-term fiscal impact but concentrating it in the years of active claims.

Overall, while the bill delivers meaningful tax relief to Texas businesses and aims to improve the business climate, it will reduce both local and state tax revenues. The local impact stems from the property tax exemption, while the state impact arises from reduced franchise tax collections. The inclusion of caps and regulatory oversight is designed to mitigate the scale of these revenue losses, but fiscal adjustments may still be required at both levels of government.

SB 32 represents a significant step toward lowering the tax burden on Texas businesses by increasing the ad valorem tax exemption for income-producing tangible personal property and establishing a franchise tax credit for certain property taxes paid. The core intent is to provide widespread tax relief, particularly for small and medium-sized enterprises, by exempting the first $25,000 in business personal property per site from taxation and offering a state-level offset for taxes paid on inventory.

From a liberty principle perspective, the bill aligns strongly with the ideals of individual liberty and free enterprise by allowing entrepreneurs and businesses more control over their resources and reducing governmental financial encroachment. It also reinforces private property rights by recognizing the economic strain local property taxes can place on using personal property for productive purposes. Limited government is supported through the reduction of both state franchise tax obligations and local property tax exposure, while personal responsibility is still maintained through structured compliance mechanisms, including optional reporting thresholds and anti-fraud provisions.

The fiscal implications, while significant—especially the franchise tax credit capped at $500 million annually—are balanced by safeguards such as credit limits, a non-transferability clause, and accountability through Comptroller oversight. Though local governments have raised concerns over potential revenue reductions, the bill provides consistent standards and administrative predictability for taxpayers and taxing entities alike.

Overall, SB 32 merits support as a well-calibrated measure that advances economic freedom, promotes investment in Texas, and reduces burdensome taxation without sacrificing fiscal responsibility.. As such, Texas Policy Research recommends that lawmakers vote YES on SB 32.

• Individual Liberty: By reducing the tax burden on individuals who own and use tangible personal property for income-producing purposes, the bill enhances individual freedom in economic activity. Small business owners, entrepreneurs, and sole proprietors will face fewer government-imposed financial obstacles when utilizing personal property in pursuit of livelihood or business growth.
• Personal Responsibility: The bill maintains a compliance framework that encourages responsible participation in the tax system. It allows individuals to opt out of rendering property if it falls below the exemption threshold but requires a certification under penalty of law and reserves authority for the chief appraiser to investigate abuses. This structure empowers taxpayers to take responsibility for honest reporting while trusting them with streamlined filing.
• Free Enterprise: This is perhaps the most directly impacted principle. The legislation lowers operational costs for a wide range of businesses, especially small and mid-sized entities that typically carry low levels of business personal property or inventory. By exempting up to $25,000 per location and offering a credit for inventory taxes, SB 32 encourages investment, competitiveness, and business formation—hallmarks of a free-market economy.
• Private Property Rights: The bill acknowledges the importance of property used in commerce by protecting it from excessive local taxation. The measure respects the right of individuals and businesses to use their tangible assets productively without undue encumbrance by the state. It also establishes clearer definitions and aggregation rules for related business entities, promoting fairness in how property rights are exercised and protected.
• Limited Government: The bill represents a tangible reduction in state and local taxation and sets limits on how much revenue the state can forgo through the franchise tax credit ($500 million cap). This deliberate shrinking of government revenue from business property aligns with the principle of limiting the size and scope of government. However, some local government entities argue it may constrain their budgets, which raises a mild concern about cost-shifting but does not override the broader benefit of reducing government reach into private enterprise.

• SJR 81 (Enabling for)