Boost for Main Street: Texas’s Proposed Personal Property Tax Exemption 333

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A Texas ballot measure, Proposition 9, aims to significantly increase the personal property tax exemption for businesses. If passed by voters, this change will offer much-needed relief to small and mid-sized businesses, making Texas more competitive without sacrificing substantial local government revenue.

The Current Tax Burden and Proposed Change

The debate over property tax relief often focuses on reducing the residential burden, sometimes leading to increased taxes on businesses. However, in 2025, the Texas legislature took a step to specifically support businesses.

Currently, the Texas Constitution allows for an exemption of personal property—used to produce income—from property taxes (ad valorem) only if its taxable value is below the minimum administration cost, which is currently set at $2,500. This minimal exemption offers little help to most businesses.

Proposition 9 proposes a dramatic change: it would allow the legislature to exempt $125,000 of the market value of this same property. This is a move toward sound tax policy that benefits “Main Street” businesses.

 

Why Business Personal Property Taxes are Problematic

Taxes on business personal property (BPP), also known as tangible personal property (TPP), are widely considered to be poor tax policy for several reasons:

  • Discourages Investment: They penalize businesses for investing in the equipment, machinery, and fixtures necessary for growth and productivity.
  • Excessive Compliance Cost: The tax often generates a “deadweight loss.” This means the cost for businesses to comply is often high compared to the actual tax liability and revenue generated for local governments. Compliance requires businesses to meticulously catalog every asset, tracking its acquisition date, cost, and depreciation.
  • Unfair Burden on Small Businesses: Unlike large corporations with dedicated accounting staff, small and mid-sized businesses often lack the resources to efficiently comply with these onerous filing requirements, making an inefficient tax even more burdensome.

Precedent and Minimal Revenue Impact

Studies and actions in other states demonstrate that significantly raising the BPP exemption can help businesses with only a negligible effect on revenue:

  • A 2015 study in Connecticut showed that a $10,000 BPP exemption would remove 46% of businesses from the tax roll while reducing property tax collections by only 0.014%.
  • Indiana increased its exemption from $20,000 to $40,000, eliminating filing for 28,000 businesses while only decreasing revenue by a modest $4 million.
  • Rhode Island recently raised its exemption to $50,000, removing over 70% of businesses from the BPP tax roll.

Texas’s proposed $125,000 exemption, while not the highest nationally (states like Arizona and Montana have exemptions of $500,000 or more), is a commendable step. It aligns with Texas’s commitment to maintaining a competitive tax code and supports small businesses by significantly reducing their compliance burdens with minimal impact on local government revenues. Future legislatures may follow the lead of other states and move toward an even greater exemption or the outright elimination of this inefficient tax.

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