Temple Mayor Addresses Sales and Use Tax Ballot Measure

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Proposition A, the city of Temple’s ballot measure seeking to abolish an additional sales and use tax, was quietly added to the Nov. 7 ballot and despite no pre-election public discussion, Temple Mayor Tim Davis has now released the following statement.

Background and General Information

Texas imposes a 6.25 percent state sales and use tax on all retail sales, leases and rentals of most goods, as well as taxable services. Local taxing jurisdictions (cities, counties, special purpose districts and transit authorities) can also impose up to 2 percent sales and use tax for a maximum combined rate of 8.25 percent. All local sales taxes require voter approval.

There are several different options cities in Texas may select for how a local sales tax will be used, including:

• Sales Tax for Economic Development- Revenues collected under this option must be turned over to a development corporation formed to act on behalf of the city to carry out programs related to industrial development, business infrastructure and the promotion of new and expanded business enterprises that create or retain primary jobs.
• Street Maintenance Sales Tax- The revenue from this tax may be used only to maintain and repair existing city streets and sidewalks.
• Fire Control, Prevention, and Emergency Medical Services (EMS) Districts- Cities with a population between 25,000 and 550,000 or more than 1.9 million may create an EMS district. The district may include all or any part of a city. The district may finance the operation of a fire control, prevention and EMS program.
• Crime Control and Prevention Districts- Revenues from the sales tax may be used to finance a wide variety of crime control and prevention programs.
• Municipal Sales Tax for Property Tax Relief- Revenues are deposited into a city’s general revenue fund. The initial year this type of sales tax is adopted reduces the “no new revenue” and “voter approval” property tax rates within the city and the additional sales tax revenue is included in the formula to calculate the “no new revenue” and “voter approval” property tax rates each year. Cities may use revenues from this tax as they would use property tax revenues.
• General Sales and Use Tax- Most cities in Texas have this type of sales tax. It may be imposed by any incorporated city. Revenues are deposited into the city’s general revenue fund and may be used for any lawful purpose.

In 1990, Temple voters adopted a 0.5% Municipal Sales Tax for Property Tax Relief, creating a revenue source that is paid by residents and non-residents and used for essential city services, including public safety and quality of life.

As a result of this new sales tax and in accordance with State law, the “no new revenue” and “voter approval” property tax rates (then called the “effective” and “rollback” property tax rates, respectively) were reduced for the City’s fiscal year 1990-1991. The Temple City Council adopted a property tax rate for fiscal year 1990-1991 that was above the newly lowered voter approval (rollback) property tax rate. A petition was filed requiring the City of Temple to conduct a Special Election in January of 1991 on a proposition which would have reduced the property taxes by a like amount of the new sales tax generated by the new 0.5% sales tax. That proposition was defeated by the voters and the property tax rate that the City Council adopted remained in effect.

Current Use of Sales Tax

Today the City of Temple continues to use the additional 0.5% sales tax to pay for services such as police, fire, parks, libraries, animal services, and certain infrastructure improvements that would otherwise be required to be paid for from property tax revenue.

In fiscal year 2023-2024, the property tax rate would have to be 16.51 cents higher than the current property tax rate in order to generate the same revenue for these services if we did not collect the additional 0.5% sales tax. In the fiscal year 2023-2024 Annual Budget, sales tax represents over 33% of the total general fund revenues.

Why Proposition A?

Because the 0.5% additional sales tax was initially adopted under the category of Municipal Sales Tax for Property Tax Relief, each year the revenue from this additional sales tax is included in the formula to calculate the “no new revenue” and “voter approval” property tax rates. This formula is a complex, ten-page, 80-line calculation.

Proposition A would abolish the 0.5% additional sales tax under the category of Municipal Sales Tax for Property Tax Relief and adopt a 0.5% additional sales tax under General Sales and Use Tax. This would not change the total sales tax rate, would not change the current property tax rate, and would not exempt the City from the 3.5% cap on the amount by which the City can raise property taxes each year without requiring voter approval. It would remove the revenue from the additional sales tax from the formula to calculate the “no new revenue” and “voter approval” property tax rates. The City is asking voters to consider this change to simplify and streamline the process for calculating the “no new revenue” and “voter approval” property tax rates and to reduce risk that future legislative changes to the calculation formula for the “no new revenue” and “voter approval” property tax rates could have unintended impacts to the City’s property tax rates and revenues.

For illustrative purposes regarding the impact of Proposition A, using actual fiscal year 2023-2024 data, a vote “For” Proposition A would result in a Voter Approval Rate of 61.33 cents. If the City Council adopted the Voter Approval Rate, the property tax on a home with an assessed value of $200,000 that does not qualify for any homestead or other exemptions would be $1,227.

A vote “Against” Proposition A would result in a Voter Approval Rate of 62.72 cents. If the City Council adopted the Voter Approval Rate, the property tax on a home with an assessed value of $200,000 that does not qualify for any homestead or other exemptions would be $1,254, or $27 and 2% higher than if Proposition A were approved.

Points for consideration 

While Davis presents his case for abolition of the additional sales and use tax, several realities should be understood:

1. The additional sales and use tax serves to offset (i.e., reduce) the property tax dollars collected from Temple property owners.
2. With being a consumption tax collected from both residents and non-residents, the additional sales and use tax further provides tax benefit to Temple taxpayers. Abolition of the tax will shift additional financial burden exclusively to Temple property owners.
3. Elimination of the additional sales and use tax will alter – unfavorably to taxpayers – the way in which the voter-approval tax rate is calculated and will allow the city to raise taxes without voter approval.

Applying “chess” analysis to a “checkers” explanation

In his background information, Davis discusses the 1990 election in which voters approved the “0.5% Municipal Sales Tax for Property Tax Relief, creating a revenue source that is paid by residents and non-residents and used for essential city services, including public safety and quality of life.” (See Point 2)

He goes on to detail the following year in which the city had to conduct a special election to implement a tax rate higher than the newly lower voter-approval tax rate resulting from the property tax relief municipal sales tax. (See Point 3)

Hopefully a compelling case made by the city – opposed to a low-turnout election with a near-unknown ballot measure – was the impetus for voter approval of that higher rate. Davis’ inclusion of this history acknowledges a past in which Temple voters, not strictly city officials, played an active role in tax rate determination. That seems a good thing.

In discussing the sales tax and its current use, Davis notes how fiscal 2023-2024 would require a property tax rate “16.51 cents higher than the current property tax rate in order to generate the same revenue for these services if we did not collect the additional 0.5% sales tax.”

He is correct that a higher rate would be required and it’s unclear how that is a good thing – at least for taxpayers. Also note that with the city-requested abolition of the additional sales and use tax classification, it could be done without voter approval. (See Point 3)

As of today, taxes could only be raised from the current 0.6133 to 0.6272 (the 2023 voter-approval tax rate) or 1.39 cents. Anything above that would require voter approval.

Using numbers from the city of Temple 2023 Tax Rate Calculation Worksheet and the current .6133 tax rate, the increase without voter approval (if the sales and use tax were eliminated) could be up to 17.08 cents.

Remember that all these numbers are per $100 property valuation.

Note the Section 3 header:

Cities, counties and hospital districts may levy a sales tax specifically to reduce property taxes. Local voters by election must approve imposing or abolishing the additional sales tax. If approved, the taxing unit must reduce its NNR and voter-approval tax rates to offset the expected sales tax revenue.

(See Points 1 and 3)

Additional analysis is available at Temple’s Prop A Ballot Measure Offers An Expensive Proposition.

With discussing Proposition A, Davis expresses concern regarding the “complex, ten-page, 80-line calculation” required to calculate no new revenue and voter-approval property tax rates.

These ten pages comprise a total of nine sections. While undoubtedly time and effort are put forward compiling the numbers inserted into the form, it’s also what is commonly considered “the job of the city.” Also noteworthy, numerous sections are non-applicable such that they are lines filled in with zeroes or else left blank. Half of the final page is blank while two two-line sections are at the top (one being a signature section). While unknown if eliminating the eight lines of Section Three (shown above) will “simplify and streamline the process” of tax rate calculations, abolition of the additional sales and use tax will undoubtedly simplify and streamline the process of implementing tax increases. (See Points 1 and 3)

Per Davis, voters should consider abolishing the additional sales and use tax to “reduce risk that future legislative changes to the calculation formula for the ‘no new revenue’ and ‘voter approval’ property tax rates could have unintended impacts to the City’s property tax rates and revenues.” Property tax reform was a major priority of the most recent legislative session. With significant calculation changes not occurring in conjunction with other reforms, the idea of significant future “unintended impacts” seems remote.

Using a theoretical for/against Proposition A tax scenario, Davis uses the example of a home with a $200,000 assessed value and not qualifying for a homestead or other exemption. His are the black numbers listed in the chart, ours are the red.

The current “Voter Approval Rate” is 62.72 cents. The 61.33 cents that Davis lists is the adopted tax rate. In trying to make better sense of this chart and in applying today’s numbers (red) to a world with and without Proposition A, a vote for would yield a Voter Approval Rate of 78.41 cents while a vote against would retain the current 62.72 cents. With those numbers, the $200,000 house in the for scenario would rise to $1568.20 while the against amount is $1,254 – a difference of $314.20 or 25 percent.

For the purposes of Davis’ example, voting against Proposition A stops the city from being able to raise the rate to a voter-approval rate that is not adjusted with the sales tax offset – and to do so without voter approval. In this case, 78.41 cents without voter approval instead of 62.72 cents had the additional sales and use tax remained in place.

The example is based on this year’s rates. But this year is done, statements are out, people are paying their taxes, this one is, so to speak, in the books. The Proposition A election is about the future.

Temple Voters: Don’t Be “October Surprised” mentioned the Texas Municipal League, an organization that advocates on behalf of city governments and describes the benefit of holding “an election to repeal or lower one city sales tax, and raise or adopt a different sales tax, all with one combined ballot proposition.”

TML further states how a city’s ability to “use one combined ballot proposition protects the city’s interest by eliminating the risk that one tax will be voted out by the citizens without the other tax being voted in.”

Stated differently, a vote for Proposition A protects the city’s interest while a vote against the measure yields a far more taxpayer friendly outcome.

The issue sounds complicated – often it seems by design. But in closing, we’ll remind the realities:

1. 1. The additional sales and use tax serves to offset (i.e., reduce) the property tax dollars collected from Temple property owners.
   2. With being a consumption tax collected from both residents and non-residents, the additional sales and use tax further provides tax benefit to Temple taxpayers. Abolition of the tax will shift additional financial burden exclusively to Temple property owners.
   3. Elimination of the additional sales and use tax will alter – unfavorably to taxpayers – the way in which the voter-approval tax rate is calculated and will allow the city to raise taxes without voter approval.

Election Day is Tuesday, Nov. 7, while early voting continues through Friday, Nov. 3. Click here for voting information.

Lou Ann Anderson is a writer, former radio producer and current podcaster at Political Pursuits.  Her tenure as Watchdog Wire–Texas editor involved covering state news and coordinating the site’s citizen journalist network. As a past Policy Analyst with Americans for Prosperity–Texas, Lou Ann wrote and spoke on a variety of issues including the growing issue of probate abuse in which wills, trusts, guardianships and powers of attorney are used to loot assets from intended heirs or beneficiaries.  She holds a degree from the University of North Texas in Denton.