Simone Lawson
Texas voters recently decided on a number of proposed amendments to the Texas Constitution, including several that could impact taxes in the state. Notably, Proposition 4 would allow the state to implement historic property tax cuts, while Proposition 1 would protect the right to farm, ranch, and manage wildlife on owned or leased land. Proposition 3 would prohibit an individual wealth or net worth tax, and Proposition 2 would allow local governments to lower property taxes on childcare centres. Another proposal would exempt precious metals held in a depository in Texas from ad valorem taxation. Texas voters also decided on a proposal to prohibit individual income taxation, which could impact the state's tax revenue. With these proposed amendments, Texans had a direct say in how their state's tax policies are shaped.
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What You'll Learn
Texas' no income tax policy
Texas is one of the nine US states with no income tax. Texas does not tax individual income, and there is no state tax on investment income. However, residents may have to pay federal taxes on a portion of their Social Security benefits, depending on their "provisional income". Texas has a high property tax rate of 1.47%, the seventh-highest in the country. The property tax is levied on immovable property like land and buildings, as well as on personal property like vehicles, especially if it is used to earn income. The state also has a sales tax of 6.25%, with an average local tax rate of 1.95%, bringing the average combined sales tax rate to 8.2%.
Texas's no individual income tax policy is a key pillar of its pro-growth tax code. The state's tax structure ranks 15th most competitive in the Tax Foundation's 2019 State Business Tax Climate Index. In 1993, Texas voters approved a constitutional amendment that prohibits a personal income tax without voter approval. This amendment also mandates that any revenue from a personal income tax must be dedicated to schools.
In November 2023, Texas voters decided on a proposed constitutional amendment (HJR 38) to further prohibit individual income taxation. If approved, this amendment would require a two-thirds supermajority in both legislative chambers to enact an individual income tax in Texas for any purpose.
Other constitutional amendments that Texas voters considered in November 2023 include Proposition 1, which protects the right of individuals and businesses to farm, ranch, produce timber, or manage wildlife on their land. Proposition 2 allows counties and cities to lower property taxes on child care centres with at least 20% of enrolled children receiving subsidized care. Proposition 3 prohibits an individual wealth or net worth tax, and Proposition 4 allows the state to implement historic property tax cuts by spending from the general revenue fund.
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Property tax cuts
Property taxes are the largest source of state and local revenue in the US, and Texas relies on them more heavily than other states due to its lack of income tax. In 2025, Texas Governor Greg Abbott spoke out against a move by the Austin City Council to increase property taxes by 25% for the next fiscal year, to 60 cents per $100 in valuation.
In June 2025, Abbott signed two bills that, if approved by Texan voters in November, would grant property tax cuts to many Texans. The measures would raise the existing homestead exemption from $100,000 to $140,000 for all homeowners, and to $200,000 for those with disabilities or those aged 65 and over. The average Texas homeowner will save nearly $500 a year, according to Houston Senator Paul Bettencourt.
Proposition 2, another proposed constitutional amendment, would allow counties and cities to lower property taxes on childcare centres that are owned or rented and have at least 20% of enrolled children receiving subsidised childcare. The exemption would have to be for at least 50% of the appraised value.
Proposition 4 will allow the state to implement historic property tax cuts by spending more than $12 billion from the general revenue fund. Over $7 billion will go to local school districts so they can lower their tax rates, saving homeowners an average of $1,300 a year. An estimated $5.6 billion will be used to boost the homestead exemption, raising it to $100,000 for school tax purposes, up from the current $40,000 exemption.
The Texas State Senate has also passed bills to provide tax relief for homeowners and billions in property tax cuts for businesses.
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Funding for Texas public universities
Texas does not impose an income tax, instead relying on sales and property taxes for revenue. In the early 1990s, Texas considered an income tax as a potential offset to local school taxes. This resulted in the Senate Joint Resolution 49, a 1993 voter-approved constitutional amendment that prohibits a personal income tax without voter approval.
In 2023, Texas voters decided on 14 proposed amendments to the Texas Constitution, including Proposition 5, which aimed to expand funding for research grants for Texas public universities. Proposition 5 would rename the National Research University Fund to the Texas University Fund, providing financial support to emerging Texas research universities to elevate their national prominence and boost the state economy.
The Texas University Fund (TUF) is administered by the Texas Safekeeping Trust Company. TUF-eligible institutions must meet certain criteria, including expending an average of $20 million in federal and private research annually, adjusted for inflation, and awarding an average of 45 research doctoral degrees annually. Currently, the University of Houston, University of North Texas, Texas Tech University, and Texas State University are TUF-eligible institutions.
The Texas Research Incentive Program (TRIP) provides matching funds to assist eligible public institutions in leveraging private gifts to enhance research productivity and faculty recruitment. Eligible institutions include doctoral, comprehensive, and master's institutions, with the exception of the University of Texas at Austin and Texas A&M University. Funds received through TRIP can be used for research, student services, and other activities that promote increased research capacity at the institution.
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Tax exemptions for child care centers
Texas voters decided the fate of 14 proposed amendments to the Texas Constitution in November 2023. One of these amendments, Proposition 2, focused on providing tax exemptions for child care centers. This amendment aimed to address the financial challenges faced by child care providers and ensure affordable care for families.
Proposition 2 allows counties and cities in Texas to lower property taxes for child care centers that meet specific criteria. The criteria include ownership or rental status and a minimum threshold of 20% of enrolled children receiving subsidized child care. The exemption applies to at least 50% of the appraised property value. This amendment empowers local governments to support child care providers and make quality care more accessible to their communities.
The successful passing of Proposition 2 enables qualifying child care facilities to claim partial or complete exemptions from their property taxes. Child care providers must meet certain conditions, such as participating in the Texas Rising Star program and maintaining the minimum enrollment of children receiving subsidized services. This exemption is expected to result in significant savings for eligible providers, ranging from $2,000 to $15,000 annually, depending on the size of their property.
The Texas Rising Star program is a key aspect of the tax exemption criteria. It is the state's quality rating and improvement system (QRIS) for early childhood education programs. By requiring participation in this program, the amendment ensures that only committed child care providers who strive for high standards benefit from the tax break.
While the tax exemption for child care centers is a welcome development, it is important to note that Texas does not rely on income tax due to constitutional amendments prohibiting individual income taxation without voter approval. Instead, the state generates revenue primarily through sales and property taxes. Therefore, the property tax exemption for child care centers can provide meaningful financial relief for eligible providers.
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Texas Teacher Retirement System
The Texas Teacher Retirement System (TRS) was established in 1937 to provide retirement benefits for teachers and public school administrators. Over time, the scope of the TRS has expanded to include employees of public schools, educational service centers, charter schools, community and junior colleges, universities, and medical schools. The system now offers service and disability benefits in addition to retirement benefits.
The creation of the TRS was a 20-year process that began in 1916 under the leadership of the Texas State Teachers Association (TSTA). In 1935, the Texas Legislature passed a joint resolution proposing a constitutional amendment to establish the TRS. The amendment was approved by Texas voters in November 1936, and the enabling legislation was enacted in 1937, putting the constitutional amendment into action. Governor James V. Allred signed the bill into law on June 9, 1937, and the TRS officially came into effect as of July 1, 1937.
The TRS is governed by a Board of Trustees, which has the authority to approve supplemental annuity payments based on actuarial valuations. In 2007, the TRS issued a one-time additional check without increasing the active member contribution rate. This was made possible by Senate Bill 1846, which increased the state contribution rate to the TRS from 6.0% to 6.58% of employee payroll.
In the 2023 Texas constitutional amendment elections, Proposition 4 included a measure to adjust annuities for qualifying beneficiaries of the TRS. This proposition passed with 55% of Texans in favor, and it will be subsidized by a $3.355 billion fund.
While the TRS primarily focuses on retirement benefits for educators, Texas's tax policies and proposed amendments can impact the funding and operations of the TRS. Texas does not impose an individual income tax and relies heavily on sales and property taxes for revenue. In the same 2023 elections, several propositions aimed to cut property taxes, with Proposition 7 aiming to lower taxes for homeowners and Proposition 2 targeting property tax reductions for child care centers. These tax cuts can influence the funding sources for the TRS and the state's ability to support retirement systems.
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Frequently asked questions
Texas voters decided on November 5th whether to approve an amendment that would prohibit individual income taxation. This amendment would prevent an individual income tax from being enacted in Texas in any form or for any reason, except after a new constitutional amendment. This means that the current simple majority barrier in the legislature would be replaced with a two-thirds super-majority requirement in both legislative chambers for there to ever be an individual income tax in Texas. Texas has never levied a tax on personal income and this amendment, if passed, would not raise taxes.
Proposition 4, also known as the Prohibit State Income Tax on Individuals Amendment, was on the ballot in Texas on November 5, 2019. This proposition replaced the requirement of a referendum with a ban on enacting an income tax on individuals. This amendment did not raise taxes.
Proposition 7 will allow the state to implement historic property tax cuts by spending more than $12 billion from the general revenue fund. This includes sending over $7 billion to local school districts so they can lower their tax rates, saving homeowners an average of $1,300 a year. This proposition will not raise taxes.
