05:09 PM CDT on Friday, April 30, 2004

By Lee McGuire / KVUE News

Texas House lawmakers are recommending raising the sales tax, lowering property taxes, and installing 40,000 video lottery terminals to rebuild the state's school finance system.

A House committee is expected to vote on the plan Saturday afternoon.

In the bill, lawmakers outline a series of new taxes and tax expansions that would raise billions of new dollars for Texas schools.

Lawmakers plan to increase school spending by approximately $1.3 billion per year. The proposal also includes a $16 billion property tax cut. Under the House plan, the state would create a uniform local property tax of $1.05 per $100 of assessed value. Currently, local school property taxes are capped at $1.50. The Austin Independent School District is already at that cap.

Increasing school spending and cutting property taxes requires lawmakers to come up with other sources of revenue.

Among them:

-Raising the state sales tax from 6.25% to 6.75%. Local cities and counties are allowed to impose an additional 2% sales tax, bringing the potential sales tax cap to 8.75%. Most cities in Central Texas have already reached the cap. This would bring in approximately $960 million a year.

-Raising the sales tax on cars. Lawmakers plan to increase the motor vehicle sales tax from 6.25% to 7.75%.

-Installing approximately 40,000 video lottery terminals at 8 racetracks and 3 tribal reservations. The state would also charge track owners a licensing fee of $25,000 per terminal — generating as much as a billion dollars up front. Once installed, the state would collect 40% of the net revenue from each terminal, or approximately 6 cents per dollar gambled. Estimates for just how much money this would raise vary, but many Republican leaders say it could bring in $1.5 billion a year for schools. Video lottery terminals are currently illegal under state law. Legalizing them would require a two-thirds vote in the Legislature, and a vote of the people.

-Expanding the base of the sales tax. Lawmakers want to create a 6.75% sales tax on newspaper subscriptions, home Internet access, bottled water and mixed alcoholic drinks and car washes.

-Raising the cigarette tax. The plan calls for a $1.00 per pack increase in the cigarette tax, currently set at $0.41.

-Creating an "amusements tax." This would add a $1 per ticket surcharge on tickets for major sporting events and concerts. Movies, and local school events would not be included.

-Eliminating the franchise tax and creating a business payroll tax. Many businesses are using loopholes to avoid paying the state's business franchise tax, which brings in about $1.9 billion a year. The House plan would eliminate that tax and charge businesses 1.25% of each employee's income, up to $500 a year. The payroll tax would raise an estimated $3.4 billion a year. Government employees and non-profit employees would not be included; and businesses would be prohibited from lowering an employee's salary to compensate for the new tax.

The House School Finance Committee plans to vote on this proposal Saturday afternoon. It could move to the full House floor for a debate by Wednesday or Thursday.

To find out how each district would be affected, click here.

For a look at the bill itself, click here.

To see the proposed constitutional amendment, click here.