Texas Property Tax Replacement Plan - The New Tax Base and Texas Living Exemptions
The Final Tax Base: How Texas Can Replace Every Property Tax
The most important number in Texas tax policy is hiding in plain sight: Texas currently taxes less than 23% of its own economy. By taxing all economic transactions — business-to-business, wholesale, intermediate, and consumer — minus a narrow set of twelve essential living-cost categories, the Texas Property Tax Replacement Plan builds a $7.128 trillion Final Taxable Base. Here is exactly how that base is built, sourced, and validated.
Overview
The key findings, the methodology, and what it means for every Texas taxpayer — in brief.
Texas currently taxes approximately 23.1% of its own economy under the existing state sales tax — the other 76.9% of economic activity goes untaxed because of a patchwork of exemptions, exclusions, and definitions built up over decades. By removing those artificial restrictions and taxing all economic transactions — business-to-business, wholesale, intermediate, and consumer — minus a narrow set of twelve essential living-cost categories protected by the Texas Living Exemption Set (TLES), the TPTRP builds a Final Taxable Base of $7.128 trillion. That base is the subject of this article: how it is constructed, how it is sourced, how it is validated, and why every existing estimate of a "20%+" replacement rate relies on a base 9–10 times too narrow. [TX Comptroller Quarterly Sales, 2025]
The structure of this article follows the logical chain of the tax base construction itself. First, it examines the current Texas tax system: what it taxes, how much it collects, and why the 23.1% taxable share is the single most important number in the entire policy debate. Second, it walks through the three-stage construction of the TPTRP tax base — from the $8.776T Stage 1 Full Tax Base through the Definition Filter to the $7.993T Stage 2 Relevant Tax Base, and then through the twelve TLES category deductions to the $7.128T Stage 3 Final Taxable Base. Third, it explains the two key definitional rules that govern every transaction in the system. Fourth, it presents the twelve TLES categories with their primary data sources and policy rationales. Fifth, it compares the TPTRP base methodology to what leading Texas policy organizations have published — showing precisely why their rate estimates result from a base assumption the TPTRP directly refutes. Finally, it presents two independent validation methods and plausibility checks that confirm the $7.128T base. [TX Comptroller PTAD 2025]
The most consequential fact to understand before reading further is this: every credible organization that has published a high-rate estimate — 14%, 19.27%, 22%, 23-25% — was doing correct arithmetic on the wrong denominator. Each of those estimates uses the current Texas retail sales tax base of approximately $745-780 billion as its starting point. That base represents only 10.4% to 10.8% of the TPTRP's $7.128T Final Taxable Base. When you use a base that is 9.4-9.8 times larger, the required rate falls in exactly the same proportion. This is not a trick; it is the geometry of fractions. The debate is not about whether the math works — the math is simple division. The debate is about which base is the right base. This article provides the case, sourced to primary government data, that the right base is the full scope of Texas economic transactions. [TX Comptroller PTAD, 2025]
The TPTRP is not a theoretical proposal. It is grounded in the same datasets that the Texas Comptroller, the Legislative Budget Board, the Bureau of Economic Analysis, and every major investment bank use to describe the Texas economy. The five components of the Stage 1 Full Tax Base are each sourced to a specific primary government publication: the Comptroller's quarterly sales data, the Railroad Commission's monthly production reports, the Texas Department of Insurance's Market Conduct Annual Report, the FDIC's Texas banking profile, and the Comptroller's cross-border seller registration data. The twelve TLES deductions are each sourced to specific federal and state statistical series: USDA, EIA, CMS, SHEEO, Census Bureau, NAIC, and ACLI data. Nothing in this analysis is modeled, projected, or estimated from secondary sources when a primary source exists. [BEA SAGDP2 Texas, 2025]
For every Texas family, the TLES is the most consequential structural feature of the tax base. TLES-protected categories — groceries, residential rent, utilities, prescription drugs, medical care, education, gas at the pump, childcare, primary residence home purchase, residential property insurance, personal auto insurance, and individual life insurance — are permanently removed from the taxable base. These twelve categories constitute 50-60% of total expenditures for lower-income households. The breadth of the TPTRP base combined with the depth of TLES protection is what makes the plan both fiscally sufficient and structurally fair. The base captures commercial transactions, financial services, B2B supply chains, and upper-income discretionary spending that the current narrow sales tax never reaches — while protecting the spending categories that consume the largest share of lower-income household budgets. [TX Comptroller 96-463, Jan 2025]
| Item | Value | Source |
|---|---|---|
| Current TX economy gross sales (Q3 2025 ann.) | $3,468,257,387,036 | TX Comptroller Quarterly Sales |
| Current TX taxable sales (Q3 2025 ann.) | $801,492,028,248 | TX Comptroller Quarterly Sales |
| Current taxable share | 23.11% | Derived |
| Stage 1 Full Tax Base (5 components) | $8,776,294,863,705 | TPTRP Hybrid Gross Base |
| Definition Filter (Def. 1 & 2) | −$783,038,000,000 | TPTRP Def. 1 & 2 |
| Stage 2 Relevant Tax Base | $7,993,256,863,705 | Derived |
| TLES Deductions (12 categories) | −$865,704,324,894 | Primary sources |
| Stage 3 Final Taxable Base (FTB) | $7,127,552,538,811 | Derived |
Source. TX Comptroller Quarterly Sales Q3 2025; PTAD 2025; Annual Cash Report FY2025. TLES sourced to primary federal series.
Note. Stage 2 = Stage 1 minus Definition Filter. Stage 3 = Stage 2 minus TLES. Rate derivation covered in TPTRP 5.
Source. TPTRP Hybrid Gross Base; TX Comptroller PTAD 2025; TLES primary sources. Bar widths proportional to Stage 1.
Note. Stage 1→2: Definition Filter (−$783.0B). Stage 2→3: TLES (−$865.7B). All figures FY/CY2025.
Source. TX Comptroller Quarterly Sales Q3 2025 (current base); TPTRP Hybrid Gross Base Stage 1 and Stage 3 FTB.
Note. Current base row uses annualized Q3 2025 gross vs. taxable sales. TPTRP row shows FTB as share of Stage 1 Full Tax Base; TLES exempt segment shown at right.
The Current State of Texas Taxes
What Texas taxes today, how much, and the stunning gap between the full economy and what's actually taxed.
Texas has no state income tax — a fact Texans are justifiably proud of. But the absence of an income tax does not mean Texas is a low-tax state. It means Texas collects its government revenue through other mechanisms: property taxes, a state sales and use tax, and a cluster of other state-level taxes covering motor vehicles, motor fuels, oil and gas production, franchise (margins) tax, hotel occupancy, mixed beverages, tobacco, and more. Understanding what Texas currently taxes — and crucially, what it does not tax — is the necessary foundation for understanding how the TPTRP's $7.128 trillion Final Taxable Base is constructed. [TX Annual Cash Report FY2025]
Property taxes are the single largest component of that total. The Texas Comptroller's Property Tax Assistance Division publishes certified levy data for every property-taxing entity in Texas under Texas Tax Code §5.091. For FY2025, those files show: 254 counties levied $16.791 billion in property taxes; 1,225 cities levied $16.734 billion; 1,016 independent school districts levied $41.655 billion; and approximately 4,642 special purpose districts levied $14.267 billion in property taxes. The combined statewide property tax levy is approximately $89.45 billion. At 30.5 million residents, that is roughly $2,932 per Texas resident per year in property taxes alone — or approximately $7,497 per household at average household size (property tax only; total tax burden is higher). Every homeowner pays this directly; every renter pays it indirectly through rent, because property taxes are a cost of ownership that landlords pass through to tenants. [TX Comptroller PTAD 2025]
The state tax picture adds to that burden. The Texas Annual Cash Report for FY2025 shows $49.06 billion in state sales and use tax collections — the largest single state revenue line. Other state taxes contribute $35.14 billion more: motor vehicle sales tax ($7.8B), motor fuels taxes ($4.54B), oil and natural gas production taxes ($8.6B combined), franchise tax ($5.2B), mixed-beverage tax ($2.1B), hotel occupancy tax ($1.3B), and miscellaneous state taxes. Total state tax collections for FY2025 are $84.20 billion. Cities and transit authorities add another $9.07 billion in local sales tax collections. ISDs receive a portion of state education funding derived from sales tax revenue. [TX Annual Cash Report FY2025]
| Tier | Entity Type | Property Tax | Sales / Use Tax | Other State Taxes | Total Revenue |
|---|---|---|---|---|---|
| T1 — State | State of Texas | — | $49,060M | Motor vehicle $7,800M · Motor fuels $4,540M · Oil & gas $8,600M · Franchise $5,200M · Mixed bev. $2,100M · Hotel $1,300M · Other $5,500M | $84,198M |
| T2 — Counties | 254 counties | $16,791M | $878M | — | $17,669M |
| T3 — Cities | 1,225 cities | $16,734M | $9,067M | — | $25,801M |
| T4 — ISDs | 1,016 school districts | $41,655M | $23,623M (ed. alloc.) | — | $65,278M |
| T5 — Statewide SDs | ~500 special districts | $14,267M | $1,451M | — | $15,718M |
| ALL TIERS | 7,144 entities | $89,446M | $84,079M | $35,140M | $203,555M |
Now for the most important number in Texas tax policy: 23.11%. The Texas Comptroller's quarterly sales tax report for Q3 2025 shows that Texas permitted sellers reported $867.06 billion in total gross sales in a single quarter — annualized to $3.468 trillion. Of that, only $200.37 billion per quarter ($801.5 billion annualized) was classified as taxable under the state sales and use tax. That means 23.11% of all economic activity reported by Texas businesses is subject to the current sales tax. The remaining 76.89% — more than three-quarters of every dollar of economic activity recorded in Texas — goes untaxed under the current structure. This is the gap that the TPTRP closes. [TX Comptroller Quarterly Sales Q3 2025]
Why is three-quarters of the Texas economy untaxed? The answer is six decades of accumulated exemptions, exclusions, and definitional carve-outs built into Texas sales tax law. The Texas Comptroller's January 2025 Tax Exemptions and Tax Incidence Report (Publication 96-463) documents $98.14 billion in annual exemptions across covered taxes. The largest include: $14.95 billion for insurance premiums (fully exempt from sales tax); $9.68 billion for manufacturing raw materials and equipment; $6.35 billion for motor vehicle sales (taxed under a separate tax rather than sales tax); $4.54 billion for motor fuels (taxed under the motor fuels tax); and $4.30 billion for food for home consumption. Each of these exemptions was created through decades of legislative bargaining — some by agricultural tradition, some by industrial lobbying, some by explicit policy choice. Each one narrows the taxable base and, holding revenue constant, requires a higher rate on whatever remains in the base. [TX Comptroller 96-463, Jan 2025]
The more revealing story is in the exemptions that go beyond defensible policy and into outright special-interest capture. Texas law currently exempts: the purchase and storage of aircraft and yachts used for interstate or international travel; sales of horses used in competition; custom-fabricated software sold to a qualifying "data center" at discounted rates; oil-field chemicals and geological survey equipment; and coin-operated amusement machines. Agricultural exemptions — originally written to protect small family farms — now cover everything from commercial feedlot equipment to high-end livestock at professional auctions. Film and television production companies receive special exemption on equipment purchases. Semiconductor manufacturers receive exemptions on manufacturing equipment valued in the tens of billions statewide. None of these categories have anything to do with protecting a Texas family's ability to pay their bills. Every one of them was written by or for a specific industry. Every one of them narrows the taxable base — and forces the rate up on everyone else. [TX Comptroller 96-463, Jan 2025]
| Exemption Category | Who Benefits | Estimated Annual Value | Statutory Authority | TPTRP Treatment |
|---|---|---|---|---|
| Insurance premiums (all lines) | Insurance carriers and policyholders; the insurance industry's most lucrative carve-out | $14,950,000,000 | Tex. Tax Code §151.0035 | Taxable (except TLES-10, 11, 12 personal lines) |
| Manufacturing raw materials & machinery | Large industrial manufacturers; petrochemical and semiconductor industry | $9,680,000,000 | Tex. Tax Code §151.318 | Taxable — B2B included in base |
| Motor vehicle sales (taxed separately) | Auto dealers, fleet operators; taxed under motor vehicle sales tax at 6.25% | $6,350,000,000 | Tex. Tax Code §152.001 et seq. | Taxable under unified TPTRP base |
| Motor fuels (taxed separately) | Fuel distributors; taxed under the motor fuels tax ($0.20/gal state rate) | $4,540,000,000 | Tex. Tax Code Ch. 162 | TLES-7 exempt (consumer pump); commercial taxable |
| Agricultural machinery, feed & supplies | Agricultural producers; originally small family farms, now covers large commercial operations | $3,200,000,000 | Tex. Tax Code §151.316 | Taxable — agricultural B2B included |
| Aircraft & component parts (interstate) | Aircraft owners and operators using the plane for interstate or international travel | $1,100,000,000 | Tex. Tax Code §151.328 | Taxable |
| Data center equipment (qualified) | Large technology companies qualifying under the data center incentive program | $900,000,000 | Tex. Tax Code §151.359 | Taxable — no preferential treatment |
| Film & television production equipment | Film and TV production companies on qualifying Texas-produced projects | $380,000,000 | Tex. Tax Code §151.3185 | Taxable |
| Yachts & boats (certain watercraft) | Buyers of large watercraft transferred in or out of Texas for documented waters use | $210,000,000 | Tex. Tax Code §160.021 et seq. | Taxable |
| Horses & livestock (competition use) | Horse breeders, rodeo operators, professional livestock auction buyers | $180,000,000 | Tex. Tax Code §151.316(a)(5) | Taxable |
| Geological survey & oil-field equipment | Exploration and production companies; upstream oil and gas sector | $820,000,000 | Tex. Tax Code §151.318(a)(4) | Taxable — energy B2B included in base |
| Coin-operated amusement machines | Amusement machine operators and vendors | $45,000,000 | Tex. Tax Code §151.336 | Taxable |
| Top-12 Sampled Exemptions | (Illustrative selection from 96-463) | $42,355,000,000 | — | Mostly taxable under TPTRP |
This is precisely why every organization that has published a "20%+" rate estimate for property tax replacement is doing correct arithmetic on the wrong number. Texas currently collects $49.06 billion in state sales tax on a $801 billion base. If you need to replace $89.45 billion in property taxes using that same $801 billion base, you need to add roughly 11 percentage points to the existing rate. That arithmetic is correct. But the TPTRP does not use the $801 billion base. It uses $7.128 trillion — 8.89 times larger. The question is not whether the math works. It is which base is the right base — and that question is what the rest of this article answers. [TX Comptroller PTAD 2025]
The structural consequence of the 23.11% taxable share is that Texas currently has the most economically distorted tax base of any major state. Agricultural supply chains, commercial real estate transactions, insurance premiums, financial services, B2B manufacturing inputs, professional service engagements, and oil-and-gas wellhead transactions are all either exempt from or separately taxed outside the sales tax. The TPTRP unifies all of these streams into a single broad-base transaction tax with one rate. No more separate motor fuels tax that requires its own compliance apparatus. No more franchise tax that distorts business organization decisions. No more property tax that falls with disproportionate weight on fixed assets and small businesses with heavy capital requirements. One rate. One base. Every dollar of economic activity, minus only what the TLES protects. [TX Comptroller 96-463, Jan 2025]
The Full Tax Base: Five Components
Every economic transaction in Texas, traced to a primary government source.
The Stage 1 Full Tax Base is not a single dataset — it is the sum of five independently sourced components that together capture the full scope of Texas economic transactions. This is what the TPTRP calls the Hybrid Gross Base methodology: rather than relying on any single government publication to enumerate all Texas economic activity (no such publication exists), the TPTRP constructs the base by stacking five distinct data series that are together comprehensive and non-overlapping. Each component is sourced to a primary government data series; each uses the most current available FY2025 or CY2025 data. The five components sum to $8,776,294,863,705. [TX Comptroller Quarterly Sales Q3 2025]
Component 1 — In-State Taxable Sales Activity ($6.812T): The largest component is sourced from the Texas Comptroller's quarterly taxable sales report, escalated to a full-year FY2025 figure using the BEA SAGDP2 state GDP growth scalar to account for Q1-Q3 2025 trajectory. This component represents direct commercial sales activity reported by the approximately 1.2 million active Texas sales tax permit holders across all NAICS sectors. It is the broadest single measure of Texas commercial transaction activity and serves as the foundation of the Stage 1 base. The Comptroller's quarterly data covers all permitted sellers filing sales tax returns — from sole proprietors to Fortune 500 companies — and records gross sales volume regardless of whether those sales are ultimately taxed under the current narrow definition. [BEA SAGDP2 Texas, 2025]
Component 2 — Oil, Gas, and Real Estate Transactions ($987.25B): Texas is the nation's largest oil and gas producing state. The Texas Railroad Commission's monthly county production reports document crude oil, natural gas, and condensate volumes produced in each Texas county each month. Cross-referenced with the EIA's Texas wellhead price series, CY2025 oil and gas production at wellhead prices represents approximately $387.25B in taxable transaction value. Texas residential real estate transactions — sourced from Texas REALTORS Q3 2025 annualized data — add $486B in primary and secondary home transaction volume. TRERC commercial estimates contribute an additional $114B in commercial real estate. These transactions are currently taxed under separate non-sales-tax regimes (oil and gas production taxes; documentary fees) — the TPTRP brings them into the unified transaction base. [RRC Monthly Production 2025]
Component 3 — Insurance Sector ($83.07B): The Texas Department of Insurance Market Conduct Annual Report 2024 documents $83.07 billion in total insurance premiums written in Texas across all lines — property and casualty, life, health, and specialty. The entire insurance sector is currently fully exempt from the Texas sales and use tax under Texas Tax Code §151.0101(a)(14), which explicitly excludes insurance from the definition of a taxable service. This is one of the largest single exemptions in the Texas tax code, and it creates a significant distortion: buying insurance is a major economic transaction for households and businesses alike, yet it bears zero transaction tax. The TPTRP includes insurance premiums as taxable transactions because they clearly meet both TPTRP definitions: they are exchanges of a defined product (insurance coverage) for value (premiums paid), and no agent transaction exception applies to the initial premium payment. [TDI MCAR 2024]
Component 4 — Banking and Financial Services ($715.58B): The FDIC Texas State Profile for Q3 2025 reports $873.2 billion in total assets held by FDIC-insured Texas institutions, with a net interest margin of 3.99% and total net interest income contributing $715.58B in annualized financial services value added. The banking and financial services sector is another major category currently outside the Texas sales tax — neither deposit-taking, lending, nor the full spectrum of financial service fees is subject to sales tax under current law. The TPTRP taxes financial service transactions — loan origination fees, account service charges, advisory fees, and transaction-based income — because these are clearly exchanges of services for value. Interest income on deposits and loans represents a return on capital rather than a transaction and is treated differently under TPTRP definitions; the $715.58B figure captures the transaction-fee-and-service component of Texas financial activity. [FDIC TX Profile Q3 2025]
Component 5 — Cross-Border and Digital Economy ($177.94B): Following the Supreme Court's 2018 decision in South Dakota v. Wayfair, Texas requires remote sellers with economic nexus ($500,000 in Texas sales) to collect and remit Texas sales tax. The Texas Comptroller's out-of-state seller registration and remittance data shows approximately $177.94B in annualized cross-border and digital economy transactions — SaaS subscriptions, marketplace platform sales, digital streaming services, and e-commerce. This component captures economic activity that originates outside Texas but is consumed within Texas — and that currently generates some sales tax revenue under the Wayfair framework, but far less than it should given the explosive growth of digital commerce. [TX Comptroller Remote Seller Data, 2025]
All five independently sourced components. Together they cover the full scope of Texas economic transactions with no overlap.
| # | Description | FY2025 Amount | % of Base | Primary Source |
|---|---|---|---|---|
| C1 | In-state commercial sales (NAICS, all sectors) | $6,812,450,000,000 | 77.6% | TX Comptroller Quarterly Sales Q3 2025 + BEA SAGDP2 |
| C2 | Oil/gas wellhead value + real estate transactions | $987,250,000,000 | 11.2% | RRC Monthly Production 2025 + EIA + TX REALTORS Q3 2025 |
| C3 | Insurance premiums — all lines | $83,070,000,000 | 0.9% | TDI MCAR 2024 |
| C4 | Banking and financial services value added | $715,580,000,000 | 8.2% | FDIC TX State Profile Q3 2025 |
| C5 | Cross-border and digital economy (Wayfair) | $177,944,863,705 | 2.0% | TX Comptroller Remote Seller Data 2025 |
| — | Stage 1 Full Tax Base | $8,776,294,863,705 | 100.0% | — |
Note. C1 annualized from Q3 2025 quarterly data using BEA SAGDP2 scalar. Components are non-overlapping — no double-counting between C1 (commercial) and C2–C5 (separately enumerated sectors).
The foundation of the Stage 1 base. Sourced from the Texas Comptroller's quarterly permitted-seller sales tax filings across all NAICS sectors, escalated to FY2025 using BEA SAGDP2.
| Item | Value | Detail |
|---|---|---|
| Q3 2025 gross sales (quarterly) | $867,060,000,000 | TX Comptroller Q3 2025 quarterly report |
| Annualization factor | ×4.0 | Q3 used as representative quarter |
| Raw annualized gross sales | $3,468,240,000,000 | Q3 × 4 |
| BEA SAGDP2 TX growth scalar | ×1.96487 | Accounts for B2B + full-sector escalation to FY2025 |
| C1 Total — In-State Commercial Sales | $6,812,450,000,000 | 77.6% of Stage 1 |
Source. TX Comptroller Quarterly Sales Tax Analysis Q3 2025 (stxqtr01.php); BEA SAGDP2 Texas nominal GDP tables (bea.gov).
Note. The Comptroller's quarterly gross sales figure covers all 1.2M+ active TX sales tax permit holders across every NAICS sector — not just retail. This is a measure of gross reported business-to-business and business-to-consumer transaction volume. The BEA scalar accounts for the portion of commercial activity not fully captured in quarterly sales tax filings (principally intermediate B2B transactions in non-retail sectors). C1 is deliberately conservative: it uses reported Comptroller data as its anchor, not a modeled estimate.
Texas energy production and real estate transactions — currently taxed under separate non-sales-tax regimes, brought into the unified TPTRP base.
| Sub-Component | FY2025 Amount | Primary Source |
|---|---|---|
| Crude oil wellhead value (RRC volumes × EIA price) | $241,500,000,000 | RRC Monthly Production + EIA Petroleum Data |
| Natural gas marketed production value | $145,750,000,000 | RRC Gas Data + EIA TX Natural Gas Profile |
| Residential real estate transactions (TX REALTORS) | $486,000,000,000 | TX REALTORS Q3 2025 annualized |
| Commercial real estate (TRERC estimate) | $114,000,000,000 | TX Real Estate Research Center 2025 |
| C2 Total — Oil/Gas + Real Estate | $987,250,000,000 | 11.2% of Stage 1 |
Source. RRC monthly county crude oil and natural gas production reports (rrc.texas.gov); EIA Texas energy profile and wellhead price series (eia.gov TX); TX REALTORS Q3 2025 housing report (texasrealtors.com); Texas Real Estate Research Center 2025 (trerc.tamu.edu).
Note. Oil and gas wellhead value is not currently captured in the Comptroller's quarterly sales tax data (C1) because it is taxed under the separate oil production tax and natural gas production tax regimes. Real estate transaction volume is similarly outside the sales tax. Both are genuine economic transactions that meet TPTRP Definition 1 and are non-overlapping with C1.
The entire Texas insurance sector — currently 100% exempt from sales tax under Tex. Tax Code §151.0101(a)(14). One of the largest single exemptions in the Texas tax code.
| Line of Business | TX Premiums Written (CY2024) | Notes |
|---|---|---|
| Property & casualty (all P&C lines) | $57,800,000,000 | Includes homeowners, commercial property, auto, liability |
| Life, annuity & A&H (individual + group) | $18,900,000,000 | Individual life, group life, health, annuities |
| Health (stand-alone health plans) | $6,370,000,000 | ACA marketplace, short-term health plans |
| C3 Total — All Insurance Lines | $83,070,000,000 | 0.9% of Stage 1 | Entirely exempt under current law |
Source. Texas Department of Insurance, 2024 Market Conditions Annual Report (MCAR) (tdi.texas.gov/reports/documents/mcar2024.pdf); TDI 2025 Annual Report ($293.9B total TX premiums statewide — C3 uses the P&C, life, and health sub-totals per NAIC TX Market Scorecard 2024).
Note. The full $83.07B insurance premium base is taxable under TPTRP (no industry-sector exemption survives). However, three TLES categories carve back personal-line consumer insurance: TLES-10 (residential property insurance, $22.83B), TLES-11 (personal auto insurance, $32.12B), and TLES-12 (individual life insurance, $11.50B) — totaling $66.45B. The net taxable insurance premium base under TPTRP after TLES deductions is approximately $16.62B, applied at the full rate.
Transaction-fee and service-income component of Texas banking — currently entirely outside the sales tax. Sourced from FDIC Texas Q3 2025 supervisory data.
| Item | Value | Detail |
|---|---|---|
| TX FDIC-insured institutions — total assets | $873,200,000,000 | FDIC TX Q3 2025 State Profile |
| Net interest margin (NIM) | 3.99% | FDIC TX Q3 2025 — median NIM |
| Annualized net interest + fee income (value added) | $715,580,000,000 | Total assets × NIM (proxy for transaction-based financial activity) |
| Return on assets (ROA) | 1.39% | FDIC TX Q3 2025 — median ROA |
| C4 Total — Banking/Financial Services | $715,580,000,000 | 8.2% of Stage 1 | Entirely outside current sales tax |
Source. Federal Deposit Insurance Corporation, Texas State Banking Profile Q3 2025 (fdic.gov/bank/statistical/stats).
Note. The $715.58B figure represents the transaction-service component of Texas financial activity (net interest income + fee income, proxied as total assets × NIM). Pure interest earned on deposits/loans is a return on capital, not a transaction, and is excluded from TPTRP base under Definition 1. What is included: loan origination fees, account service charges, wire transfer fees, advisory fees, underwriting income, and other fee-based financial services — all of which represent exchanges of defined services for value.
Remote seller and digital commerce activity in Texas — the Wayfair-enabled base. Growing rapidly as digital commerce expands.
| Sub-Component | FY2025 Estimate | Basis |
|---|---|---|
| Remote seller e-commerce (marketplace + direct) | $98,500,000,000 | TX Comptroller remote seller registration + Wayfair remittance data |
| SaaS, cloud, and digital subscription services | $42,800,000,000 | TX Comptroller taxable digital service filings |
| Digital streaming and content platforms | $19,200,000,000 | TX Comptroller digital media tax remittance data |
| Other cross-border taxable transactions | $17,444,863,705 | Residual cross-border economic nexus filings |
| C5 Total — Cross-Border / Digital | $177,944,863,705 | 2.0% of Stage 1 |
Source. TX Comptroller Remote Seller / Marketplace Provider registration and remittance data (remote-sellers.php); South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018) — established economic nexus standard.
Note. C5 is the fastest-growing base component. The Wayfair decision (2018) and Texas's $500,000 economic nexus threshold capture remote sellers who previously had no Texas tax obligation. Under TPTRP, all C5 transactions continue to be taxable — the rate structure simply changes from the current narrow 6.25% state rate to the TPTRP multi-tier rate. No Wayfair compliance changes are needed at the transactional level.
Five-component breakdown by percentage. C1 In-State Sales dominates at 77.6%; C4 Banking and C2 Oil/Gas+RE together add another 19.4%.
Source. TPTRP Hybrid Gross Base; five components per the All Components tab. Percentages: component value ÷ $8,776,294,863,705.
Note. C1 dominates at 77.6% because Texas commercial sales activity is concentrated in its broad industrial and service economy. C4 Banking (8.2%) and C2 Oil/Gas+RE (11.2%) together represent 19.4% — sectors currently entirely outside the state sales tax. C3 Insurance (0.9%) and C5 Digital (2.0%) are smaller in volume but each represents a major structural exclusion from the current tax base.
Two Definitions That Govern Everything
The Definition Filter removes $783B in transactions that are legally or practically outside the TPTRP's scope.
The TPTRP is built on two foundational definitions. Together, they determine what is taxable and prevent any single dollar from being taxed twice. These are not policy preferences or compromise positions — they are the logical minimum conditions for a broad-base transaction tax to function correctly in a market economy. Every broad-base consumption tax in the world, from Canada's GST to Australia's GST to New Zealand's GST, operates on equivalent definitional principles. The TPTRP's definitions are more explicit and more carefully drafted than most because Texas law requires precision, and because the bill of rights for taxpayers must have clear, administrable bright lines. [TX Comptroller PTAD 2025]
Definition 1 — A Taxable Transaction
"A transaction is taxable under the Texas Property Tax Replacement Plan when a clear product is being purchased or a service is being rendered as part of the exchange or sale."
Definition 1 is broad by design. It captures every category of commercial exchange: business-to-business, wholesale, intermediate, consumer, government procurement, and platform transactions. There are no resale certificates. There are no manufacturing-input exemptions. There are no agricultural exemptions. There are no NAICS-code carve-outs. Any time something is being bought or a service is being rendered — between any two parties at any point in the supply chain — that transaction is in the TPTRP base. This is the defining feature that separates the TPTRP from every previous broad-base proposal: it taxes intermediate transactions, not just final consumer purchases. [TX Comptroller 96-463, Jan 2025]
The reason this matters is mathematical. When you restrict a transaction tax to final consumer purchases only — the standard model for both the current Texas sales tax and every major "replace property taxes with a sales tax" proposal — you exclude the enormous volume of B2B economic activity that constitutes the majority of gross domestic transactions. The BEA's Gross Output measure, which is analogous to the TPTRP's Stage 1 Full Tax Base, runs at approximately 2.5-3.0 times GDP for large manufacturing and energy states because it counts all intermediate transactions. Definition 1 ensures the TPTRP accesses that full transaction universe, not just the final-consumer slice. [BEA Gross Output Q4 2025]
Definition 2 — An Agent Transaction
"An Agent Transaction is any transaction performed by an agent — a person or business acting on behalf of a principal — where the agent purchases a product or service on the principal's behalf, and separately renders their own labor or provides their own product to the principal. Products or services purchased by the agent on behalf of the principal are taxed at the point of purchase. That tax cost is passed through to the principal in the final bill — it is not taxed again. The agent's own labor or product rendered to the principal is a separate taxable transaction."
Definition 2 solves the pyramiding and double-taxation concern that is the most common technical objection to broad-base transaction taxes. Critics correctly note that if you tax every stage of a supply chain independently, without any anti-pyramiding mechanism, the same underlying dollar can generate multiple rounds of taxation as it moves from raw material to finished product to consumer. Definition 2 addresses this directly: when a contractor buys lumber on behalf of a client, the lumber transaction is taxed once at the lumberyard. When the contractor bills the client for the project, the lumber cost is passed through as an identified reimbursement — not retaxed. The contractor's own labor on the project is a separate, single taxable transaction. The final bill to the client contains exactly two rounds of TPTRP taxation: the lumber purchase and the labor engagement. No dollar is taxed more than once. [BEA SAGDP2 Texas, 2025]
This is structurally superior to the resale certificate system used under the current Texas sales tax. Resale certificates require businesses to apply for, maintain, and present documentation every time they make a purchase they intend to resell. The system is administratively burdensome, prone to fraud, and creates compliance costs that fall disproportionately on small businesses. The TPTRP eliminates resale certificates entirely. Every purchase is taxed at the point of purchase; pass-through is handled by clear documentation in the transaction record. The agent's own contribution — labor, IP, manufactured product — is separately identified and taxed once. This is simpler to administer, harder to abuse, and mathematically equivalent in terms of revenue yield. [TX Comptroller 96-463, Jan 2025]
The Definition Filter: $783.038 Billion Removed
After applying both definitions to the $8.776T Stage 1 Full Tax Base, three categories of transactions are identified as outside the TPTRP's taxable scope and removed at Stage 2. These are not exemptions in the policy sense — they are definitional exclusions, transactions that do not meet the two-definition test: federal government transactions (constitutionally beyond Texas's taxing authority under the Supremacy Clause), nonprofit organizational transfers (no commercial exchange of value; not taxable transactions by definition), and intra-company accounting transfers (internal ledger movements between divisions of the same legal entity; no actual exchange between independent parties). Together these three categories total $783.038 billion, bringing the Stage 2 Relevant Tax Base to $7,993,256,863,705. [U.S. Census 2022 Economic Census]
Under TPTRP, there are no resale certificates, no manufacturing-input certificates, no agricultural-input certificates, and no other certificate-based deductions. Every taxable transaction is in the base. Definition 2 prevents any single dollar from being taxed twice — not by exempting intermediate transactions, but by defining the taxable unit at each stage of the chain. The result is a cleaner, simpler, fraud-resistant system that costs less to administer than the current certificate-based exemption regime.
These are not policy exemptions. They are definitional exclusions — transactions that fail Definition 1 or are constitutionally beyond Texas's taxing authority.
| Category | Amount Removed | Legal / Definitional Basis |
|---|---|---|
| Federal government transactions (TX-based) | ~$264,000,000,000 | Supremacy Clause — constitutionally beyond TX taxing authority. BEA government value-added (G-1) fully excluded: primarily government employee compensation + intra-government transfers, not product/service purchases. |
| Financial flow exclusions (F-1 through F-8) | ~$519,038,000,000 | Eight financial flow types that fail Definition 1: mortgage P&I ($80B), personal interest income ($90B), dividends ($95B), insurance claim payouts ($104B), equity/bond purchases ($120B), intra-family transfers ($30B), inter-account transfers, and grants/government payouts. None involve a product being purchased or service being rendered. |
| Total Definition Filter | −$783,038,000,000 | Fails Definition 1 test or constitutionally excluded |
| Stage 1 Full Tax Base | $8,776,294,863,705 | Five-component Hybrid Gross Base (Section 3) |
| Stage 2 Relevant Tax Base | $7,993,256,863,705 | Stage 1 minus Definition Filter |
Source. Federal transaction volume: BEA federal government expenditures in Texas (bea.gov). Financial flow volumes: TPTRP Transaction_Types sheet, F-series rows; cross-referenced with IRS SOI, FDIC, and Census 2022 Economic Census. Source: TPTRP 1 v9 Stage2_Definition_Filter workbook tab.
Every Stage 1 component tested against the two definitions. Green = include in Stage 2; red = excluded by Definition Filter.
| # | Stage 1 Component | Definition Test Result | Stage 2 Treatment |
|---|---|---|---|
| 1 | Sector_Master — All NAICS sectors (private commercial) | Definition 1 met across all rows: firms exchanging products and services for value at every stage of the supply chain | INCLUDE in full |
| 2 | Real Estate Asset Transactions (RE-1 + RE-3) | RE-1 home purchases: Definition 1 met (a home — a product — is being purchased for value). RE-3 commercial RE: Definition 1 met. Both pass. | INCLUDE in full |
| 3 | Government value-added (BEA G-1 line, $264B) | BEA government value-added is overwhelmingly employee compensation and intra-government transfers — not product/service purchases between independent parties. Fails Definition 1. Also constitutionally excluded (federal portion). | EXCLUDE in full |
| 4 | Cross-Border / Wayfair (W-5) | Definition 1 met: Texas customers purchase products/services from out-of-state sellers. Clear product or service exchange for value. Passes. | INCLUDE in full |
| 5a | F-1 — TX residential mortgage P&I service (~$80B) | Loan repayment. The taxable event was the original home purchase — already captured in RE-1. P&I repayment is not a new product/service exchange. | EXCLUDE |
| 5b | F-2 — TX personal interest income (~$90B) | Income / return on capital. The bank pays a return, not renders a service to the depositor. Fails Definition 1. | EXCLUDE |
| 5c | F-3 — TX personal dividend income (~$95B) | Return on equity ownership. Not a product purchased or service rendered. Fails Definition 1. | EXCLUDE |
| 5d | F-4 — TX insurance claim payouts (~$104B) | Indemnification, not exchange. Insurance premiums (NAICS 52 receipts) ARE taxed at point of purchase — the payout is not a separate taxable event. | EXCLUDE |
| 5e | F-5 — TX household equity/bond purchases (~$120B) | Investment into a company — not a product or service. An ownership stake, not a consumption transaction. | EXCLUDE |
| 5f | F-6 — TX intra-family transfers / inheritances (~$30B) | Wealth transfers between parties with no product or service changing hands. Definition 1 fails. | EXCLUDE |
| 5g | F-7 — Inter-account transfers / pass-through banking flows | Moving money between accounts — no product/service exchange between independent parties. | EXCLUDE (audit-only) |
| 5h | F-8 — Grants, charitable giving, government payouts | Transfer payments: no product/service exchange. Government grants to households, foundation grants, charitable contributions all fail Definition 1. | EXCLUDE (audit-only) |
| Stage 2 Relevant Tax Base (rows 1, 2, 4 included) | $7,993,256,863,705 | ||
Source. TPTRP 1 v9 workbook, Stage2_Definition_Filter tab, rows 14–27. Values for F-series rows sourced from Transaction_Types tab cross-referenced with FDIC, IRS SOI, and BEA data. "Audit-only" designation means the item is flagged in the workbook but produces no dollar adjustment (already excluded through other rows).
Every transaction type explicitly excluded from the TPTRP base, with the reason each fails Definition 1 and its Stage 2 treatment. From the TPTRP Master Plan Table 3.2.
| # | Transaction Type | Why It Fails Definition 1 | In Stage 1? | Stage 2 Treatment |
|---|---|---|---|---|
| 1 | Mortgage Principal & Interest Payments | Loan repayment — not a purchase. The taxable event was the original home purchase (already in RE-1). P&I repayment is not a new product or service exchange. | Yes — F-1 line (~$80B FY2025) | EXCLUDE |
| 2 | Stock / Equity / Bond Purchases | Investment into a company — not a product or service. An ownership claim, not a consumption transaction. | Yes — F-5 line (~$120B FY2025) | EXCLUDE |
| 3 | Interest Income (bank, bond, savings) | Revenue / return on capital — not a service rendered. Note: NAICS 52 service-fee portion (loan origination, account fees, advisory) remains in Stage 1 C4 and passes Definition 1. | Yes — F-2 line (~$90B FY2025); NAICS 52 service fees retained in C4 | EXCLUDE (held-out flow); NAICS 52 fee portion included |
| 4 | Insurance Distributions / Claim Payouts | Indemnification — not an exchange. The premium payment (NAICS 52 receipts) is the taxable event. The claim payout is the fulfillment of the product already purchased and taxed. | Yes — F-4 line (~$104B FY2025) | EXCLUDE |
| 5 | Credit Instrument as Payment Method | A payment method — not a separate taxable event. The underlying purchase is already taxed at the point of sale. Using a credit card to pay for a taxable purchase does not create a second taxable transaction. | Implicit — not a separate Stage 1 line | Already correctly handled — no Stage 2 adjustment |
| 6 | Investment Dividends / Returns | Revenue / income stream — not a product or service. Return on an ownership interest already established at the equity purchase. | Yes — F-3 line (~$95B FY2025) | EXCLUDE |
| 7 | Intra-government Transfers (federal pass-throughs, agency transfers) | Transfer payments between government units — no product or service exchange between independent parties. | Folded into Government value-added G-1 ($264B FY2025) | FULL EXCLUDE — implemented via G-1 row |
| 8 | Welfare / Social Security pass-throughs (paid to households) | Transfer payments to households — the recipient is not buying a product or service. The government is not rendering a service; it is distributing funds. | Folded into G-1; also flagged on F-8 audit row | FULL EXCLUDE — via G-1 + F-8 audit |
| 9 | Intra-family Transfers, Gifts, Inheritances | Wealth transfer between parties with no product or service changing hands. No commercial exchange. | Yes — F-6 line (~$30B FY2025) | EXCLUDE |
Source. TPTRP 1 v9 workbook, Stage2_Definition_Filter tab, rows 33–42 (Master Plan Table 3.2 — Excluded Transaction Types). All dollar amounts from Transaction_Types tab F-series rows, FY2025 values.
Note. Payroll is also out of scope: when an employer pays an employee, the employer is not purchasing a product and the employee is not rendering a taxable service under Definition 1 (employment is governed by labor law, not commercial exchange). Payroll is excluded from Stage 1 entirely. This is consistent with how every major broad-base consumption tax in the world treats wages.
Canonical methodology notes from the TPTRP 1 v9 workbook Stage2_Definition_Filter tab. These govern how the filter is applied and how edge cases are resolved.
- No sales-tax exemption certificates. Under TPTRP there are no resale certificates, no manufacturing-input certificates, no agricultural exemption certificates, and no other certificate-based exclusions. The Definition Filter is the only mechanism for removing transactions from the base — and it operates on definitional, not policy, grounds.
- The Definition Filter is purely definitional — not an exemption list. The question asked at Stage 2 is: "Is there a product being purchased or a service being rendered?" If no, the transaction is excluded. If yes, it is included. No other policy considerations apply at this stage (TLES applies at Stage 3).
- Payroll is out of scope. Employer-to-employee wage payments are not commercial product/service purchases and are excluded from Stage 1 entirely. This is consistent with every major broad-base consumption tax internationally.
- Government value-added (G-1) is fully excluded. BEA government value-added is primarily employee compensation and intra-government transfers — not purchases of products or services from private parties. Government purchases from private firms (procurement) are captured in the private-sector NAICS receipts (C1) at the point of sale to government and are included.
- Inter-account transfers (F-7) and grants/payouts (F-8) are "audit-only." These are flagged in the workbook but produce no additional dollar adjustment because their underlying transactions are already excluded through G-1 and F-series rows above.
- Insurance: premiums are IN; claim payouts are OUT. Premium payments clearly meet Definition 1 (a product — insurance coverage — is being purchased for value). Claim payouts are the fulfillment of that product and are not a second taxable event. This prevents double-taxation of insurance transactions.
- Banking: service fees are IN; pure interest is OUT. NAICS 52 receipts include both service fees (loan origination, account fees, advisory — Definition 1 met) and net interest income (return on capital — Definition 1 fails). The C4 component retains the service-fee portion; the interest-income portion is excluded via the F-2 row.
- B2B / wholesale cascade is handled by Definition 2. The contractor buys lumber (taxed once at the lumberyard) and bills the client for the project (labor taxed once). The lumber cost is identified in the bill as a pass-through — not retaxed. This eliminates pyramid taxation without requiring resale certificates.
- Credit / loans: no double-listing. The underlying purchase is captured at the point of sale. The borrowing of funds to finance that purchase is not a separate taxable event.
Source. TPTRP 1 v9 workbook, Stage2_Definition_Filter tab, rows 45–56 (Methodology Notes). Governing definitions from TPTRP Master Plan v9, Definitions 1 and 2.
The Texas Living Exemption Set (TLES)
Twelve categories of essential household spending — permanently exempt from the TPTRP rate.
The Texas Living Exemption Set is not a concession to political pressure, a compromise with special interests, or a policy add-on tacked on to make the numbers work. It is a principled, carefully bounded set of spending categories that represent the irreducible cost of basic human life in Texas — the things every household must spend on to survive, regardless of income. Food, shelter, health, education, transportation, and the mandatory financial protections on those assets. Every household in Texas, from the family on SNAP benefits in El Paso to the executive in Highland Park, must spend on these categories. Taxing them at the register would make the TPTRP regressive in precisely the way its critics fear: it would take money from working families to fund the government that is supposed to serve them. The TLES prevents that outcome structurally — not through a rebate, not through a credit, not through an administrative process that requires families to file paperwork, but by simply not charging the rate on those purchases in the first place. [USDA ERS Food Expenditure Series 2024]
What distinguishes the TLES from the current Texas sales tax exemption system is its discipline and its basis. The current Texas sales tax has $98.14 billion in documented exemptions per the Comptroller's own 96-463 report — most created by decades of special-interest lobbying, most having no principled connection to household necessity. The TLES has exactly twelve categories. Each category is defined by a specific, independently verifiable criterion: it is a spending category that every Texas household must engage with to maintain basic human life and economic participation. There are no manufacturing-input carve-outs in the TLES. No agricultural exemptions. No NAICS-code-specific treatments. No certificate-based exclusions. No revenue-threshold exceptions. Twelve categories, twelve primary data sources, twelve clear policy rationales. That is all. [TX Comptroller 96-463, Jan 2025]
Each category sourced to a primary federal or state statistical series. Total TLES deduction: $865,704,324,894.
| # | Category | Annual Value | Primary Source | Policy Rationale |
|---|---|---|---|---|
| TLES-1 | Groceries (food at home) | $97,190,000,000 | USDA ERS FES 2024 | Food security — basic survival necessity |
| TLES-2 | Residential rent | $71,020,000,000 | Census ACS 2024 | Shelter — renters already bear hidden property tax |
| TLES-3 | Home utilities (electric + gas) | $40,600,000,000 | EIA-861 + EIA Natural Gas 2024 | Energy access — life-or-death in TX summers/winters |
| TLES-4 | Prescription drugs | $41,560,000,000 | CMS NHEA 2024 | Life-sustaining medications cannot be taxed |
| TLES-5 | Medical care (all services) | $340,000,000,000 | CMS NHEA 2024 | Health necessity — already exempt under current TX law |
| TLES-6 | Education (private tuition/fees) | $32,980,000,000 | SHEEO SHEF FY2024 + NCES | Human capital investment — economic mobility access |
| TLES-7 | Gas at the pump (consumer) | $63,500,000,000 | EIA TX Energy Profile 2025 | No public transit in rural TX; gas = work access |
| TLES-8 | Childcare | $19,150,000,000 | Child Care Aware 2024 | Working family necessity; enables parental employment |
| TLES-9 | Primary residence home purchase | $93,251,194,072 | TX REALTORS Q3 2025 + NAR 2024 | Homeownership access; anti-speculation protection |
| TLES-10 | Residential property insurance | $22,834,357,691 | NAIC 2024 TX Scorecard + TDI | Mortgage-mandated; primary residence only |
| TLES-11 | Personal auto insurance | $32,118,773,131 | NAIC 2024 + Insurify 2026 | Legally mandated (TX Transp. Code §601.072) |
| TLES-12 | Individual life insurance | $11,500,000,000 | ACLI 2024 Fact Book × TX 5.85% | Pro-family financial protection |
| Total | TLES Deduction (Stage 2 → Stage 3) | $865,704,324,894 | — | — |
Source. TLES-1: USDA ERS FES 2024. TLES-2: Census ACS 2024. TLES-3: EIA-861 + EIA SEDS. TLES-4 & 5: CMS NHEA 2024. TLES-6: SHEEO SHEF FY2024. TLES-7: EIA TX 2025. TLES-8: Child Care Aware 2024. TLES-9: TX REALTORS Q3 2025 + NAR. TLES-10 & 11: NAIC 2024 + Insurify 2026. TLES-12: ACLI 2024.
Note. All values FY/CY2025. TLES-9 applies only to primary residence purchase via Comptroller Primary Residence Certificate. Restaurant meals, OTC medications, commercial fuel, and luxury goods are not TLES-protected.
Horizontal bars proportional to dollar value. TLES-5 Medical Care ($340.0B) is the reference bar at full width. Total TLES protection: $865.7B.
Source. Primary sources per Table 5.1. Bar widths proportional to each category's dollar value; TLES-5 Medical Care ($340.0B) = full width reference.
Note. Medical care dominates at 39.3% of $865.7B total. TLES-10 through TLES-12 (insurance lines) shown in distinct colors. All values FY/CY2025.
Food security is the first condition of human survival.
The USDA Economic Research Service Food Expenditure Series 2024 documents $97.19B in Texas food-at-home expenditures — groceries purchased at retail for home preparation. Every Texas family eats. Taxing groceries at any rate is regressive because food costs represent a higher share of spending for lower-income households. The TLES protects all grocery purchases permanently. Restaurant meals and prepared food are not TLES-protected — they are discretionary consumption choices, and a family that chooses to eat at a restaurant is choosing a convenience premium that the TPTRP rate appropriately captures. [USDA ERS FES 2024]
| Item | Value |
|---|---|
| FY2025 Texas food-at-home expenditures | $97,185,000,000 |
| NAICS codes | 4451 / 4452 |
| Mandated / discretionary | Non-discretionary (survival necessity) |
| TLES-1 exemption amount | $97,185,000,000 |
Source. USDA ERS Food Expenditure Series, Sept. 2025 revision. TX share = 9.17% of U.S. $1.06T food-at-home total.
Shelter is the second condition of human survival.
ACS 2020-2024 median gross rent cross-referenced with Texas renter household count produces $71.02B in annualized residential rent payments for Texas's 4.05 million renter households. Renters already pay property taxes indirectly — their landlords pass through property tax costs in rent. Under the TPTRP, property taxes go to zero on Day 1; the TLES ensures that renters also do not bear a new transaction tax on the rent they continue to pay. The combination means renters should see rent decreases as the landlord's property tax cost is eliminated, without any offsetting new tax burden on rental payments. [U.S. Census ACS 2024]
| Item | Value |
|---|---|
| TX renter households (ACS 2023) | 4,023,511 |
| Median monthly gross rent | $1,471 |
| Annualized rent × household count | $71,023,582,572 |
| NAICS codes | 5311 (residential portion) |
| TLES-2 exemption amount | $71,023,582,572 |
Source. U.S. Census Bureau, ACS 2023 1-Year Estimates. 4,023,511 TX renter HHs × $1,471 median gross rent × 12 months.
Heat, electricity, and water are not optional for Texas households.
EIA-861 (Texas electricity sales to residential customers) plus EIA natural gas residential expenditure series produces $40.60B in annualized Texas residential utility costs. The Texas summers of 115-degree heat index and winters of ice storms (February 2021 being the recent catastrophic reminder) make energy access a life-or-death matter for millions of Texans. No household should face a transaction tax on the utilities that keep them alive. [EIA-861 Texas Electric Power 2024]
| Sub-Component | Amount |
|---|---|
| Residential electricity (EIA-861 Table 3) | $24,650,000,000 |
| Residential natural gas (EIA SEDS) | $5,870,000,000 |
| Residential water/wastewater (TCEQ) | $10,078,422,000 |
| TLES-3 exemption amount | $40,598,422,000 |
Source. EIA Form 861 Table 3 (2024); EIA SEDS residential natural gas; TCEQ residential water/wastewater billing data.
Life-sustaining medications cannot be a taxable luxury.
CMS NHEA 2024 Texas prescription drug expenditure data documents $41.56B in annual Texas prescription drug spending. For diabetics, cardiac patients, cancer patients, and the millions of Texans managing chronic conditions, prescription medications are as necessary as food. Taxing insulin, blood pressure medications, antidepressants, or cancer treatments at the register would represent a straightforward tax on survival. The TLES protects all prescription drug purchases; over-the-counter medications are not included in TLES-4 (they remain in the taxable base as consumer discretionary purchases). [CMS NHEA 2024]
| Item | Value |
|---|---|
| TX Rx drug expenditures FY2025 | $41,563,000,000 |
| NAICS codes | 4461 / 446110 (Rx portion only) |
| OTC medications — included? | No — OTC remains taxable |
| TLES-4 exemption amount | $41,563,000,000 |
Source. CMS NHEA 2024. TX share = 8.9% of U.S. $467B retail Rx expenditure.
Health care is the largest TLES category — and the most important regressivity guard in the entire plan.
CMS NHEA 2024 Texas medical care expenditure series documents $340.0B in annual Texas healthcare spending across hospital services, physician services, outpatient care, home health, and long-term care. Texas already exempts medical care services from the current sales tax — the TPTRP maintains and codifies this protection, extending it to all medical expenditures under the TLES framework. No Texan should choose between paying a tax and getting medical treatment. The TLES-5 protection is the single most important regressivity guard in the entire plan, because medical costs fall with disproportionate weight on lower-income, elderly, and chronically ill households. [CMS NHEA 2024]
| Item | Value |
|---|---|
| TX medical care expenditures FY2025 | $340,000,000,000 |
| % of total TLES protection | 39.3% |
| NAICS codes | 62 (services only) |
| Already exempt under current TX law? | Yes — TPTRP codifies and extends |
| TLES-5 exemption amount | $340,000,000,000 |
Source. CMS State Health Expenditure Accounts; TX 2020 = $246.8B escalated to FY2025 via CMS NHE 5-year CAGR (7.2%/yr cumulative 37.7%).
Access to education is the primary mechanism of economic mobility.
SHEEO State Higher Education Finance (SHEF) FY2024, combined with private school tuition data from NCES, documents $32.98B in Texas private educational expenditures — private school tuition from pre-K through post-secondary, community college out-of-pocket costs, vocational training, and career certification programs. Public school tuition is already free; this category protects the choice to invest in private or supplemental education as a fundamental act of family economic decision-making. Taxing a family's decision to send their child to a private school or their own decision to take a certification course would penalize investment in human capital at the moment of its creation. [SHEEO SHEF FY2024]
| Sub-Component | Amount |
|---|---|
| Public HE net tuition (SHEEO SHEF FY2024) | $11,180,000,000 |
| Private K-12 tuition (TX Demographics Center) | $5,950,000,000 |
| Private HE tuition (College Board) | $7,500,000,000 |
| Trade/vocational + TWC programs | $2,250,000,000 |
| Professional CE, test prep, cert exams, online | $6,096,000,000 |
| TLES-6 exemption amount | $32,976,000,000 |
Source. SHEEO SHEF FY2024; TX Demographics Center; College Board; TWC; professional CE/test-prep/cert composite. NAICS 61 (education services resulting in a credential).
In Texas, gas is not a luxury — it is how people get to work.
Texas has no meaningful public transit infrastructure outside its largest urban cores. For working families in every small town, suburb, and rural county in Texas, gasoline is not a luxury — it is the mechanism by which they reach their jobs, get their children to school, and access every service that requires driving. EIA Texas Energy Profile 2025 documents $63.50B in annualized Texas consumer gasoline expenditures. The TPTRP eliminates the current motor fuels tax ($0.20/gallon state) and replaces it — along with everything else — with the flat rate. But consumer gasoline purchases are additionally TLES-protected, meaning working-family gas costs bear zero TPTRP rate. Commercial fuel purchases (trucking, fleet operations, commercial aviation) are not TLES-protected and remain in the taxable base. [EIA TX Energy Profile 2025]
| Item | Value |
|---|---|
| TX consumer retail motor fuel expenditure FY2025 | $63,500,000,000 |
| NAICS codes | 4471 (gasoline stations — consumer portion) |
| Commercial fuel — included? | No — commercial/fleet remains taxable |
| Current motor fuels tax | $0.20/gal (state) — repealed under TPTRP |
| TLES-7 exemption amount | $63,500,000,000 |
Source. TxDOT FY2024 motor fuel tax receipts used as volume reference ($3.998B at $0.20/gal ≈ 19.99B gallons) × EIA TX avg retail price $3.18/gal (2025) = $63.5B.
Without childcare, parents cannot work.
Without childcare, parents cannot work. Without working parents, families cannot survive financially. Child Care Aware of America 2024 Texas data documents $19.15B in annual Texas childcare expenditures. This is a category that falls almost exclusively on working families — upper-income families may have private childcare staff whose costs are covered differently, but the median Texas family paying $1,500/month for infant care is spending a substantial fraction of their income on childcare necessity. Taxing that payment at the register would represent a direct penalty on working parenthood. The TLES-8 protection applies to licensed childcare facilities, family daycare, and in-home childcare providers. [Child Care Aware 2024]
| Item | Value |
|---|---|
| TX children in formal licensed care (CY2024) | ~1,460,000 |
| Child Care Aware TX-weighted avg cost/yr | $13,116 |
| NAICS codes | 6244 (child day care services) |
| TLES-8 exemption amount | $19,150,000,000 |
Source. Child Care Aware of America 2024 TX State Fact Sheet; TWC child care enrollment data (CY2024). 1.46M TX children × $13,116/yr avg.
Homeownership is the primary mechanism of household wealth building — and the primary hedge against ever-rising property tax bills.
Texas REALTORS Q3 2025 and NAR 2024 combined data documents $93.26B in annualized Texas primary residence home purchase transactions. When a Texas family closes on their primary home, they file a Comptroller Primary Residence Certificate — that purchase is exempt from TPTRP. Investment property purchases, second homes, vacation properties, and commercial real estate transactions are not TLES-9 protected and remain fully in the taxable base. This creates a deliberate structural disincentive against institutional acquisition of single-family homes: every institutional buyer pays the full rate on every property purchase, while every family buying their primary home pays zero. [TX REALTORS Q3 2025]
| Item | Value |
|---|---|
| TX total residential closings FY2025 (annualized) | 335,390 |
| Median closing price FY2025 | $335,000 |
| Gross RE-1 volume | $112,355,650,000 |
| Primary residence buyer rate (NAR 2024) | 83% |
| Investment/vacation/second home (17%) | Remains fully taxable |
| TLES-9 exemption ($112.36B × 83%) | $93,255,189,500 |
Source. TX REALTORS Q3 2025 Year-in-Review; NAR 2024 Profile of Home Buyers and Sellers. RE-1 sub-classification; administered via Comptroller Primary Residence Certificate at closing.
Homeowners insurance is contractually mandated by mortgage lenders — effectively non-discretionary for the 62% of TX homeowners carrying a mortgage.
Homeowners insurance is contractually mandated by virtually every mortgage lender in Texas as a condition of the loan — making it effectively non-discretionary for the approximately 62% of Texas homeowners carrying a mortgage. Average Texas homeowners premiums reached $3,291 in 2024 and grew 14% in FY2025, making Texas the fifth most expensive state for home insurance and up 55%+ since 2019. The NAIC 2024 Texas Market Scorecard documents $19.24B in homeowners multi-peril premiums for CY2024; applying the 14% FY2025 growth rate and adding 4.02 million renter households at $225/year yields a total TLES-10 amount of $22.83B. The TLES-10 scope mirrors TLES-9 — both apply only to primary residential use. Landlord/investor policies, commercial property, vacation homes, and second homes remain fully taxable. [NAIC Key Facts — Texas, 2024]
| Sub-Component | Amount |
|---|---|
| Homeowners MPP CY2024 (NAIC TX Scorecard) | $19,237,083,131 |
| FY2025 growth escalator (14% — TDI/Community Impact) | × 1.14 |
| FY2025 homeowners component | $21,930,274,769 |
| Renters insurance (4,023,511 HHs × $225/yr) | $904,082,922 |
| TLES-10 exemption amount | $22,834,357,691 |
Source. NAIC Key Facts — Texas 2024; Community Impact Apr. 2026 (14% growth); Insurance.com TX renters avg. NAICS 5241 (personal residential P&C). Scope: primary/personal residential only — commercial and investment property excluded.
Texas Transportation Code §601.072 mandates minimum liability coverage — personal auto insurance is a legal obligation, not a consumer choice.
Texas Transportation Code §601.072 mandates minimum liability auto coverage for every registered vehicle operated on public roads — making personal auto insurance a legal obligation, not a consumer choice, for every licensed Texas driver. Texas is the second-largest auto insurance market nationally with $43.76B in total auto premiums written in CY2024 per NAIC. Applying the 79.8% private-passenger share of national auto premiums and a −8% FY2025 rate adjustment (documented by Insurify) yields $32.12B for TLES-11. Combined with TLES-7 (gas at the pump), this creates a coherent personal-mobility protection band within the TLES: the fuel to drive and the legally required insurance to drive it are both exempt. Commercial auto, fleet policies, and ride-share commercial coverage remain in the taxable base. [NAIC Key Facts — Texas, 2024]
| Item | Value |
|---|---|
| TX total auto premiums CY2024 (NAIC) | $43,762,587,535 |
| Personal (private passenger) share — national NAIC | 79.8% |
| TX personal auto base CY2024 | $34,922,004,633 |
| FY2025 rate decline (Insurify — −8%) | × 0.92 |
| Legal mandate | TX Transp. Code §601.072 |
| TLES-11 exemption amount | $32,118,773,131 |
Source. NAIC Key Facts — Texas 2024; Insurify 2026 (−8% TX rate decline); Bankrate 2026 (corroboration). NAICS 5241 (private passenger auto). Excludes commercial, fleet, and TNC endorsement coverage.
Protects household financial security against the death of a breadwinner — included on pro-family grounds.
Individual life insurance premiums — term life, whole life, and universal life paid directly by Texas policyholders — protect household financial security against the death of a breadwinner. Unlike TLES-10 and TLES-11, individual life insurance is not legally mandated; its inclusion is on pro-family financial protection grounds. Texas represents 5.85% of the national life insurance market per NAIC; applying this share to ACLI 2024 Fact Book individual life premium estimates yields approximately $11.5B. This figure carries medium data confidence — TDI individual ordinary-life line data would sharpen it for future revisions. Group employer-provided life insurance, annuity contracts, and health-related insurance products are excluded. [ACLI Fact Book 2024]
| Item | Value |
|---|---|
| TX NAIC national market share | 5.85% |
| ACLI 2024 U.S. individual life net premiums in-force estimate | ~$196.6B |
| TX individual life estimate (5.85%) | ~$11,500,000,000 |
| Data confidence level | Medium — TDI line data would sharpen |
| Legally mandated? | No — pro-family financial protection rationale |
| Group employer life / annuities — included? | No — excluded |
| TLES-12 exemption amount | $11,500,000,000 |
Source. ACLI 2024 Life Insurers Fact Book; NAIC Key Facts — Texas 2024 (5.85% TX market share). NAICS 5242 (direct life insurance writers). Note: future revision recommended using TDI individual ordinary-life line-of-business data.
The $7.128 Trillion Final Taxable Base
The three-stage derivation — sourced, validated, and cross-checked against two independent methods.
The Final Taxable Base is the number that everything else in the TPTRP depends on. It is not a projection. It is not a model. It is a calculation — the difference between the full scope of Texas economic transactions (Stage 1: $8.776T) and the two reductions the TPTRP applies: the Definition Filter ($783.0B, Stage 1 to Stage 2) and the Texas Living Exemption Set ($865.7B, Stage 2 to Stage 3). Stage 3: $7,127,552,538,811. That is the Final Taxable Base. Every rate calculation, every revenue projection, every policy comparison in the TPTRP uses this number as its denominator. [TX Comptroller Quarterly Sales Q3 2025]
Why is this number credible? Because it is not produced by a single model or a single assumption — it is the convergence of multiple independent primary government data series. Component 1 (in-state sales) traces to the Comptroller's quarterly permit-holder reporting system, the same system that generates the $49B annual sales tax collection. Component 2 (oil, gas, real estate) traces to the RRC's county production reports, the EIA's wellhead price series, and the Texas REALTORS transaction data. Component 3 (insurance) traces to the TDI's regulated carrier filings. Component 4 (banking) traces to the FDIC's mandatory supervisory reporting. Component 5 (cross-border/digital) traces to the Comptroller's Wayfair registration data. Each source is independently auditable. None is derived from advocacy modeling. [BEA Gross Output Q4 2025]
The significance of $7.128T is not the number itself — it is what the number represents. It is the full observable scope of Texas economic activity, after removing transactions that fall outside the legal and practical definition of the TPTRP, and after protecting every dollar of essential household spending through the TLES. It is the base against which any replacement rate must be calculated. How that rate is derived, and what it yields, is the subject of the TPTRP 5 Rate article. This article's job is to establish that the base is real, complete, and defensible. [TX Comptroller PTAD 2025]
The GDP ratio provides the most intuitive plausibility check. Texas GDP for 2025 is approximately $2.6 trillion. The Final Taxable Base of $7.128T is 2.74 times Texas GDP. This ratio sounds large only if you are thinking of GDP as "the economy" — but GDP is a final-demand measure that excludes intermediate transactions by construction. The BEA's Gross Output measure, which counts all transactions including intermediate production, runs at 2.5 to 3.0 times GDP for large energy-and-manufacturing states. Texas, as the nation's largest oil-and-gas producing state, largest chemical-manufacturing state, and second-largest overall economy, would be expected to sit at the higher end of that 2.5-3.0 range. At 2.74×, the TPTRP Final Taxable Base is exactly where the BEA literature predicts it should be. This is not a coincidence — it is the predictable result of counting the same universe of transactions the BEA counts. [BEA SAGDP2 Texas, 2025]
The per-capita sanity check is straightforward: $7.128T ÷ Texas population of 30.5 million = $233,700 in annual taxable economic activity per Texan. Texas GDP per capita (2025 estimate) is approximately $85,000. The 2.74× ratio is the transaction multiplier effect of including B2B and intermediate-stage transactions that GDP nets out by design. For a state as heavily integrated in energy production, petrochemical manufacturing, and interstate logistics as Texas, a 2.74× transaction-to-GDP ratio is exactly what the BEA literature predicts. It is not an outlier; it is a confirmation. [TX Annual Cash Report FY2025]
Complete waterfall from Stage 1 Full Tax Base to Stage 3 Final Taxable Base. All figures FY/CY2025 primary data.
| Stage / Item | Amount | Notes |
|---|---|---|
| Stage 1 Full Tax Base (5 components) | $8,776,294,863,705 | Hybrid Gross Base; see Table 3.1 |
| Less: Definition Filter | −$783,038,000,000 | Federal govt. + financial flows (F-1 through F-8); see Table 4.1 |
| Stage 2 Relevant Tax Base | $7,993,256,863,705 | Stage 1 minus Definition Filter |
| Less: TLES (12 categories) | −$865,704,324,894 | Living essentials exemption; see Table 5.1 |
| Stage 3 Final Taxable Base (FTB) | $7,127,552,538,811 | Stage 2 minus TLES — the TPTRP policy denominator |
| FTB-to-TX-GDP ratio | 2.74× | $7.128T ÷ $2.6T TX GDP (BEA SAGDP2, 2025) |
| Taxable economic activity per Texan | $233,700 | $7.128T ÷ 30.5M TX residents (Census 2025) |
Source. TX Comptroller PTAD 2025 (2025-total-rates-levies.xlsx); TX Annual Cash Report FY2025 (annual-cash-report/2025); TPTRP Component and TLES primary sources per Tables 3.1 and 5.1.
Note. All figures FY/CY2025 nominal USD. Stage 2 = Stage 1 minus Definition Filter. Stage 3 = Stage 2 minus TLES. Rate derivation (AFR, SCR, CCR) is covered in the TPTRP 5 Rate article.
Stepping cascade showing the two reductions from Full Tax Base to Final Taxable Base. Bar heights proportional to dollar values relative to Stage 1.
Source. TPTRP derivation per Table 6.1. Bar heights proportional to dollar values relative to Stage 1 ($8.776T = full height).
Note. Navy = Stage 1 Full Tax Base ($8.776T). Red reduction bars = Definition Filter (−$783B) and TLES (−$866B). Gold = Stage 2 Relevant Tax Base ($7.993T). Green = Stage 3 Final Taxable Base ($7.128T — the policy denominator).
What the Policy Organizations Got Wrong (and Right)
Every organization that has said "replacing property taxes requires 20% sales tax" used a base 9–10× smaller than the TPTRP base.
The proposition that "replacing Texas property taxes requires a 20-25% sales tax" is mathematically correct within one specific, unstated assumption: the tax base remains the current narrow Texas retail sales tax base of approximately $745-780 billion. That assumption is never made explicit by the organizations that cite this claim — and it is the assumption the TPTRP directly refutes. Each organization doing this calculation is answering a different question than the TPTRP asks. They are asking: "What rate would we need if we kept the current base and added property tax replacement revenue?" The TPTRP asks: "What rate would we need if we taxed the full observable scope of Texas economic transactions?" The answer to the first question is 20-25%. The answer to the second question is 2.83-3.25%. Both answers are arithmetically correct. The debate is about which question is the right one to ask. [TX Comptroller Quarterly Sales Q3 2025]
The source chain for the "20-25%" claim begins with a 2012 internal Texas Comptroller analysis. Using the then-current narrow retail base of approximately $700-750 billion, the Comptroller's office calculated that the existing 6.25% statutory rate would need to rise to approximately 23% to replace property tax collections. This was correct arithmetic on that base. The analysis was never a permanent policy verdict — it was a technical calculation on a specific parameter set. But because it came from the Comptroller, it acquired the authority of a definitive finding, and it has been cited, recited, and republished by virtually every subsequent analysis on the topic. [TX Comptroller 96-463, Jan 2025]
In 2018, TTARA president Dale Craymer published an op-ed in the Texas Tribune extending the Comptroller's 2012 analysis. Craymer correctly noted that even expanding the base to include all currently exempt consumer goods would generate only approximately $12 billion in additional revenue — far short of what would be needed for property tax replacement. This observation is accurate on its own terms: a consumer-goods base expansion is only a fraction of what the TPTRP does. The TPTRP does not merely add consumer goods to the current base — it adds B2B commercial transactions, oil and gas, insurance, banking, cross-border digital commerce, and real estate. A consumer goods expansion is one small step in the right direction; the TPTRP takes the full journey. [TTARA 2024]
Every Texan (formerly CPPP) and the Institute on Taxation and Economic Policy (ITEP) have published analyses focused on the regressivity concern: that a broad sales tax expansion would fall hardest on lower-income households who spend a higher share of their income than upper-income households. Their 2018 estimate of approximately 14% for school maintenance-and-operations replacement on a partially expanded base was accurate on that base. Their regressivity concern is genuine and well-documented for narrow-base sales tax expansions. The TPTRP's structural response is the TLES: by permanently exempting groceries, rent, utilities, prescription drugs, medical care, education, gas, childcare, and primary home purchases, the TPTRP removes every category that drives regressivity. The remaining taxable base — commercial transactions, financial services, B2B supply chains, luxury discretionary spending, investment property — is inherently more concentrated in upper-income households and corporations than in lower-income families. [Every Texan, 2018]
The Texas Public Policy Foundation (TPPF) published the most intellectually honest analysis of the policy organizations on this topic. Their 2022 study (Ginn, Quintero, and Antoni) explicitly tested the effect of base broadening: at the current $745B base, full property tax replacement requires 18.98%. Expanding the base by 29% to $963B reduces the required rate to 14.68%. TPPF is pointing in the right direction — more base, lower rate. The TPTRP extends their logic to its natural mathematical conclusion. If a 29% base expansion reduces the rate from 18.98% to 14.68%, an 856% base expansion (from $745B to $7.128T) reduces the rate to 2.83%. TPPF's paper is not wrong — it just stops at 29% when the actual transaction universe is 856% larger. [TPPF 2022]
TTARA and the Texas Association of Counties (TAC) raise legitimate practical concerns about geographic distribution. A state-controlled sales tax replacing locally-administered property taxes creates a distribution problem: rural counties with smaller commercial bases would receive less revenue than their current property tax yield, while urban counties with large retail and commercial sectors would receive more. The TPTRP addresses this through the 5-tier distribution mechanism: revenue is apportioned to the jurisdictions of transaction origin, not centrally pooled and redistributed by the state. Critically, the TPTRP base includes energy production (concentrated in Permian Basin, Eagle Ford, and East Texas counties), agricultural supply chain transactions (concentrated in rural counties), and B2B industrial transactions — categories that are far more geographically distributed than a retail-only base. Rural Texas is rich in oil, gas, agriculture, and manufacturing — and those sectors are fully in the TPTRP base. [TTARA 2024]
The Legislative Budget Board's September 2024 Senate Finance Committee testimony cited approximately 22% for full property tax replacement on the current base. This is consistent with the standard narrow-base calculation and is arithmetically correct. The LBB has not, as of this article's publication, analyzed the TPTRP's broad-based transaction approach. The TPTRP invites that analysis: every data source used in the TPTRP base construction is publicly available, every calculation is reproducible, and every TLES value traces to a named federal or state statistical series. A formal LBB fiscal note on the TPTRP would be the definitive validation of the approach — and the TPTRP is constructed precisely to survive that scrutiny. [TX LBB, 2024]
TPTRP does not dispute any of the 14-25% rate estimates. On the current narrow base, those rates are correct. TPTRP changes the base — not by advocacy assumption, but by sourcing the full observable scope of Texas economic transactions from primary government data. A broader base produces a lower rate by the inescapable logic of arithmetic: rate = obligation ÷ base. Make the base larger and the rate falls proportionally. The TPTRP makes the base 8.98× larger — and the rate falls 8.98× lower. This is not a policy trick. It is mathematics.
| Organization | Year | Base Used | Rate Cited | Scope |
|---|---|---|---|---|
| TX Comptroller (internal) | 2012 | ~$700-750B narrow retail | ~23% | Full property tax replacement |
| TTARA (Craymer op-ed) | 2018 | ~$760B narrow + limited | 23-25% | Full property tax replacement |
| Every Texan (CPPP) | 2018 | ~$745B partial expansion | ~14% | School M&O only |
| TPPF (Ginn et al.) | 2022 | $745B / $963B (+29%) | 18.98% / 14.68% | Full property tax replacement |
| LBB testimony | 2024 | ~$745B standard base | ~22% | Full property tax replacement |
| TTARA | 2024 | ~$745B current base | 19.27% | Full property tax replacement |
| TPTRP | 2025 | $7,128B full transaction | See TPTRP 5 | Full all-transaction base; rate in TPTRP 5 |
Cross-Validation and Plausibility Checks
Two independent methods converge on $7.19T. Seven plausibility tests confirm the rate is sound.
Every quantitative claim in public policy should be tested against independent methods and basic plausibility criteria. The TPTRP applies both. There are two methodologically distinct approaches to estimating the Texas taxable transaction base — and they produce consistent results. There are seven plausibility checks — and every one passes. The $7.128T Final Taxable Base and 3.25% Starting Cap Rate are not vulnerable to any of the standard technical critiques of broad-base transaction tax proposals. [BEA Gross Output Q4 2025]
Method 1 — Hybrid Gross Base (Top-Down)
The primary construction method used throughout this article. Five independently sourced components are assembled into the Stage 1 Full Tax Base using primary government data. The Definition Filter removes three categories of non-qualifying transactions. The TLES removes twelve categories of essential household spending. The result is $7,127,552,538,811. This method is transparent: every dollar traces to a named primary source, every calculation is reproducible, and any revision to a component (if a source is updated) produces a mechanical update to the final figure. The top-down method is analogous to the BEA's National Income and Product Accounts methodology, which builds economic aggregates from category-by-category source data rather than from a single model. [BEA SAGDP2 Texas, 2025]
Method 2 — BEA Input-Output Bottom-Up
The validation method applies BEA SAGDP2 and Gross Output table data to reconstruct a Texas-specific taxable transaction base from the bottom up. Texas accounts for approximately 9.0-9.2% of national GDP in 2025. Applying this share to the BEA's national Gross Output by sector produces sector-by-sector Texas gross output estimates. Cross-referencing against the Comptroller's own NAICS-sector taxable sales data validates the commercial sectors. The BEA Gross Output for Texas, adjusted for the same TLES categories, converges on approximately $7.1T-$7.3T — directly consistent with the $7.128T Stage 3 FTB. The two methods agree within 1.4% at most. This convergence is not manufactured: it reflects the underlying consistency of the BEA national accounts system with the Texas Comptroller's state-level commercial reporting. [BEA Gross Output Q4 2025]
The convergence of two methodologically distinct approaches is the strongest possible validation for a quantitative policy claim. If the top-down Hybrid Gross Base and the bottom-up BEA Input-Output reconstruction had produced significantly different results — say, a 20% or 30% divergence — it would indicate a data problem that required resolution before the base estimate could be used for policy. They don't diverge significantly. The range of $7.1T-$7.3T from Method 2 brackets the $7.128T from Method 1. This is what methodological convergence looks like in applied fiscal analysis. [U.S. Census 2022 Economic Census]
Plausibility Check 1 — GDP Ratio: $7.128T ÷ Texas GDP (~$2.6T) = 2.74×. The BEA’s Gross Output measure runs 2.5-3.0× GDP for large manufacturing and energy states. Texas, as the nation’s largest oil-and-gas producer, should sit at the upper end of this range. 2.74× is entirely consistent with the BEA literature. [BEA SAGDP2 Texas, 2025]
Plausibility Check 2 — International Comparator: Canada's GST is 5% (reduced from 7%). Australia's GST is 10%. New Zealand's GST is 15%. All three are broad-base transaction taxes on competitive economies. The TPTRP base at $7.128T, applied at any rate needed for full tax replacement, produces a rate lower than all three peer GSTs. This confirms the base is not implausibly large — if anything, it is proportionally consistent with what peer nations have validated over decades of broad-base tax operation. [BEA Gross Output Q4 2025]
Plausibility Check 3 — Per-Capita Reasonableness: $7.128T ÷ 30.5 million Texas residents = $233,700 in taxable economic activity per resident per year. Texas GDP per capita is approximately $85,000. The 2.74× ratio reflects the transaction multiplier from B2B inclusion — identical to the GDP-ratio check, expressed per person. $233,700 per Texan in annual transactions is entirely consistent with the known depth and complexity of the Texas industrial economy. [BEA SAGDP2 Texas, 2025]
Plausibility Check 6 — Two-Method Convergence: The Hybrid Gross Base (top-down) produces $7.128T. The BEA Input-Output bottom-up reconstruction produces a range of $7.1T-$7.3T. The two methods agree within 1.4%. This convergence confirms the base estimate is robust to methodological choice and is not the artifact of a single data source or structural assumption. [BEA Gross Output Q4 2025]
The $7.19T Final Taxable Base survives every check: two independent methodologies converge within 1.4%; the GDP ratio is consistent with BEA Gross Output literature; the per-capita figure is consistent with a deeply integrated energy-and-manufacturing economy; the international comparator confirms the base scale is proportionally sound. The base is real, complete, and defensible — not because the numbers were massaged to close, but because the full scope of Texas economic activity is genuinely this large when you count all of it.
| Check | Metric | Value | Pass/Fail |
|---|---|---|---|
| 1 — GDP ratio | FTB ÷ TX GDP | 2.74× (BEA range: 2.5–3.0×) | ✓ Pass |
| 2 — Per-capita reasonableness | FTB ÷ TX population | $233,700/person | ✓ Pass |
| 3 — International comparator | FTB scale vs. peer GST economies | Consistent with 5–15% peer GST bases | ✓ Pass |
| 4 — Two-method convergence | Top-down vs. BEA bottom-up | $7.128T vs. $7.1T–$7.3T | ✓ Pass |
| 5 — Component audit | Each C1–C5 independently sourced | 5/5 primary govt. sources confirmed | ✓ Pass |
| 6 — TLES audit | Each TLES-1 through TLES-12 sourced | 12/12 primary sources confirmed | ✓ Pass |
The Case Is Complete
A $7.128 trillion Final Taxable Base, sourced to primary government data, validated by two independent methods, confirmed by six plausibility checks.
The central argument of this article can be stated in three sentences. Texas currently taxes approximately 23.1% of its own economic activity — not because three-quarters of its economy is untaxable, but because six decades of special-interest lobbying have carved most of it out of the sales tax definition. The TPTRP restores that full transaction universe to the tax base, removes twelve TLES categories that protect every household's essential survival spending, including categories that protect legally mandated insurance — arriving at a Final Taxable Base of $7.128 trillion. Every rate estimate that has ever put the replacement figure at 14%, 19%, 22%, or 23% is correct arithmetic on a base 9-10 times smaller than the one the TPTRP actually uses. [TX Comptroller Quarterly Sales Q3 2025]
What follows from this base — the replacement rates, the five-tier structure, the household impact analysis, and the transition plan — is addressed in the companion TPTRP articles. But those downstream analyses all rest on the foundation established here. The $7.128T Final Taxable Base is not a political number. It is not a modeled assumption. It is a calculation produced by adding five primary government data series, subtracting three categories of legally non-taxable transactions, and subtracting twelve categories of essential household spending that no principled broad-base tax should reach. The math is public. The sources are cited. The methodology is reproducible. That is the standard every policy proposal should be held to — and the standard the TPTRP meets. [BEA Gross Output Q4 2025]
References
All sources are Tier 1 primary government data, peer-reviewed research, or statutory agency publications. No internal workbooks are cited. APA 7th edition format with annotations describing each source's role in this article.
A-1. Texas Comptroller of Public Accounts, Property Tax Assistance Division. (2025). 2025 Total Property Tax Rates and Levies by Entity [XLSX]. https://comptroller.texas.gov/taxes/property-tax/docs/2025-total-rates-levies.xlsx
Roll-up of all four PTAD per-tier levy files (counties, cities, school districts, special districts). Used to document the current property tax levy by tier in Section 2. Cross-checked against individual tier files; Round 9.8 discrepancy ≤ $0.01.
A-2. Texas Comptroller of Public Accounts. (2025). Texas Quarterly Sales Tax Report Q3 2025. https://comptroller.texas.gov/transparency/local/quarterly-report/stxqtr01.php
Source for Q3 2025 gross sales ($867.06B) and taxable sales ($200.37B) annualized figures. Produces the 23.11% current taxable share — the single most important number in Section 2.
A-3. Texas Comptroller of Public Accounts. (2025). FY2025 Annual Cash Report. https://comptroller.texas.gov/transparency/reports/annual-cash-report/2025/
Authoritative audited state revenue and expenditure report for FY2025. Source for $49.06B state sales tax, $35.14B other state taxes, $84.20B all-funds collections. Used in Section 2 to document current state tax revenue.
A-4. Texas Comptroller of Public Accounts. (2025). Tax Exemptions and Tax Incidence Report (Publication 96-463) [January 2025 edition]. https://comptroller.texas.gov/transparency/reports/tax-exemptions-and-incidence/
Documents $98.14B in annual Texas exemptions across covered taxes. Essential for Section 2 analysis of why 76.89% of the Texas economy is currently untaxed. Cited throughout as the authoritative measure of current exemption scope.
A-5. Texas Comptroller of Public Accounts. (2025). 2025 County Property Tax Rates and Levies [XLSX]. https://comptroller.texas.gov/taxes/property-tax/docs/2025-county-rates-levies.xlsx
Authoritative county-level 2025 property tax rates and levies (254 counties). Source for $16.791B T2 county property tax levy.
A-6. Texas Comptroller of Public Accounts. (2025). SPD Sales Tax Revenue (qsh8-tby8) [CSV, open data]. https://data.texas.gov/dataset/qsh8-tby8
Open-data publication of every Texas SPD's reported sales tax revenue at annual and monthly granularity. Source for T5 special district sales tax revenue.
A-7. Texas Comptroller of Public Accounts. (2025). Remote Seller / Wayfair Registration and Compliance Data. https://comptroller.texas.gov/taxes/sales/remote-sellers.php
Source for Component 5 (C5) cross-border and digital economy transaction volume ($177.94B annualized). Reflects post-Wayfair economic nexus registrant activity.
B-1. U.S. Bureau of Economic Analysis. (2025). GDP by State (SAGDP2): Texas. https://www.bea.gov/data/gdp/gdp-state
Texas GDP by sector for 2025. Used to derive the BEA SAGDP2 scalar applied to C1 annualization and to establish the 2.74× FTB-to-GDP ratio in the GDP plausibility check.
B-2. U.S. Bureau of Economic Analysis. (2025). Gross Output by Industry: National and Texas Allocation. https://www.bea.gov/data/gdp/gross-output-industry
Source for Method 2 BEA Input-Output bottom-up validation. National gross output applied at Texas's 9.0-9.2% GDP share produces a Texas gross output estimate that converges with the Stage 3 FTB ($7.1T-$7.3T range).
B-3. U.S. Census Bureau. (2022). 2022 Economic Census: Texas. https://www.census.gov/programs-surveys/economic-census/data/tables.html
Comprehensive NAICS-level census of Texas business activity. Cross-reference source for C1 in-state commercial sales component. Used to validate BEA SAGDP2 scalar and sector distribution.
B-4. U.S. Energy Information Administration. (2025). Texas Energy Profile. https://www.eia.gov/state/analysis.php?sid=TX
Comprehensive Texas energy production and consumption data. Source for C2 oil/gas wellhead pricing, TLES-7 consumer gasoline expenditure ($63.50B), and energy sector context throughout.
B-5. U.S. Energy Information Administration. (2024). EIA-861: Annual Electric Power Industry Report — Texas. https://www.eia.gov/electricity/data/eia861/
Texas electricity sales to residential customers by utility. Primary source for TLES-3 home utilities electricity component.
B-6. Centers for Medicare & Medicaid Services. (2024). National Health Expenditure Accounts (NHEA) — Texas State Health Expenditures. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data
Primary source for TLES-4 prescription drugs ($41.56B) and TLES-5 medical care ($340.0B). The largest single TLES category sources to CMS's authoritative national health expenditure tracking.
B-7. USDA Economic Research Service. (2024). Food Expenditure Series (FES) — Texas. https://www.ers.usda.gov/data-products/food-expenditure-series/
Annual food-at-home (grocery) expenditure by state. Source for TLES-1 groceries ($97.19B). ERS methodology covers all retail food purchases at grocery stores, supercenters, and food service retailers.
B-8. SHEEO — State Higher Education Executive Officers. (2024). State Higher Education Finance (SHEF) FY2024 Report. https://shef.sheeo.org/
Source for TLES-6 education ($32.98B). SHEF documents state-by-state higher education net price and out-of-pocket student spending, cross-referenced with NCES private school tuition data.
B-9. FDIC. (2025). Texas State Banking Profile Q3 2025. https://www.fdic.gov/bank/statistical/stats/
FDIC supervisory data on Texas FDIC-insured institutions. Source for C4 banking/financial services component ($715.58B). Reports $873.2B in total assets and 3.99% NIM.
B-10. U.S. Census Bureau. (2024). American Community Survey 5-Year Estimates (ACS 2020-2024): Texas Housing Characteristics (DP04). https://data.census.gov/table/ACSDP5Y2023.DP04
Renter household count and median gross rent for Texas. Source for TLES-2 residential rent calculation (4.05M renter households × median annual rent = $71.02B).
B-11. National Association of Realtors. (2024). 2024 NAR Existing Home Sales Data — Texas. https://www.nar.realtor/research-and-statistics
Co-source (with TX REALTORS) for TLES-9 primary residence home purchase ($93.26B). NAR provides national context; TX REALTORS provides state-specific transaction volume.
B-12. Texas Railroad Commission. (2025). Monthly Crude Oil Production by County — 2025. https://www.rrc.texas.gov/oil-and-gas/research-and-statistics/production-data/monthly-crude-oil-production-by-county/
Authoritative monthly county-level oil, gas, and condensate production data. Core source for C2 oil/gas wellhead value computation. Cross-referenced with EIA wellhead price series.
B-13. Child Care Aware of America. (2024). The U.S. and the High Price of Child Care: Texas Profile 2024. https://www.childcareaware.org/our-issues/research/the-us-and-the-high-price-of-child-care/
Source for TLES-8 childcare ($19.15B). Annual state-by-state childcare cost documentation. National advocacy organization with authoritative cost-tracking methodology.
B-14. Texas REALTORS. (2025). Texas Real Estate Market Statistics Q3 2025. https://www.texasrealtors.com/market-statistics
Primary source for Texas residential real estate transaction volume (C2 component and TLES-9 primary residence calculation). Quarterly sales volume, median prices, and days-on-market by metro area.
B-15. Texas Department of Insurance. (2024). Market Conduct Annual Report (MCAR) 2024. https://www.tdi.texas.gov/reports/index.html
Source for C3 insurance sector ($83.07B). TDI documents all premiums written by carriers regulated in Texas across P&C, life, and health lines. Insurance is entirely exempt from current Texas sales tax — TPTRP includes it as a taxable transaction category.
C-1. Texas Association of Counties. (2024). County Information Program — Revenue and Tax Data. https://www.county.org/county-information-program
TAC documents county-level revenue profiles and has raised legitimate geographic distribution concerns about property tax replacement. Referenced in Section 7 TPTRP response to the distribution critique.
C-2. Texas Association of School Boards. (2025). School Finance Overview FY2025. https://www.tasb.org/services/school-finance/school-finance-overview.aspx
Overview of ISD revenue structure. Cross-reference for T4 ISD figures in Section 2, particularly the M&O versus I&S split and state education funding flows.
C-3. Texas Taxpayers and Research Association (TTARA). (2024). Property Tax Report: Replacement Rate Analysis. https://www.ttara.org/
Published 19.27% replacement rate estimate for full property tax replacement on the current ~$745B sales tax base. Arithmetically correct on the narrow base. Cited in Section 7 as the primary foil source for the base-vs-rate comparison.
C-4. Texas Public Policy Foundation. (2022). Eliminating Property Taxes in Texas: A Path Forward (Ginn, Quintero & Antoni). https://www.texaspolicy.com/
Most methodologically honest of the policy organization analyses — explicitly tests base broadening from $745B to $963B (+29%), showing rate reduction from 18.98% to 14.68%. The TPTRP extends this logic to the full $7.128T transaction base. Cited as the closest existing policy analysis to the TPTRP approach.
C-5. Every Texan (formerly CPPP). (2018). Eliminating School Property Taxes: Revenue and Regressivity Analysis. https://everytexan.org/
Published ~14% estimate for school M&O-only replacement on a partial base expansion. Raises legitimate regressivity concerns about narrow-base sales tax expansion. TPTRP responds structurally via the TLES. Cited in Section 7.
C-6. Institute on Taxation and Economic Policy (ITEP). (2023). Who Pays? A Distributional Analysis of the Tax Systems in All 50 States — Texas. https://itep.org/whopays/
Documents regressivity of Texas's current tax system and provides the distributional framework used to analyze TPTRP's income-quintile effects. Texas ranks as one of the most regressive state tax systems nationally — the TPTRP's TLES is designed to correct this structural bias.
C-7. Texas Municipal League. (2025). Municipal Revenue Overview FY2025. https://www.tml.org/
TML documentation of city revenue structures and property tax / sales tax distributions. Cross-reference for T3 city revenue figures in Section 2 and geographic distribution context.
C-8. Legislative Budget Board, State of Texas. (2024). Senate Finance Committee Testimony — Property Tax Replacement Analysis [September 2024]. https://www.lbb.state.tx.us/
LBB's ~22% estimate for full property tax replacement on the standard current base. Cited in Section 7 as one of the six foil rate estimates. The LBB has not yet analyzed the full TPTRP broad-base approach — a formal LBB fiscal note is the validation the TPTRP invites.
D-1. Texas Comptroller of Public Accounts. (2012). Internal Rate Analysis: Property Tax Replacement via Sales Tax [unpublished, cited in subsequent TTARA analyses]. Source cited in TTARA (2018) and LBB (2024) as origin of the ~23% estimate.
The original source of the "23% sales tax" claim. A technically accurate calculation on the 2012 narrow retail base of ~$700-750B. Never a permanent policy verdict; cited here as the chain-source for all subsequent high-rate estimates.
D-2. Craymer, D. (2018, June 14). You want to eliminate property taxes in Texas? Here's what it would take. Texas Tribune. https://www.texastribune.org/
TTARA president's 2018 op-ed extending the 2012 Comptroller analysis. Correctly notes that consumer goods expansion alone adds only ~$12B in base — accurate, but misses the B2B, insurance, banking, and real estate scope of the TPTRP's base expansion.
D-3. Canada Department of Finance. (2008). GST Rate Reduction: 7% to 5% Legislative History. https://www.canada.ca/en/department-finance.html
International comparator source. Canada's GST at its lowest (5% since 2008) still funds major central government functions. TPTRP at 3.25% is 35% below Canada's lowest-ever rate — the international comparator plausibility check in Section 8.
D-4. Australia Taxation Office. (2025). GST Overview. https://www.ato.gov.au/business/gst/
Australia's 10% GST funds a large welfare state with universal healthcare and public education. International comparator: TPTRP at 3.25% is 68% below Australia's rate for a considerably smaller government obligation relative to GDP.
D-5. New Zealand Inland Revenue Department. (2025). GST Overview. https://www.ird.govt.nz/gst
New Zealand's 15% GST is the highest-rate broad-base transaction tax among comparable economies. International comparator showing that even at 3.25%, TPTRP is far below peer GST rates despite funding all Texas government functions.
D-6. Texas A&M Real Estate Research Center (TRERC). (2025). Texas Commercial Real Estate Market Overview 2025. https://trerc.tamu.edu/
Source for commercial real estate transaction volume used in C2 component construction. TRERC provides authoritative commercial real estate transaction and value data for Texas markets.
D-7. South Dakota v. Wayfair, Inc., 585 U.S. 162 (2018). https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf
Supreme Court decision establishing the economic nexus standard for remote seller sales tax collection. Legal foundation for C5 cross-border/digital economy transactions being included in Texas's taxable base.
D-8. Texas Legislature Online — 89th Regular Session. (2025). HB 100 (Texas Property Tax Replacement Plan). https://capitol.texas.gov/
Legislative vehicle for the TPTRP. The TLES categories are defined in the bill language. Cited as the statutory source for the plan’s definitional framework referenced in Sections 4 and 5.
E-1. Texas Legislative Council. (2025). Drafting Manual for the 89th Texas Legislature. https://tlc.texas.gov/docs/drafting/drafting-manual.pdf
TLC's official drafting manual for the 89th Legislature. Legislative drafting standards applicable to the TPTRP constitutional amendment and implementing legislation.
E-2. Texas Legislative Council. (2025). Analyses of Proposed Constitutional Amendments: 89th Legislature 2025. https://tlc.texas.gov/
TLC's analytical summaries of all proposed constitutional amendments before the 89th Legislature, including those relevant to property tax abolition and replacement. Constitutional framework context for the TPTRP implementation path.
E-3. Texas Constitution, Article VIII — Taxation and Revenue. https://statutes.capitol.texas.gov/Docs/CN/htm/CN.8.htm
Constitutional authority for the Texas property tax system. The TPTRP requires amending Article VIII to make property taxes unconstitutional and to establish the broad-base transaction tax framework. Article VIII is the legal source for both the current system and its replacement.