TLES Cost of Living Tax Exemption Act — Will Campbell For Texas

By: ___________________

H.B. No. _____

A BILL TO BE ENTITLED AN ACT

relating to the designation of essential household living expenditures as exempt transactions under the Texas transaction tax established by constitutional amendment; providing a mechanism for the Comptroller of Public Accounts to administer and enforce those exemptions; establishing citizen enforcement standing for wrongful exemption claims and wrongful tax collection.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

Sec. 1. FINDINGS AND PURPOSE.

(a)The Legislature finds that:

(1)the Texas Constitution authorizes the Legislature to designate as exempt from the unified transaction tax only those categories of transactions that directly affect the cost of living of individual Texas citizens and their immediate families;

(2)the categories designated in this Act represent the Legislature’s determination, at the time of enactment, of the essential household expenditure categories that meet the constitutional Cost of Living Standard, and the Legislature retains full authority to add or remove categories by statute at any time, subject to that Standard;

(3)these exemptions must apply uniformly to all individual Texas citizens and their families without distinction as to income, wealth, or other personal characteristics; and

(4)clear, constitutionally grounded, and citizen-enforceable definitions are necessary to prevent the corruption and special-interest exemption pipeline that has characterized prior Texas sales tax law, and citizens have standing under this Act to challenge in court any exemption added by the Legislature that does not meet the constitutional Cost of Living Standard.

(b)The purpose of this Act is to establish the Texas Living Exemption Set — the statutory designation of the transaction categories that the Legislature votes to exempt from the unified transaction tax that meet the constitutional Cost of Living Standard.

Sec. 2. DEFINITIONS.

In this Act:

(1)“Comptroller” means the Comptroller of Public Accounts of the State of Texas.

(2)“Cost of Living Standard” means the constitutional standard under which an exemption may be created only for a transaction category that directly affects the cost of living of individual Texas citizens and their immediate families, applied uniformly to all citizens without distinction.

(3)“TLES” means the Texas Living Exemption Set established by this Act, as may be amended from time to time by the Legislature.

(4)“TPTRP tax” means the unified transaction tax imposed under the constitutional amendment implementing the Texas Property Tax Replacement Plan.

(5)“Primary residence” means the property that the taxpayer and, if applicable, the taxpayer’s immediate family actually occupy as their principal place of residence, determined at the time of a qualifying transaction by the taxpayer’s intent and subsequent conduct.

(6)“Immediate family” means the taxpayer’s spouse, children, stepchildren, and any other person for whom the taxpayer is the legal guardian or primary financial provider.

(7)“Personal policyholder” means a natural person who holds an insurance policy primarily for the protection of the person’s immediate family, as distinguished from a business entity that holds insurance for commercial purposes.

(8)“Sales tax permit” means the permit required under Section 151.203, Tax Code, as amended to encompass the TPTRP tax, which serves as the mechanism for TLES certification.

(9)“Qualifying occupancy period” means the period of not less than six continuous years during which a natural person and, if applicable, the person’s immediate family actually occupied a property as their primary residence prior to a subsequent purchase of a new primary residence.

Sec. 3. GENERAL RULE.

(a)The categories of transactions constituting the Texas Living Exemption Set are exempt from the TPTRP tax when the transaction is made by or on behalf of an individual Texas citizen or family for personal, household, or family use.

(b)A transaction that would otherwise qualify under a TLES category does not qualify if the primary purpose or primary economic effect of the transaction is commercial, business-to-business, income-producing, or profit-oriented.

(c)Each TLES category must be administered uniformly. No exemption within the TLES applies to fewer than all individual Texas citizens and their families.

Sec. 4. THE TEXAS LIVING EXEMPTION SET.

The following categories are the Texas Living Exemption Set as enacted by this Legislature. The Legislature may by statute add or remove categories subject to the constitutional Cost of Living Standard and Section 7 of this Act:

TLES-1: Groceries (Food at Home)

(a)Exempt: Purchases of food for home preparation at retail grocery stores, supermarkets, farmers markets, and similar food retailers, including all items qualifying as “food for human consumption” under Section 151.314, Tax Code.

(b)Not exempt: Restaurant meals, prepared food purchased for on-premises consumption, and alcoholic beverages.

TLES-2: Residential Rent

(a)Exempt: Monthly rent payments made by Texas tenants for a primary residential dwelling, including apartments, houses, duplexes, and mobile homes.

(b)Not exempt: Short-term rentals, vacation rentals, commercial leases, and residential rentals of property that is not the tenant’s primary residence.

TLES-3: Residential Utilities

(a)Exempt: Payments for residential electricity service, residential natural gas service for home heating and cooking, residential water and wastewater service, and municipal or contracted residential solid-waste collection and recycling services.

(b)Not exempt: Commercial utility consumption and non-residential solid-waste or recycling contracts.

TLES-4: Prescription Drugs

(a)Exempt: All purchases of prescription medications dispensed pursuant to a valid prescription; prescription medical devices; and home infusion therapy services.

(b)Not exempt: Over-the-counter medications that do not require a prescription are non-prescription retail goods and are part of the general taxable base.

TLES-5: Medical Care

(a)Exempt: All payments for licensed medical and dental services provided directly to individual patients, including physician visits, hospital care, outpatient services, laboratory and imaging, dental care, vision care, mental health services, physical therapy, home health, hospice, palliative care, skilled nursing facility services, and licensed personal-care attendant services. Health and dental insurance premiums paid by individual policyholders or family units are included within this exemption.

(b)Not exempt: Cosmetic procedures without medical necessity, elective spa or wellness services, veterinary services for non-service animals, and group employer premium payments, which are taxable business-to-business transactions.

TLES-6: Education

(a)Exempt: Education services that result in a credential, certification, course-completion record, or license, when purchased by or on behalf of an individual Texas resident for the person’s own education or career development, including private K–12 tuition, college and university tuition, vocational and trade school programs, professional certification programs, licensing exam fees, workforce training resulting in a completion certificate, standardized test preparation programs, and online courses that issue a completion record.

(b)Not exempt: Hobby and recreational classes that produce no credential, license, or completion record. Corporate training purchased by an employer for employees is a business-to-business transaction and is taxable.

(c)Mixed-transaction reporting: Education providers that offer both exempt and non-exempt programs shall identify the exempt and non-exempt portions on their sales tax permit application. Exemption certification at the transaction level is governed by Section 5 of this Act.

TLES-7: Gasoline (Consumer Personal Use)

(a)Exempt: Consumer purchases of gasoline and diesel fuel at retail pumps for personal vehicle use, including commuting and personal transportation.

(b)Not exempt: Commercial fleet fuel purchases, agricultural fuel, and aviation fuel.

TLES-8: Childcare and Early Childhood Education

(a)Exempt: All payments for licensed childcare facilities, including daycare centers, licensed home-based childcare providers, pre-kindergarten programs, before- and after-school care, and summer care programs operated by licensed childcare providers.

(b)Not exempt: Adult eldercare services and tutoring services beyond the scope of licensed childcare.

TLES-9: Primary Residence Home Purchase

(a)Exempt: The purchase price of any home that the buyer designates and actually occupies as the buyer’s primary residence. This is a primary residence exemption, not a first-home exemption. The exemption applies to:

(1)first-time home purchases;

(2)move-up or lateral purchases where the buyer intends to occupy the new property as a primary residence; and

(3)relocation purchases where a buyer acquires a new primary home in advance of selling or vacating the current primary residence — the new purchase is exempt because it will serve as the buyer’s primary residence, without regard to any transitional overlap period.

(b)Property retention — short qualifying occupancy period (fewer than six years): If a buyer has occupied the prior primary residence for fewer than six continuous years at the time of purchasing a new primary residence, the prior property must be actively listed for sale and not retained for rental or investment purposes for the TLES-9 exemption on the new purchase to apply. During any period in which the prior property is listed for sale and a buyer has not yet been found, the owner may rent the prior property on a month-to-month or short-term basis for a period not to exceed two years from the date of the new primary-residence purchase. If the prior property has not been sold within two years and is not actively listed for sale, the TLES-9 exemption on the new purchase is forfeited and the tax becomes immediately due, together with applicable penalties and interest.

(c)Property retention — qualifying occupancy period of six or more years: A buyer who has occupied the prior primary residence as their primary residence for not less than six continuous years prior to purchasing a new primary home may retain the prior property for any lawful purpose, including making it available for rent or lease, without disqualifying the TLES-9 exemption on the new purchase. This provision recognizes that long-term residential equity is a foundation of family financial stability and generational wealth in Texas, and the Legislature expressly encourages that outcome.

(d)Not exempt — investment purchases: The purchase of a residential property where the buyer’s intent at closing is rental income or capital appreciation, and the buyer does not intend to occupy the property as a primary residence for any period of time, does not qualify for the TLES-9 exemption. The governing test is the buyer’s intent at the time of closing, evidenced by the Primary Residence Certificate required under Section 6 of this Act.

(e)Citizen standing: Any Texas citizen has standing to bring a civil enforcement action against a buyer who fraudulently obtained a TLES-9 exemption. A prevailing plaintiff is entitled to require the buyer to pay all taxes due on the original purchase, plus penalties and interest, and is entitled to recover reasonable attorney’s fees and court costs from the defendant. A defendant who prevails against a frivolous or unfounded action is entitled to recover reasonable attorney’s fees and court costs from the plaintiff.

(f)Administration: TLES-9 is administered at closing through the Primary Residence Certificate established in Section 6 of this Act.

TLES-10: Residential Property Insurance

(a)Exempt: Premiums on homeowners insurance, renters insurance, flood insurance, and condominium or cooperative owners’ insurance — all for primary residential use. The 1.75 percent Texas Insurance Premiums Tax under Chapters 221–225, Tax Code, is abolished under the TPTRP; residential property insurance premiums are TLES-10 exempt, resulting in an effective state rate of zero on those premiums.

(b)Not exempt: Commercial property insurance, landlord policies on investment or rental properties, and insurance on vacation homes or second homes.

TLES-11: Personal Auto Insurance

(a)Exempt: Personal auto insurance premiums on personal, non-commercial vehicles, including liability, comprehensive, collision, uninsured motorist, and personal injury protection coverages required under Section 601.072, Transportation Code. The 1.75 percent Texas Insurance Premiums Tax under Chapters 221–225, Tax Code, is abolished under the TPTRP; personal auto insurance premiums are TLES-11 exempt, resulting in an effective state rate of zero on those premiums.

(b)Not exempt: Commercial fleet insurance, trucking insurance, and specialty vehicle insurance.

TLES-12: Individual Life Insurance

(a)Exempt: Premiums paid on personal life insurance policies held by a natural person for the benefit of the person’s immediate family, including individual term life, whole life, universal life, indexed universal life, and indexed whole life policies. The exemption covers the full premium, including any cash-accumulation component.

(b)Not exempt — fully taxable: Commercial life insurance of any kind, including corporate-owned life insurance (COLI), key-man policies, and similar business instruments. These are selective business expenses purchased by businesses for business financial management — not transactions necessary for any individual Texan to live in Texas. Commercial life insurance products are taxable under the TPTRP as business expenditures, with no exemption or definition-filter carve-out of any kind.

(c)Governing test: If the policyholder is a natural person and the beneficiaries are that person’s immediate family, the policy is personal and TLES-12 applies. If the policyholder is a business entity and the policy serves a business purpose, it is a commercial transaction and is fully taxable.

Sec. 5. COMPTROLLER ADMINISTRATION AND PERMIT MECHANISM.

(a)The Comptroller shall administer the exemptions established by Section 4 of this Act through the existing Texas sales tax permit system, as amended to encompass the TPTRP tax. Every business operating in Texas is required by law to hold a sales tax permit. The permit application process is the universal mechanism through which businesses certify their TLES status and governs all TLES categories equally. This is not a new administrative concept — it mirrors the multi-category reporting already required under current Texas sales tax law for businesses that sell a mix of taxable and exempt goods.

(b)The sales tax permit application shall include a designated section listing all currently enacted TLES-eligible transaction categories. Each permit applicant shall select, under oath, which of the applicant’s products or services fall within a TLES-exempt category, certifying that those transaction types will not have the TPTRP tax collected at the point of sale. The permit, once issued, binds the holder to those certifications. A permit holder is not required to apply for a new or amended permit solely because the Legislature has added or removed a TLES category; however:

(1)When the Legislature removes a TLES category, the Comptroller shall promptly notify all affected sales tax permit holders in writing of the removal and the effective date on which the previously exempt transactions become taxable. Permit holders must begin collecting the TPTRP tax on those transactions on the effective date of the change, regardless of whether they have received updated permit documentation.

(2)When the Legislature adds a TLES category, a permit holder whose transactions qualify under the new exemption may submit an amended permit application to certify those transactions as TLES-exempt. Until an amended permit is issued, the permit holder must continue collecting the TPTRP tax on those transactions. No permit holder is required to claim a new exemption; the decision to apply for the exemption is voluntary.

(c)Enforcement. TLES exemption compliance is enforceable through four independent channels:

(1)Comptroller audit authority: The Comptroller has audit authority over every sales tax permit holder. A business found to be exempting non-qualifying transactions is liable for all back taxes, penalties, and interest. A business found to have collected the TPTRP tax on a transaction that qualifies under a TLES category is liable for a full refund of all amounts wrongfully collected, plus interest.

(2)District attorney and attorney general authority: District attorneys and the Office of the Attorney General of Texas each retain independent authority to pursue criminal prosecution and civil back-tax collection from businesses found to have fraudulently claimed TLES status or wrongfully collected the TPTRP tax on an exempt transaction. The attorney general may bring suit on behalf of the state; a district attorney may bring suit on behalf of the state within the district attorney’s jurisdiction. These authorities are concurrent and non-exclusive.

(3)Citizen standing — wrongful exemption claim: Any Texas citizen has standing to bring a civil enforcement action against a business that improperly claims a TLES exemption on a non-qualifying transaction. A prevailing plaintiff is entitled to reasonable attorney’s fees and court costs. A defendant who prevails against a frivolous or unfounded action is entitled to recover reasonable attorney’s fees and court costs from the plaintiff.

(4)Citizen standing — wrongful tax collection: Any Texas citizen who has been charged the TPTRP tax on a transaction that qualifies under a TLES category has standing to bring a civil enforcement action against the business that collected the tax. A prevailing plaintiff is entitled to a full refund of the wrongfully collected tax, plus reasonable attorney’s fees and court costs. A defendant who prevails against a frivolous or unfounded action is entitled to recover reasonable attorney’s fees and court costs from the plaintiff.

(d)Mixed-transaction businesses: A business that sells both TLES-exempt and non-exempt products or services shall collect the TPTRP tax on non-exempt transactions and shall not collect it on TLES-certified transactions, tracking at the transaction level.

(e)The Comptroller shall adopt rules necessary to implement this section, including rules defining the categories in Section 4 with sufficient precision for permit certification purposes, and rules establishing the notification procedures required under Subsection (b)(1).

Sec. 6. PRIMARY RESIDENCE CERTIFICATE.

(a)The Comptroller shall establish and administer a Primary Residence Certificate (the “Certificate”) to be used in connection with TLES-9 exemptions under Section 4 of this Act. The Certificate shall be a plain-language document that, in addition to the attestations required under Subsection (b), sets forth the full text of the exemption conditions under Section 4(b), (c), and (d) of the TLES-9 provision so that all parties to the transaction may read, understand, and attest to the applicable rules at closing. The purpose of printing those conditions on the Certificate is to ensure that every buyer, seller, and closing agent has actual notice of the law at the moment of the transaction, further supporting any subsequent enforcement action should the buyer falsely attest to compliance.

(b)At closing, a buyer claiming a TLES-9 exemption shall sign and file the Certificate under penalty of perjury, attesting that:

(1)the property being purchased will serve as the buyer’s principal place of residence;

(2)the buyer’s intent at the time of closing is primary occupancy and not the generation of rental income or capital appreciation as the primary purpose;

(3)if the buyer is retaining a prior primary residence and has not yet completed a qualifying occupancy period of six continuous years in that prior property, the buyer understands and agrees that: (A) the prior property must be actively listed for sale; (B) the buyer may rent the prior property on a transitional basis for a period not to exceed two years while seeking a buyer; and (C) if the prior property is not sold within two years and is not actively listed for sale, the TLES-9 exemption on the current purchase is forfeited and all taxes, penalties, and interest become immediately due; and

(4)if the buyer has completed a qualifying occupancy period of six or more continuous years in a prior primary residence, the buyer understands that retention of the prior property for any lawful purpose, including rental, does not disqualify this exemption.

(c)The Certificate shall be filed with the deed and becomes part of the public property record, and is publicly accessible to any Texas citizen.

(d)A buyer who obtains the TLES-9 exemption through a fraudulent Certificate is liable for all taxes due on the original purchase, plus penalties and interest, and may be subject to criminal prosecution for filing a false sworn instrument under applicable Texas law.

(e)Any Texas citizen has standing to bring a civil enforcement action against a buyer upon discovering a violation of the conditions attested to in the Certificate. A prevailing plaintiff is entitled to require the buyer to pay all taxes, penalties, and interest due, and is entitled to recover reasonable attorney’s fees and court costs. A defendant who prevails against a frivolous or unfounded action is entitled to recover reasonable attorney’s fees and court costs from the plaintiff.

Sec. 7. LEGISLATIVE MODIFICATION OF THE TLES.

(a)The Legislature may, by statute, add or remove categories from the Texas Living Exemption Set at any time. No additional legal requirement beyond enactment by the Legislature is required to remove a category from the TLES.

(b)The Legislature may add a category to the TLES only if the category satisfies the constitutional Cost of Living Standard. A category that does not directly affect the cost of living of individual Texas citizens and their immediate families, or that does not apply uniformly to all such citizens, may not be added.

(c)No entity below the Legislature has authority to modify, expand, or restrict the TLES.

(d)Any Texas citizen has standing to bring a civil action challenging a legislative addition to the TLES on the ground that the added category fails to satisfy the constitutional Cost of Living Standard. A prevailing plaintiff is entitled to have the exemption invalidated and to recover reasonable attorney’s fees and court costs. A defendant who prevails against a frivolous or unfounded action is entitled to recover reasonable attorney’s fees and court costs from the plaintiff. Citizens do not have standing under this Act to challenge the removal of a category from the TLES; that remedy lies with the electorate through the selection of representatives.

Sec. 8. RELATIONSHIP TO OTHER TPTRP IMPLEMENTING LEGISLATION.

This Act is intended to operate in conjunction with: (1) the constitutional amendment implementing the Texas Property Tax Replacement Plan; (2) the Act establishing the TPTRP unified transaction tax; and (3) any other TPTRP implementing legislation. If a conflict exists between this Act and another TPTRP implementing Act, the provision more specifically applicable to the TLES governs.

Sec. 9. TRANSITION.

This Act applies to all TPTRP tax transactions occurring on or after the effective date of this Act. Any transaction occurring before the effective date is governed by the law in effect on the date of that transaction, and the former law is continued in effect for that purpose.

Sec. 10. SEVERABILITY.

If any provision of this Act or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of this Act that can be given effect without the invalid provision or application, and to this end the provisions of this Act are declared to be severable.

Sec. 11. EFFECTIVE DATE.

This Act takes effect on the same date that the constitutional amendment implementing the Texas Property Tax Replacement Plan takes effect. If that amendment does not take effect, this Act has no effect.

AN ACT RELATING TO THE TEXAS LIVING EXEMPTION SET