EL PASO, TEXAS (KFOX14/CBS4) — A new Texas law set to take effect January 1st is poised to significantly alter the tax landscape for small businesses in El Paso, offering them substantial relief while raising concerns about potential revenue shortfalls for local governments.

Under House Bill 9, businesses will be exempt from paying taxes on up to $125,000 worth of inventory, covering city, county, and school district taxes.

This exemption is seen as a potential game changer for micro and small businesses.

“It’s huge because now instead of having that stress of having to pay those taxes on this inventory, we can just be stress free on that and use that money for better wages for employees, hiring more employees if we need a bigger inventory,” said Sarah Miller, owner of Margin Notes Book Bar during an interview with KFOX14/CBS4 in November.

Julia Spencer reports on El Paso businesses gain inventory tax break, local governments weigh revenue concerns (Credit: KFOX14)

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However, the tax relief comes with potential consequences.

Roberto Ransom, El Paso County Economic Development Director, acknowledged the impact on county revenue, stating, “Yes, it’s going to have impact on the county, because you just mentioned the collection of taxes is going to be less.”

Despite this, Ransom supports the law, emphasizing its goal of long-term growth.

“The purpose is basically to allow to propel and accelerate the business operations from micro and small businesses that should translate into more working capital, more room for workforce development and resulting in increased sales tax,” he said.

However, local governments may face tough choices to compensate for the lost revenue.

Ransom noted, “One is to just keep the current, to absorb the exemption, and the other one is to adjust the tax rate.”

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He stressed that while adjustments could affect other taxpayers, the potential for increased sales tax and working capital could benefit small businesses.

Meantime, the city of El Paso is still evaluating the law’s impact.

In a statement, city leaders said,

We are still analyzing the full impact and will have clearer numbers once we receive certified values from the appraisal district later this year. As we build the next budget, we will look first at efficiencies and reprioritizing within existing resources, and any options beyond that would be considered publicly by City Council through the normal budget and tax rate process. Our goal is to protect essential services while avoiding an undue shift of the tax burden onto homeowners and the smallest businesses, which was one of the concerns the City raised when it opposed House Bill 9 during the legislative session.

City and county officials expect to have a clearer understanding of the law’s impact once certified property values are available later this year, with budget decisions not reviewed until the summer.

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