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Signed Into Law
Signed June 20, 2025Effective 2025-09-01
SB1405

Regular Session

Relating to increasing access to and reducing taxation of Internet services.

Government Affairs & Regulatory Compliance Analysis

SB1405: Government Affairs Overview

SB1405 fundamentally redefines "broadband service" in Texas to a 100/20 Mbps standard, effectively stripping "served" protections from providers offering slower speeds and opening their territories to subsidized competition. Additionally, the bill harmonizes state tax code with federal law by formally eliminating sales tax on internet access and creating a franchise tax deduction for broadband grants. This legislation primarily impacts ISPs, construction contractors, and entities receiving state broadband funding.

Sen. Robert Nichols·Senate Bill·Regular Session

Moderate
Low Cost
Effective:2025-09-01
Enforcing Agencies

Broadband Development Office (BDO) • Comptroller of Public Accounts

Business Impact

Who SB1405 Affects

This legislation has regulatory implications for the following Texas businesses and organizations:

Regulatory Priority: moderate

Notable regulatory updates (effective 2025-09-01). Consider how these changes may affect your operations.

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Technology

Affected business types:

  • Data centers
  • Technology companies
  • Software developers
  • Telecommunications providers
View all technology legislation

Key Operational Considerations

  • 1Grant Agreements: Expect strict "clawback" provisions in new state contracts. Review terms regarding "material misrepresentation" of capital expense usage.

Estimated Cost Impact

lowMinimal cost impact anticipated.

Enforcing Agencies

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SB1405
Moderate
Relating to increasing access to and reducing taxation of Internet services.
Moderate Compliance Urgency
Requires near-term attention
Cost Impact
Low
Effective
2025-09-01
Enforcing Agencies
BDOComptroller of Public Accounts
Primary Author: Sen. Robert Nichols
89th Texas Legislature
jdkey.com
01

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

  • Effective Date: September 1, 2025.
  • Compliance Deadline:
  • Billing Systems: Must reflect zero sales tax on internet access by September 1, 2025.
  • Franchise Tax: Revenue exclusions apply to reports originally due on or after January 1, 2026.
  • Agency Rulemaking: The Broadband Development Office (BDO) must update availability maps annually. Expect a "regulatory gray zone" regarding the definition of "reasonable effort" for property restoration until the Comptroller issues specific guidance or grant contract templates are updated.

Immediate Action Plan

  • Audit Billing Systems: Verify that "Internet Access Service" is removed from all taxable service logic by August 30, 2025.
  • Update GL Codes: Immediately tag all incoming broadband grant funds (federal and state) as "Exempt Revenue" for 2026 Franchise Tax planning.
  • Revise Vendor Contracts: Add mandatory property restoration and indemnification clauses to all construction contracts.
  • Map Review: Compare your current coverage against the 100/20 Mbps standard. If you are below this, prepare for subsidized overbuilds in your territory.
  • Establish Photo SOP: Mandate pre-and-post construction photography for every premise visit involving excavation.

Operational Changes Required

Contracts

  • Construction MSAs: You must amend Master Service Agreements with outside plant (OSP) contractors. Insert indemnification clauses specifically addressing the statutory requirement to make a "reasonable effort" to restore private property. Shift the liability for restoration failures to the subcontractor.
  • Grant Agreements: Expect strict "clawback" provisions in new state contracts. Review terms regarding "material misrepresentation" of capital expense usage.

Hiring/Training

  • Field Operations: Field crews and subcontractors require immediate training on property documentation. Implement a standard operating procedure (SOP) requiring photographic evidence of private property conditions *before* breaking ground and *after* restoration.
  • Finance/Accounting: Staff must be trained to segregate grant funds strictly for capital expenses, property acquisition, and backhaul. Commingling these funds with general OpEx creates a liability for grant revocation.

Reporting & Record-Keeping

  • Territory Defense: Maintain technical logs proving your network meets the new 100 Mbps download / 20 Mbps upload and <100ms latency standards. You will need this data to protest competitor grant applications within the strict 30-day window.
  • Tax Accounting: Create specific General Ledger (GL) codes for "Qualifying Broadband Grants." These must be tracked separately to ensure they are excluded from Total Revenue on the 2026 Franchise Tax Report.

Fees & Costs

  • Tax Savings: Elimination of sales tax on internet access (statutory cleanup).
  • Franchise Tax Reduction: Grant funds are no longer taxable revenue starting in the 2026 reporting year.
  • Administrative Cost: Moderate increase in OSP project management costs due to enhanced property restoration documentation requirements.

Strategic Ambiguities & Considerations

  • "Reasonable Effort" to Restore: The statute mandates a "reasonable effort" to restore property to pre-project condition but fails to define "reasonable." Until the BDO defines this via rule, businesses face litigation risk from property owners demanding upgrades (e.g., demanding sod where there was previously seed).
  • Material Misrepresentation: The threshold for revoking a grant based on misrepresentation is not defined. It is unclear if minor clerical errors in expense reporting could trigger a full funding clawback.

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JD Key Consulting specializes in Texas regulatory compliance strategy. Work directly with James Dickey—former Chairman of the Republican Party of Texas—to understand this bill's impact on your operations and develop an actionable compliance plan.

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Information presented is for general knowledge only and is provided without warranty, express or implied. Consult qualified government affairs professionals and legal counsel before making compliance decisions.

02

Legislative Timeline

This bill's path through the Texas Legislature

Filed
Feb 19, 2025
Passed Senate
Apr 15, 2025
Passed House
May 22, 2025
Signed
Jun 20, 2025
Effective
Sep 1, 2025
TopicsTaxationTaxation--generalTaxation--salesUtilitiesUtilities--telecommunicationsBroadband NetworksInternetBroadband Development OfficeComptroller of Public AccountsState FinancesState Finances--management & Control
03

Senate Authors

Sen. Robert NicholsRepublican · Primary Author
Coauthors (1)

House Sponsor

Rep. Trent AshbyRepublican · Primary Sponsor

Bill Text(with markup)

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

Related Legislation

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More from Sen. Robert Nichols

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Related by Topic

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Quick Reference

Frequently Asked Questions

Common questions about SB1405

Q

What does Texas SB1405 do?

SB1405 fundamentally redefines "broadband service" in Texas to a 100/20 Mbps standard, effectively stripping "served" protections from providers offering slower speeds and opening their territories to subsidized competition. Additionally, the bill harmonizes state tax code with federal law by formally eliminating sales tax on internet access and creating a franchise tax deduction for broadband grants. This legislation primarily impacts ISPs, construction contractors, and entities receiving state broadband funding.

Q

Who authored SB1405?

SB1405 was authored by Texas Senator Robert Nichols during the Regular Session.

Q

When was SB1405 signed into law?

SB1405 was signed into law by Governor Greg Abbott on June 20, 2025.

Q

Which agencies enforce SB1405?

SB1405 is enforced by Broadband Development Office (BDO) and Comptroller of Public Accounts.

Q

How significant are the changes in SB1405?

The regulatory priority for SB1405 is rated as "moderate". Businesses and organizations should review the legislation to understand potential impacts.

Q

What is the cost impact of SB1405?

The cost impact of SB1405 is estimated as "low". This may vary based on industry and implementation requirements.

Q

What topics does SB1405 address?

SB1405 addresses topics including taxation, taxation--general, taxation--sales, utilities and utilities--telecommunications.

Q

What are the key dates for SB1405?

Key dates for SB1405: Effective date is 2025-09-01. Rulemaking: Update and publish the statewide broadband availability map (unless adopting FCC maps). (Annually); Publish statistics on the pole replacement program (applications, reimbursements, and available funds). (November 1 (Annually)). Consult with legal counsel regarding applicability.

Q

What are the penalties under SB1405?

SB1405 establishes the following penalties: Administrative (Revocation/Reduction of Award) penalty of Forfeiture or reduction of grant funds for Material misrepresentation regarding compliance with capital expense restrictions or property restoration requirements.. Consult with legal counsel for specific applicability to your situation.

Q

Which Texas businesses are affected by SB1405?

SB1405 primarily affects utility companies and energy providers, telecommunications providers. These businesses should review the legislation with their legal and compliance teams to understand potential impacts.

Need Strategic Guidance on This Legislation?

JD Key Consulting is an Austin, Texas-based government affairs firm led by James Dickey, former Chairman of the Republican Party of Texas. We specialize in Texas regulatory compliance and legislative strategy for data centers, energy, banking, and manufacturing.

Legislative data provided by LegiScanLast updated: January 25, 2026