In Gov. Perry’s remarks on the opening day of the session and in his State of the State address on Tuesday he suggested tax reductions were appropriate to return the excess revenues collected over the state’s budget expenditures. In the latest address he suggested returning $1.8 billion to taxpayers. He suggested that taxpayers go to a website he has created to opine as to which taxes should be reduced. The franchise tax (margin tax) is front and center among the considerations and the Texas Association of Business had made some specific tax reduction recommendations, most of which are related to the franchise tax.
Others suggest that there is no surplus in the state coffers, pointing to the need to restore education funding cuts, potential education funding required because of the school finance lawsuits underway, requirements to fund Medicaid for this year and the Medicaid enrollment growth anticipated over the next two years, not to mention funding needs for roads and water. Some argue that all of these needs overshadow any temporary over-collection of state revenues.
This environment will likely allow legislators to at least consider modifications to the franchise tax this session. Last session virtually all franchise tax legislation was DOA in the House Ways and Means committee; it appears that will not be the case this session. Will they do some broad strokes like making the $1 million revnue floor permanent or actually lowering the tax rate; or will they tweak the law to make it more understandable and consistent? They might look at the definition of cost of goods sold or consider allowing the deduction of payments to independent contractors as compensation. If they are open to suggestions, TSCPA has a list that includes changes in cost of goods sold, flow-through revenue exemptions and some changes that are specific to partnership taxation.
At least they are talking about franchise tax changes. We can hope for the best!