Are Tax Reductions in the Future?

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!

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4 Responses to Are Tax Reductions in the Future?

  1. Jade Rivette says:

    The surplus was created by the reduction in expenditures from the firing of many teachers, firefighters, policemen, and city, county & state workers. Let’s put these people back to work if we’ve now found we can afford them. We need their valuable services. How about NOT cutting back the Medicaid program? How about giving school districts a little more money to educate our children? How original Mr. Perry’s idea is. Right out of the George W. Bush playbook, and how’s that working out for us? It’s a travesty to slash the state budget and then “discover” you didn’t need to in the first place.

  2. Gary R. Gardner, CPA says:

    Forget “refunding” of any surplus to the businesses! Invest in our failing school systems. There is a reason we say “Thank God for Mississippi!”. It is because we have this “me now” attitude in lieu of paying our fortunes forward.

  3. Bob Owen says:

    The likelihood of an entire franchise tax overhaul, however meritorius is slim this session. Right after the Supreme Court pronounced the margin tax constitutional, including that an income tax on parnerships is constitutional, there was some interest by a few legislators on going back to the “earned surplus” model. Those few legislators quickly found that they were indeed few.
    The original margin tax was crafted with the blessing of the major industry players in Texas. While it might be an overstatment to say those players like the margin tax, they do seem to prefer it to an income based tax. Without big business support, it is very difficult to pass tax overhaul in Texas.

  4. Brennan Pinkerton says:

    Forget the tweaking. Go back to a bottomline, net income number…er, excuse me “earned surplus”, with perhaps a few adds and subtracts for fed-state differences if you want, but leave the broadened base as we have it now under the Margin Tax – it was right to get rid of that entity type based exemption nonsense, get rid of the retail/wholesale favored rate nonsense, eliminate the nutty perversion of “passive” exemptions as defined under Margin Tax law – I have seen TFT returns for essentially one man entities with $$millions of cap gains on real estate = and thereby meeting the 90% “passive” threshold – and so they paid 0 TFT – if they had a few thousand dollars less cap gain in the mix they would have been under 90% and would have owed $100K plus, while small service biz xyz squeezes by employing 25 folks or more but has to pay $10K…make sense of that for me…what else…? Utterly ridiculous the way it is, and tweaking it is not the answer. Throw the whole thing out, revert to prior scheme but with broader base and fair rates for all.
    TSCPA was supposed to be helping guide legislation back in 2006 on coming up with a new fran tax…wow!

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