Abbott Asked To Determine If Business Tax Is An Unconstitutional Income Tax
By Vince Leibowitz on Apr 4, 2006 in Texas Public Policy & Taxation
The Houston Chronicle is reporting that Texas Attorney General Greg Abbott has been asked to review the Texas Tax Reform Commission’s new proposed business tax to determine if it violates the state’s constitutional prohibition on an income tax:
Perry’s chief of staff, Deirdre Delisi, asked Abbott last week to respond to the issue prior to the April 17 start of a special legislative session. A 1993 amendment to the Texas Constitution prohibits legislation creating a state personal income tax without approval by Texas voters.
The tax plan devised by the Texas Tax Reform Commission, a 24-member citizen panel appointed by Perry, would tax revenue from professional partnerships such as law firms and medical practices.
John Sharp, a former state comptroller who serves as chairman of the tax commission, told a Senate panel Monday that the business tax would not be an income tax because it is not based on net income. He said a company could lose money and still pay the tax.
At issue is the so-called “Bullock Amendment,” put forth by former Lt. Governor Bob Bullock in 1993, when he needed to reverse his 1991 stance supporting a state income tax.
The issue of how to tax professional partnerships is difficult because of the so-called Bullock amendment, named after former Lt. Gov. Bob Bullock.
The amendment requires voter approval for “a tax on the net incomes of natural persons, including a person’s share of partnership and unincorporated association income, and further stipulates that two-thirds of the revenue from an income tax must be used to lower property taxes and the remaining one-third must be dedicated to education.
In addition to Sharp saying the plan is OK, former Texas Supreme Court Justice Craig Enoch, a Republican who served on the high court until 2003, has also said the plan doesn’t constitute an income tax.
Comptroller Carole Keeton Strayhorn, herself running for Governor as an independent though she’s a Republican, has been asked by House Speaker Tom Craddick to analyze the tax proposal to estimate how much revenue it would generate as well.
[...] After the post I made a couple of days ago about AG Gregg Abbott being asked to review the Texas Tax Reform Commission’s proposals to ensure their constitutionality, I contacted Democratic AG candidate David Van Os and asked if he had anything to say on any of those topics. Here are his thoughts: “The Sharp-Perry plan is another band-aid for a system that needs a heart and lung transplant. Every few years, the Texas legislature adds some more taxes on working people and small business owners to try to shore up the budget without addressing fundamental problems. We the people of Texas have a Constitution that guarantees us an efficient system of free public schools so that we will live in an educated and enlightened society. The inequities, imbalances, and inefficiencies in the system need real solutions, not temporary rearrangements.” [...]