Peeved Over The Franchise Tax

Not surprisingly, a lot of Texas businesses are peeved over the new franchise tax (or, rather the changes to the franchise tax) passed by the special session of the Texas Legislature back in 2006:

Hundreds of thousands of Texas businesses, fresh from paying their federal income taxes earlier this month, are now busy calculating what they owe the state under its new business tax – and many don’t like what the numbers show.

The new tax – approved by the Legislature in a special session in 2006 as part of a massive tax overhaul package – debuts this spring with businesses large and small expected to navigate their way through the complex requirements and file their returns by June 16.

Among the disenchanted taxpayers is Dallas businessman Andy Ellard, owner of a machine shop with 28 employees. Mr. Ellard said the size of his tax bill doesn’t match up with the pledges of state lawmakers. “We were promised a number of things, and none of them happened,” said Mr. Ellard. He estimated that he would pay about $8,900 under the new business franchise tax, more than double the $4,200 he paid last year.

“There are going to be some mad business owners [on June 16], and I think you’re going to see some people get voted out of office because of this,” he said.

Ya’ think? The fact of the matter is that the 2006 special session wasn’t conducted for the reasons that most Texans thought it was: more money for public schools. Yes, the Legislature was up against a court-mandated deadline to “equalize” funding for public schools and end what the court declared was essentially an unconstitutional tax, but it did so not with more money for public schools, but with a tax shift of gigantic proportions–all in the name of the bogus concept of “property tax relief.” To wit:

Even with the $1,700 he saved in property taxes – a result of the tax overhaul law – his net state tax increase is still about $3,000.

“We were told there would be no increase if we paid the [old] franchise tax last year,” he said, referring to the promise of lawmakers not to penalize businesses who were paying the franchise tax while many others skirted the tax. “I haven’t talked to a single businessman who isn’t looking at a tax increase.”

What exactly can the Legislature (or at least those who voted for the plan) say here? “Oops, our bad?”

This simply proves the point that the idea of property tax “relief” is a truly bogus concept without a complete re-write of Texas’ tax system. Clearly, just tweaking the franchise tax (incidentally, I notice that, these days, nobody is talking about all of those “loopholes” that were closed in the franchise tax rewrite) doesn’t do anything to equalize the tax burden.

While I do believe that big businesses (ie, banks, Wal-Mart, TXU) should be responsible for more taxes than the average man or woman ‘on the street’ by nature of their profits, the “wash” that small businesses were promised, i.e., “you won’t actually pay more taxes by the time you see your property tax relief and your new business tax and, indeed, may actually pay less taxes” seems to have not materialized.

Until we have truly meaningful tax reform in Texas, there will always be such difficulties.

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