Texas Association of Business

Over the past five years, Texas has overcome the challenge of turning hard times into a thriving economy. The $10 billion shortfall that threatened the state in 2003 is today a memory. Before the 2009 session even begins, Texas has $3 billion held aside for property tax relief, with an additional $7 billion in reserve for the appropriations process. Taxpayers have leaders like Governor Rick Perry, Lieutenant Governor David Dewhurst, and House Speaker Tom Craddick to thank. However, the battle for tax fairness is far from over

The state comptroller began implementing the revised margin, or franchise, tax in May 2008. With it, many business owners felt a tight squeeze on their finances. Though the franchise tax was the best option at the time, we can make modifications this session that will make the new system more fair for businesses of all sizes.

One modification would reinstate the research and development (R&D) tax credit incentive. The credit was an asset to the state because it attracted new companies to Texas and increased the capability of our business community to accelerate advancements in science and technology. The R&D tax credit was inadvertently abandoned with changes to the tax system in 2006, and TAB believes its return would be a benefit to all Texans.

Another margin tax modification involves companies that work with independent contractors. A contract worker provides a service to businesses, which is a non-payroll expense. As such, compensation paid to any contract worker should not be included as part of a company’s taxable margin. TAB supports alterations to the tax system that allow a business to subtract any contract labor from their total tax calculations.

TAB supports the following legislative priorities:

Casino proceeds to reduce franchise (margin) tax. Support using proceeds from casino gambling to reduce the margin tax (if the legislature legalizes casino gambling).

Equity. Support legislative measures to equitably distribute the burden of business sector taxes among all businesses, including service and manufacturing. Also, support legislation ensuring that homeowners and businesses share support for public education.

Fairness. Support the following Council on State Taxation taxpayer fairness proposals:

• Provide taxpayers equal interest rates on overpayments and underpayments;
• Provide for a 90-day protest period for taxpayers;
• Allow taxpayers an automatic filing extension with a federal extension; and
• Eliminate pay-to-play that currently requires Texas taxpayers to prepay tax or post a bond to obtain access to the trial court level.

Federal Funding. Support state policies and programs that maximize the receipt and use of federal matching and other funds for state purposes.

Financial soundness for state disaster preparedness.  Support improvements to the State General Fund to protect the state from significant losses in the event of a major hurricane to provide a more stable, well-protected coastal business environment, planning for quicker financial recovery, and avoiding increased business taxes in the event of a loss to the state’s general fund. 

Fiscal policy. Support requiring government at every level to practice fiscal responsibility. State and local spending controls are desirable that restrict budget growth beyond population and inflation indices.

Franchise (margin) tax. Support a graduated approach to the franchise (margin) tax for businesses that have sales less than $1 million.

Franchise (margin) tax—Business losses. Support authorizing a business’s losses on the franchise (margin) tax to be carried forward for up to 10 years.

Franchise (margin) tax—Exemption of flow-through funds. Support an exemption from the franchise (margin) tax of all flow-through funds that are mandated by contract to be distributed to other entities.

Franchise (margin) tax—Rebating excess revenue. Support rebating to taxpayers any excess revenue collected from the franchise (margin) tax.

Franchise (margin) tax—Research and development tax credit. . Support reinstating the research and development tax credit (provided under the previous franchise tax) and allowing it to be carried forward.

Franchise (margin) tax—Subtracting compensation paid to independent contractors. Support allowing businesses that elect to subtract compensation in computing their taxable margin to include wages and cash compensation paid to independent contractors if the total revenue of that business is below $2 million.

Gross Receipts User Fees. Oppose any attempt to retroactively or prospectively impose a percentage of gross receipts use fee or street crossing surtaxes on the transmission of natural gas, crude oil petroleum products, petrochemicals and other goods, through pipelines.

Gross receipts tax. Oppose the imposition of a gross receipts tax in Texas.

Incentives. Support government tax policy that is effective in increasing investment to create new jobs and expand economic activity.  This would include specific exemptions, like those for manufacturing use, construction and electricity use, as well as, reasonable abatements, enterprise funds, and reinvestment zones.

Inventory tax. Support elimination or reduction of local inventory taxes. Texas is one of only six states that permit the levy of a property tax on inventories. This places the state at a severe economic disadvantage.

Local Option sales tax. Oppose any additional local option sales tax increases above the current 2 per cent cap.

Location of payor. Oppose any component of a business or franchise tax that penalizes those located in Texas (location of payor).

Mandates. Oppose unfunded government mandates which shift the cost of financing programs to either the private sector or other levels of government.

Privatization. Encourage privatization efforts in government for increased efficiency and to reduce government spending.

Real estate transactions. Oppose mandatory price disclosure on commercial real estate transactions.

Regulatory Policy. Support legislative efforts to maintain a regulatory climate that does not impose hidden taxes on employers through excessive fees and fines and reduces excessive regulations to promote, rather than impede, economic growth and job creation.

Relocation of facilities in the Right of Way (ROW).  Support a return to previous law where a governmental entity mandating a company to move facilities located within the ROW paid for that relocation.

Research and Development Tax Incentive. Support the continued expansion of tax incentives designed to aid our state’s research and development industries. Expansion of the Research and Development Tax Credit program would be one way to do this.

Right-of-Way Fees.  Support legislation to promote consistency among municipalities in right-of-way fees and right of way crossing fees assessed telecommunications providers, electric utilities and pipeline companies with facilities in city rights of way. The legislation would limit such fees to city cost of administration and maintenance of the rights of way, and require that such fees be assessed in a competitively neutral manner.

Sales tax--Exemption for research & development. Support a sales tax exemption for the cost of material and equipment purchased for the purpose of research and development.

Small Business Tax Relief. Maintain franchise (margin) tax relief for small business.

Split Roll.  Oppose any plan that splits the property tax rolls either by rate or by making one a state-wide tax. Oppose any tax plan or component that allows the state to treat businesses differently from homeowners.

State Budget. Continue to support fiscal restraint in state spending. TAB will continue to seek savings by focusing on increased efficiency in the use of state resources while simultaneously urging a reduction in the state’s tax receipts.

State spending on Medicaid and CHIP. Support legislation that promotes budget certainty and budget savings at the state level.  Seek federal flexibility to maintain control of state spending in Medicaid and CHIP. 

State tax system. Support a balanced state tax system that encourages the savings and investment necessary for the creation of jobs and that does not place a disproportionate share of the tax burden on business. Any revision in the business tax structure should reduce the percentage of state and local taxes paid by business or be revenue neutral and also reduce the administrative burden.

Tax equity.  Support legislation that promotes equity in the taxing of insurers, recognizing that premium taxes result in higher costs for consumers.

Tax Exemption For Pollution Control Equipment. Oppose attempts to repeal or weaken the property tax exemption for pollution control equipment.

Video Lottery Terminals (VLTs).  Support legislation to allow the voters to decide whether to permit the installation of interactive video lottery machines with the funding to be dedicated to schools.

Windfall profits tax.  Oppose efforts to impose “windfall profits taxes” or to penalize companies for substantial and sudden profits.