Why is there a new business tax in Texas?
There are several reasons for the creation of the new tax. First, the politicians need to continue to tell the story that Texas does not have a state income tax (for individuals or businesses). This new tax allows them to continue to say this (even though you will notice that the tax is based on – you guessed it – income). Second, the state has been under a court order for some time to make corrections to the way public education in Texas was funded. The solution that has been enacted is to rely less on property taxes and more on general state revenues. The legislature passed bills that cut property taxes and then replaced the existing business franchise tax to make up the shortfall. Finally, the franchise tax sorely needed to be reworked anyway. It was ineffective and filled with loopholes. The result was that many businesses paid no taxes at all under the franchise tax provisions. The Margin Tax addresses this by eliminating some of the loopholes. (Click here to return to top of page
The Texas Supreme Court found that the state’s method of financing public schools violated the constitutional prohibition against a statewide property tax. After several attempts by Governor Rick Perry and the Legislature to reform the Texas tax system, the governor appointed the Texas Tax Reform Commission to recommend reforms to the Texas tax structure. The commission, chaired by John Sharp, issued a report on March 29, 2006, that proposed substantial modifications to the Texas franchise tax. The actual law enacted closely followed the recommendations in the report. The margin tax was to close the tax shortfall created by reduced property taxes. When does the new tax go into effect? For calendar year filers, the new tax will be based on its taxable margin generated in 2007. The first report would be due May 15, 2008. For fiscal year filers, the liability will be determined based upon whether its fiscal year end falls before or after May 31, 2007. Fiscal year taxpayers, with a tax yea
