New tax on businesses goes into effect

June 16, 2008 2:24:27 PM PDT
A new tax on Texas businesses took effect Monday after a one-month delay.The tax was approved by the Legislature in 2006 as part of an effort to overhaul the funding of public education in Texas, which has relied heavily on property taxes.

Small-business groups and some politicians have renewed complaints against the gross-reciepts or franchise tax, and lawmakers may look at the issue again next year.

The tax is set at 0.5 percent of gross receipts for retailers and wholesalers and 1 percent for other businesses, with allowances made for some deductions.

It's estimated that about one-third of the state's 900,000 businesses will owe the tax.

Sole proprietors are exempt from the tax, as are companies that would owe less than $1,000, and those with gross receipts of less than $300,000 per year. Businesses with gross receipts of $300,000 to $900,000 would pay lower rates.

While Monday was the deadline for businesses to file their returns under the new tax, they could have asked for an extension.

The original filing deadline of May 15 was delayed because of questions about the new tax, said a spokesman for the comptroller's office.

This month, Sen. Kay Bailey Hutchison, R-Texas, mulling a run for governor, criticized the tax, which was enacted with the support of Gov. Rick Perry.

Hutchison called the business tax a corporate income tax, and she said the promised reduction in property taxes hadn't occurred.

Lt. Gov. David Dewhurst said last week he would consider urging the Legislature to change the tax in next year's session. Dewhurst said he has never liked the tax.

Perry said at the state Republican convention last week that the Legislature must return a budget surplus to taxpayers, possibly by lowering property taxes, sales taxes or the business tax.

The stiffest opposition to the tax has come from owners of small businesses, even though many are exempt from the levy. The National Federation of Independent Business said its survey indicated that about 40 percent of members would pay more than 500 percent more in state taxes this year than they paid last year.

Will Newton, the executive director of NFIB's Texas chapter, called the tax "a high price to pay for doing business in this state." He called for its immediate repeal or reform.

Newton said lawmakers passed the tax without knowing how much money it will raise and how many jobs will be lost or businesses forced to close.

The 2006 tax package was supported by some business groups, including the Texas Association of Business. Some companies believed the old franchise tax was unfair because many businesses didn't pay. The Legislature faced a Texas Supreme Court ruling that relying on property taxes to fund schools was unconstitutional.

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