Sunday, February 4, 2007

Texas Margins Tax and Small Business

Texas' new margins tax replaced the old franchise tax with a lower rate that hits a broader base of businesses.
I am looking into a real estate investment and trying to figure out if I will get hit. In looking at it I realized that the margins tax hits business at $300,000 gross revenue or above. That means that practically every small business with a decent revenue stream has the headache of another tax.

Given the surplus, there is an obvious thing that sticks out as a great idea for a tax cut: Why not raise that exemption so Texas small businesses don't get hit with the complexity of a tax? An exemption of $3 million or more could save many small businesses from having to be concerned about this new tax, making compliance less onerous, without giving up too much in tax revenue. I don't know what the impact to revenue would be, but even if it reduced tax reveue by a billion or two, Texas has a surplus to afford it and it would greatly help Texas small businesses.

1 comment:

Anonymous said...

Repeal would be great, if it meant lower total taxes and not just shifting taxes back to property and franchise tax.

However, the Sharp Commission's selling point was it was 'better' than the old franchise tax and high property taxes, which punished captial-intensive industries, because it is a low rate spread evenly across different types of business activity. But it means that heavy industrial is a bit better off, while lawyers, architects and software companies pay a bit (1%) off their gross margin. Even supply-sider Art Laffer liked it as a 'better tax'.

Problem: This margins tax is hitting industries like real estate and services in ways that are unexpected. Taxes are never, ever, good. They are at best necessary evils, and when unnecessary, only evil.

What we need to do before it is too late is to get TAX REDUCTION on the front-and-center agenda for the state lege this year ... Because of promises made on property tax reductions, unless we get lower total Government spending, the margins tax is here to stay. They wont go back to narrower tax. And you know already that the lege is *not* cuttting on the spending much, even with the surplus.

Our best hope is to get the margins tax impact reduced by raising exemptions or lowering the rate even more, and do whatever can be done to reduce its impact and revenue grab.