Se­nate takes aim at state’s fran­chise tax,

Dems de­cry the move, say­ing it jeop­ar­dizes state’s rev­enue stream.

Austin American-Statesman - - FRONT PAGE - By Bob Sech­ler bsech­ler@states­man.com

A mea­sure that could elim­i­nate Texas’ fran­chise tax — the state’s pri­mary tax on busi­ness — within a decade won swift ap­proval from the Texas Se­nate on Tues­day.

Se­nate Bill 17, filed by state Sen. Jane Nelson, R-Flower Mound, and backed by the Texas As­so­ci­a­tion of Busi­ness and other in­dus­try groups, man­dates a cut to the fran­chise tax ev­ery two-year state bud­get cy­cle if state rev­enue grows by at least 5 per­cent.

Un­der the bill, half of any rev­enue growth above 5 per­cent would be used to cut the fran­chise tax, which also is known as the mar­gins tax. Based on cur­rent rev­enue es­ti­mates, Nelson has said the tax could be phased out within about 10 years as a re­sult.

The pro­posal now will go to the Texas House for con­sid­er­a­tion.

“Un­der this leg­is­la­tion we put (the fran­chise tax) on a glide path to elim­i­na­tion,” Nelson, chair­woman of the pow­er­ful Se­nate Fi­nance Com­mit­tee, said on the Se­nate floor. Just min­utes later and with no de­bate, the Se­nate ap­proved her bill on a 23-7 vote.

“The busi­nesses of this state thank you,” Nelson told her col­leagues af­ter­ward.

But the lack of de­bate and the quick ap­proval was viewed by some as sim­ply ac­knowl­edge­ment that Se­nate pas­sage had be­come a fore­gone con­clu­sion.

State Sen. Kirk Wat­son, D-Austin, who voted against it Tues­day as well as ear­lier this month dur­ing com­mit­tee, crit­i­cized the move to cut the tax as short-sighted. He said the state has yet to find a way to pro­vide relief from spi­ral­ing school prop­erty taxes for Texas res­i­dents, which was among the orig­i­nal pur­poses of the fran­chise tax, and he noted the irony of propos­ing to cut it at a time when the state is strug­gling to bridge a multi­bil­lion-dol­lar gap in its cur­rent bud­get in the wake of pre­vi­ous tax cuts.

“Part of the hole we’re in now is a re­sult,” Wat­son said af­ter ap­proval. “We need these rev­enue sources.”

Other op­po­nents noted that the bill would “au­to­mat­i­cally lock in fu­ture rev­enue cuts” re­gard­less of the state’s fi­nan­cial needs.

It will “guar­an­tee tight state bud­gets into the fu­ture, start­ing with a $1.1 bil­lion re­duc­tion in fran­chise tax re­ceipts for the 2020-2021 bud­get,” said Dick Lavine, se­nior fis­cal an­a­lyst with the left-lean­ing Cen­ter for Pub­lic Pol­icy Pri­or­i­ties, in a pre­pared state­ment. “The fran­chise tax is the state’s third largest source of state tax rev­enue.”

But Nelson said on the Se­nate floor Tues­day that the pro­posal strikes a good bal­ance be­tween cut­ting the tax and en­sur­ing the state re­tains enough of its fu­ture rev­enue growth to pay for its needs.

Gov. Greg Ab­bott and Lt. Gov. Dan Pa­trick both have cited cut­ting the fran­chise tax as among their pri­or­i­ties, and both pre­vi­ously have spo­ken ap­prov­ingly of Nelson’s bill.

The fran­chise tax gen­er­ated $9.39 bil­lion in fis­cal year 2014-15, ac­cord­ing to Nelson’s of­fice. That money pro­vides a source of rev­enue to re­duce prop­erty taxes and to pay for school fi­nance re­forms.

But fis­cal con­ser­va­tives and some busi­ness or­ga­ni­za­tions say the tax places an un­due fi­nan­cial bur­den on busi­nesses. The tax has been crit­i­cized for caus­ing an ad­min­is­tra­tive headache for small busi­nesses, as well as for un­fairly bur­den­ing cer­tain types of busi­nesses over oth­ers and for forc­ing some to pay it even in years when they’re un­prof­itable.

“There is wide­spread sup­port to elim­i­nate the fran­chise tax, which hin­ders the abil­ity of Texas busi­nesses to grow and pros­per,” Nelson said in a pre­pared state­ment af­ter her bill was ap­proved. “Our econ­omy is health­ier when busi­nesses have fewer bur­dens and are free to grow.”

‘The fran­chise tax is the state’s third largest source of state tax rev­enue.’ Dick Lavine, CPPP an­a­lyst

RALPH BARRERA / AMER­I­CAN-STATES­MAN

Sen. Jane Nelson, R-Flower Mound (cen­ter, with Sens. Brian Bird­well, R-Gran­bury, and Ju­dith Zaf­firini, D-Laredo), filed Se­nate Bill 17, which would phase out the busi­ness mar­gins tax within 10 years should state growth con­tinue on its cur­rent path.

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