Texas House mem­bers take a swing at fran­chise tax,

House mea­sures join Se­nate ef­fort to phase out busi­ness tax.

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

A week af­ter a bill to phase out the state fran­chise tax won ap­proval from the Texas Se­nate, some House mem­bers made clear Wed­nes­day they also want to take a whack at the state’s main busi­ness tax.

“I be­lieve that it is time we put this tax to bed,” said state Rep. Mike Schofield, R-Houston, tes­ti­fy­ing be­fore the House Ways and Means Com­mit­tee. A bill Schofield co-au­thored — House bill 599 — would cut the fran­chise tax rate by a third every two-year state bud­get cy­cle in which state rev­enue is pro­jected to rise by at least 6 per­cent, un­til the tax rate hits zero and is elim­i­nated.

The Com­mit­tee took tes­ti­mony Wed­nes­day on Schofield’s bill and sev­eral other House bills that ei­ther would phase out the tax over sev­eral years, based upon var­i­ous for­mu­las, or that would elim­i­nate it en­tirely be­gin­ning Jan. 1.

Last week, the Se­nate ap­proved Se­nate bill 17, au­thored by state Sen. Jane Nel­son, R-Flower Mound, on a 23-7 vote and sent it to the House, which has yet to con­sider it. Nel­son’s bill, com­mented upon fa­vor­ably by Gov. Greg Ab­bott and Lt. Gov. Dan Pa­trick, would ded­i­cate half of any state rev­enue growth above 5 per­cent to cut­ting the fran­chise tax — also 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.

Rep­re­sen­ta­tives of a num­ber of busi­ness or­ga­ni­za­tions turned out Wed­nes­day to tes­tify in fa­vor of elim­i­nat­ing the tax, prais­ing the over­all leg­isla­tive ef­fort as much as the par­tic­u­lars of the in­di­vid­ual bills. As in the past, they crit­i­cized the tax, ac­cus­ing it of plac­ing an un­fair fi­nan­cial bur­den on busi­nesses, caus­ing ad­min­is­tra­tive headaches and re­quir­ing some busi­nesses to pay it even in years when they’re un­prof­itable.

“It’s crit­i­cally im­por­tant for small busi­ness own­ers to get rid

of this oner­ous tax,” said Will New­ton, Texas ex­ec­u­tive di­rec­tor for the Na­tional Fed­er­a­tion of In­de­pen­dent Busi­ness.

But other speak­ers voiced skep­ti­cism that Texas is in a po­si­tion to elim­i­nate a ma­jor tax at a time when it’s hav­ing trou­ble bridg­ing a multi­bil­lion-dol­lar gap in its bud­get for the up­com­ing 2018-19 bi­en­nium. Rep. Drew Darby, a GOP mem­ber of the Ways and Means Com­mit­tee, was among them.

“The re­al­ity is, we have to pro­vide for es­sen­tial ser­vices,” said Darby, R-San An­gelo. He called it “a wing and a prayer” to ex­pect the Texas econ­omy to grow un­in­ter­rupted in­def­i­nitely and al­ways pro­vide enough rev­enue from sales taxes to cover state needs.

The var­i­ous fran­chise tax pro­pos­als would come at a cost to state cof­fers, al­though ad­vo­cates for elim­i­nat­ing the tax stressed re­peat­edly their view that tak­ing the ac­tion would spur eco­nomic devel­op­ment to off­set the de­clines.

Nel­son’s bill wouldn’t have an im­pact in the 2018-19 bud­get cy­cle but would re­duce state rev­enue by a to­tal of more than $1.6 bil­lion from 2020 to 2022, ac­cord­ing to the Leg­isla­tive Bud­get Board.

Schofield’s bill would cost the state a to­tal of about $3.3 bil­lion from 2020 to 2022, al­though noth­ing in the 2018-19 bi­en­nium, the bud­get board has said.

Mean­while, the pro­posal to elim­i­nate the tax be­gin­ning Jan. 1 — HB 1052 — would cost the state more than $3.9 bil­lion in the 2018-19 bi­en­nium, as well as a to­tal of more than $12.3 bil­lion from 2020 to 2022.

State Rep. Leighton Schu­bert, R-Bren­ham, who au­thored HB 1052, ac­knowl­edged the po­ten­tial hit to the state’s bud­get but said he hoped it would help “start a larger con­ver­sa­tion” about the tax.

“It might not be fea­si­ble to do a com­plete re­peal of it right now,” Schu­bert told the com­mit­tee.

State Rep. Den­nis Bon­nen, R-An­gle­ton, who chairs the Ways and Means Com­mit­tee, said he has pro­posed de­lay­ing the start date for his own bill to phase out the fran­chise tax — HB 28 — un­til Sept. 1, 2019, in light of the cur­rent state bud­get sit­u­a­tion, but said he still thinks it should be done at a more rapid pace then would be ac­com­plished un­der Nel­son’s SB 17.

“Given our bud­get sit­u­a­tion, our abil­ity to elim­i­nate the tax this ses­sion is not likely,” Bon­nen said. He said his bill still is “a far more rea­soned and ag­gres­sive ap­proach” than SB 17.

Bon­nen’s bill would al­lo­cate a por­tion of sur­plus state money, up to $3.5 bil­lion, to fran­chise tax rate re­duc­tion at the end of each bi­en­nium. With­out the im­ple­men­ta­tion de­lay, his bill would cost the state more than $1.5 bil­lion in the 2018-19 bi­en­nium and a to­tal of more than $2.44 bil­lion from 2020 to 2022, ac­cord­ing to es­ti­mates from the Leg­isla­tive Bud­get Board, which has yet to as­sess the bill with a later start date.

The Ways and Means Com­mit­tee left all of the bills pend­ing af­ter tak­ing tes­ti­mony on them.


State Rep. Leighton Schu­bert, R-Bren­ham (left), shown talk­ing with Rep. John Cyrier, R-Lock­a­hart, in 2015, has au­thored a bill to elim­i­nate the fran­chise tax be­gin­ning Jan. 1. “It might not be fea­si­ble to do a com­plete re­peal of it right now,” Schu­bert told the House Ways and Means Com­mit­tee on Wed­nes­day.

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