May 19 , 2006
There is a new sheriff in town when it comes to taxes in Texas.
The new tax, the margins tax, is a by-product of the recent court battles over funding public education.
Gov. Rick Perry appointed former Comptroller John Sharp to head a blue-ribbon commission to study the current tax structure. The mission was clear: find a new business tax that was fair across the board, allowed more participants to pay into the system by closing loopholes in the current franchise tax and reduce the property tax burden of Texans. The "margins" tax is the culmination of the commission.
The margins tax, on its face, is a very simple concept to understand. Businesses will pay a 1 percent tax on their tax margin. The margin is calculated on gross receipts with a deduction for the cost of producing goods sold or employee salary and benefits. Businesses must choose to deduct their salaries and benefits expenses or their manufacturing and production costs. Sole proprietors, general partnerships and entities with gross receipts less than $300,000 are exempt from paying the tax.
Most agricultural producers would see the greatest tax benefit by choosing the "cost of goods sold" option for calculating their tax liability. Producers can deduct an extensive list of essential inputs from their gross receipts. Labor, utilities, water for production, fertilizer, hay for grazing, fuel associated with production, equipment depreciation, and rent paid for land leases are among the allowable deductions in the margins tax.
House Bill 3, which contains the provisions for the margins tax, has passed both the House and Senate. What is unique regarding the passage of the bill is it passed both chambers without changes from either body. It is rare that any major state legislation moves from one chamber to another without amendments.
Now, the bill will head to the Governor for his approval.