79th Texas Legislature
3rd Called Special Session
Austin Newsletter No. 3
Part of Governor's Tax Plan Passes Senate
By Warren E. Mayberry
During the past several weeks, the Legislature has examined many measures to revamp the current tax structure in Texas. One of the five bills (HB 3) introduced to restructure the school tax system passed the House and Senate and is enroute to the Governor’s desk. Two of the bills (HB's 2 and 4) were passed by the Senate, but the House must still approve the Senate amendments. The legislation to provide immediate property tax reduction (HB 1), and the bill increasing the cigarette tax by $1/pack is still awaiting a vote in the Senate.
HB 2, sponsored by Representative Jim Pitts (R-Waxahachie), creates a dedicated fund so that new revenue generated by the Perry/Sharp proposal are allocated to paying for property tax cuts. The Senate version of the bill only dedicates 100 percent of the new tax revenue to reducing property taxes until the rate reaches $1.00/$100 valuation. Once school property tax rates reach that level, 2/3 of the new revenue will be allocated to further reduce property taxes, 1/3 will be allocated to public education.
HB 3, sponsored by Rep. Jim Keffer (R-Eastland), Rep. John Otto (R-Dayton) and Rep. Vilma Luna (D-Corpus Christi), revises the franchise tax provisions in Texas to ensure that each business that is subject to the tax pays its fair share. Under the new plan, the primary franchise tax rate will be lowered from 4.5 percent to 1 percent. Retailers and wholesalers will have a rate of .5%. Businesses will pay the 1% or .5% on their "margin." The margin calculated by deducting either employee costs or cost of producing a good from the business' total annual revenue.
An amendment was added to the bill that allows current franchise taxpayers to carry forward business losses to the first year of the new margins tax. Losses will be a credit that can be deducted from your total revenue for 2007.
Rep. Anchia (D-Dallas) amended HB 3 whereby a business may not deduct labor costs from their total revenue if the labor was performed by an undocumented worker. Obviously, the purpose of this amendment is to provide a disincentive from hiring illegal immigrants.
The Senate passed this HB 3 without any changes.
HB 4, sponsored by Rep. David Swinford (R-Dumas), requires the buyers of used cars to use the blue book value when determining how much sales tax they owe. A provision authored by Rep. Patrick Rose (D-Dripping Springs) would require insurance companies to use blue book values or a national database when deciding how much to reimburse someone whose car is totaled.
The Austin legislative staff will continue to monitor the legislation during the remaining weeks of the special session. TFB policy support HBs 2 and 3.
(TFB policy: Taxes Structure generally 138, lines 1-3. Property Taxes 139, lines 3 and 4.)