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Sharp: Business tax should encourage hiring, manufacturing in Texas
Austin American Statesman ^ | 2/1/2006 | Jason Embry

Posted on 02/01/2006 7:27:41 AM PST by Cat loving Texan

A new state business tax could offer deductions for hiring and manufacturing in Texas, the head of a panel studying the state's tax structure said Tuesday.

Texas Tax Reform Commission Chairman John Sharp said the 24-member committee appointed by Gov. Rick Perry might recommend a new franchise tax levied on gross receipts or some other measure of business activity instead of net income, which the tax now covers.

In addition, he said, the committee will not recommend a tax on companies' total payrolls, an idea floated repeatedly in the Legislature over the past two years.

"What Governor Perry told us to do was to make (a business tax at) as low a rate as possible, make it broad where everybody was in the system, but don't make it a job-killer," Sharp, a Democrat and former comptroller, said after a speech to the Texas Association of School Administrators.

The commission will recommend ways to replace about $5.8 billion per year in school property taxes that lawmakers hope to cut this year in a special legislative session.

Perry is expected to call that session this spring to respond to the Texas Supreme Court's ruling that the current system of paying for schools, which relies heavily on property taxes, is unconstitu- tional.

One focus of Sharp's commission is taxing businesses more broadly than the current corporate franchise tax, which most businesses are legally able to not pay. The committee might recommend a business tax with deductions for hiring or manufacturing in Texas, Sharp said.

"We're going to have a tax system that rewards people for building stuff in Texas and hiring Texans," he said.

The current franchise tax is 4.5 percent of a company's net income or 0.25 percent of net taxable capital, whichever is greater. Sharp said the commission is looking at replacing the net-income component with a 1 percent tax on another measure of business activity, such as gross receipts.

The tax on net income has been difficult to impose on partnerships because the Texas Constitution requires voters to approve any personal income tax, and taxing a person's share of partnership income has been equated to an income tax. Taxing something other than net income would give lawmakers a way around the constitutional problem, Sharp said.

A reworked franchise tax probably would continue to exclude sole proprietors, he said.

He also said the commission is looking at broadening the state's 6.25 percent sales tax. The tax now excludes some goods, such as bottled water and newspapers, and some services, such as legal work and haircuts.

Byron Schlomach of the Texas Public Policy Foundation, which advocates for smaller government and lower taxes, said he hopes the commission keys in on consumption taxes, such as the sales tax and the roughly $3.5 billion in surplus money now sitting in state coffers, to replace property taxes.

"We have to ultimately judge this policy by what it's long-term effects are likely to be," Schlomach said. "The fact is that a business tax taxes innovation, work effort, investment and job creation."

The commission plans to recommend tax changes to the Legislature by the end of March. The Legislature is under order by the Supreme Court to change the school taxing system by June 1.

jembry@statesman.com; 445-3654


TOPICS:
KEYWORDS: businesstax; schoolfinance; texas
Glad to see the payroll tax out. Hope they can get property taxes cut. I would favor expanding the current franchise tax to all Texas businesses, but that doesn't sound like its being considered. What they really need to do is cut education spending and consolodate school districts to cut down on administrative costs. Too touchy to consider I suppose.
1 posted on 02/01/2006 7:27:42 AM PST by Cat loving Texan
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To: Cat loving Texan
that is what they are saying, expend to all cut to 1% from 4.5% and cut property taxes by 50 cents or the like
2 posted on 02/01/2006 7:29:08 AM PST by HamiltonFan
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To: Cat loving Texan
If every junior high and high school in Texas didn't have to have a multi-million dollar stadium maybe they wouldn't need more money for education.

If the net result of the plan collects MORE taxes, it's a tax hike! What the heck has happened to the Republicans!?!

We need to get freaking Perry out of the governors seat, I can't believe Bush stuck us with this guy here in Texas. But no real Republican will run against him for some reason, it's maddening.
3 posted on 02/01/2006 7:40:52 AM PST by conservative physics
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To: conservative physics

You got that right. I know of one High School with a new stadium that rivals college stadiums, ie: instant replay, very large seating capacity. Absolutely ridiculous.


4 posted on 02/01/2006 7:48:00 AM PST by Orange1998
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To: Orange1998; Cat loving Texan; conservative physics
Excellent points. We also need to look at the issue of pay for the School Superintendents. Dr. Middleton (Superintendent of NEISD, San Antonio) makes an outrageous $250,000+ per year.

Does anyone know offhand what the state educational budget breakdown is per student? The last I heard, it was around $30B.

5 posted on 02/01/2006 8:15:45 AM PST by Sarajevo
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To: Cat loving Texan

"I would favor expanding the current franchise tax to all Texas businesses"

I am not in favor of raising taxes on businesses for several reasons. Perry is not a fiscal conservative, so it does not surprise me that he is for raising taxes on Texas businesses. It is a very dumb and illogical idea to tax gross receipts, since some businesses have a very low profit margin on high gross receipts and other businesses have a very high profit margin on very low gross receipts.


6 posted on 02/01/2006 8:37:24 AM PST by Hendrix
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To: Hendrix

I don't like taxing gross receipts either and would rather see no franchise tax, but if we are going to have to enact a business tax I would rather tax net income than gross receipts. Cutting waste should be the top priority either way.


7 posted on 02/01/2006 10:59:00 AM PST by Cat loving Texan
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To: Hendrix

I don't like taxing gross receipts either and would rather see no franchise tax, but if we are going to have to enact a business tax I would rather tax net income than gross receipts. Cutting waste should be the top priority either way.


8 posted on 02/01/2006 10:59:01 AM PST by Cat loving Texan
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To: Cat loving Texan
I say cut expenses pure and simple. The state will continue to spend more than they take. Look what the lottery earned and now its insufficient. Jeez.
9 posted on 02/01/2006 1:55:03 PM PST by Orange1998
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To: Orange1998

it's not a gross receipts tax. it only uses a business' gross receipts as the base, just as the current franchise tax uses earned surplus as the base. if it were a gross receipts tax, business -- particularly retailers and restaurants -- would be coming unglued. they're not. the smart thing is that business will get deductions for hiring people and investing in Texas. that's smart and will likely encourage more economic development in the state. also, none of this money is for education. every dollar generated goes to cutting our school property taxes, which is not only needed, but ia mandated by the Supreme Court. sounds like the commission is making good progress.


10 posted on 02/03/2006 11:07:09 AM PST by guschat
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