Posted on 03/22/2006 2:01:44 PM PST by K-oneTexas
New business tax offered as finance fix Sharp says his panel has a way to pay for one-third cut in school property taxes.
By Jason Embry, W. Gardner Selby AMERICAN-STATESMAN STAFF Wednesday, March 22, 2006
A new business tax, a $1-per-pack increase in the cigarette tax and a share of the state's surplus would give Texas enough money to cut the property tax rate for school operations by one-third, the head of a panel studying tax changes said Tuesday.
Former state Comptroller John Sharp, tapped by Gov. Rick Perry last year to lead the Texas Tax Reform Commission, said the commission next week will recommend the new business tax to replace the antiquated corporate franchise tax. Lawmakers will take up the proposal in a special session on school finance beginning April 17.
Harry Cabluck ASSOCIATED PRESS
John Sharp Panel's leader says money from businesses, cigarettes, surplus would total $6 billion.
The tax on businesses would be based on their gross receipts but allow them to deduct from that either their employees' compensation, including benefits, or their manufacturing and production costs, also known as cost of goods sold.
"Under this tax, anytime you hire somebody, you're rewarded," Sharp said Tuesday. "Anytime you provide an employee with health care, you're rewarded."
The tax will raise about $4 billion per year and capture many businesses that now avoid the corporate franchise tax by setting up tax-exempt partnerships, Sharp said.
The commission also will recommend increasing the cigarette tax and using about $1 billion of the state's $4.3 billion surplus. That surplus is expected to grow before April 17.
Sharp said he does not plan to recommend an increase in the general sales tax.
All told, Sharp said, the plan will yield nearly $6 billion a year that would replace money that would be lost through school property tax cuts.
School districts that now tax at the maximum allowed rate of $1.50 per $100 in assessed property value for maintenance and operations could reduce that rate to $1, he said. They could still tack on taxes to pay for construction.
Under Sharp's plan, the state's $1.50 cap would stay the same or be reduced slightly.
The Texas Supreme Court ruled late last year that local school boards have lost discretion in setting tax rates because they are forced to tax at or near the maximum rate to raise enough money to meet state and federal demands. The judges gave lawmakers until June 1 to restore that discretion and threatened to cut off state funding for schools if the system is not fixed. Sharp said his plan meets the court's mandate.
Sharp's commission will formally roll out its tax proposal March 29 and take public testimony March 31.
Business groups are watching closely, but many are reserving comment until they see a formal proposal.
The head of the nascent Texas Association of Manufacturers said Tuesday that the group "remains encouraged by the direction of the plan."
Glen Rosenbaum of the Law Firm Legislative Coalition, a group of 18 firms, said he's concerned that the tax Sharp has discussed could be tantamount to a personal income tax on business owners, since it may tax their earnings — a charge Sharp denies. The Texas Constitution prohibits a personal income tax without voter approval.
Law firms are among the many professional services that have legally avoided the franchise tax.
"Our goal has been to try to craft a proposal that will tax us on a roughly equivalent basis to what the franchise tax would yield if applied to our firms," Rosenbaum said.
And Dr. Robert Gunby, a Dallas physician and president of the Texas Medical Association, said his group will look to see whether the plan takes into consideration the free care that doctors provide, as well as the government-funded health care programs that often reimburse them below their actual costs.
The Legislature tried repeatedly last year to find a way to pay for the kind of property tax cut that Sharp is proposing, but that effort was derailed at several points: The House and Senate could not agree on how to split the burden between businesses and consumers; businesses lobbied furiously to avoid a new tax; and the tax proposals were linked to an overhaul of the state's public education system that was wildly unpopular among educators, Democrats and some Republicans.
New barriers may emerge. Perry and Lt. Gov. David Dewhurst again sounded conflicting expectations Tuesday about what lawmakers should try to accomplish in the next two months.
Perry wants to focus first and foremost on tax changes, saying teacher pay raises and other education issues may have to wait.
But Dewhurst, who, like Perry, addressed the manufacturers group Tuesday, said he wants the Legislature to focus on both schools and taxes in the upcoming session.
Both were critical of an idea, floated by some Republicans and the influential, pro-small-government Texas Public Policy Foundation, to spend all of the state's surplus on property tax reductions and not create a business tax.
"The surplus should go back to the people from whom it was taken," said the foundation's Michael Quinn Sullivan.
But Scott McCown of the Center for Public Policy Priorities, which supports more spending on programs that help low- and moderate-income Texans, said the state has extra money only because it is not paying for all of its needs. He also criticized state leaders' effort to have a revenue-neutral tax bill — one that raises only as much money as is needed to pay for property tax cuts — instead of raising more money.
"Teachers need a pay raise, and we've got increasingly expensive students to educate with increasing demands for performance," he said.
Something new in Texas companies' tax bills?
Key pieces of the business tax plan offered by the commission:
•1 percent tax on the gross receipts of most businesses.
•One-half percent tax on gross receipts of retailers and wholesalers.
•Businesses could deduct from the tax base either 'compensation costs,' such as benefits or salaries, or the 'costs of goods sold,' such as the cost of machinery needed to make their products.
•Sole proprietorships and general partnerships, which don't receive the same liability protections as other companies, would be exempt.
•Businesses with less than $300,000 in gross yearly receipts would be exempt.
Source: John Sharp
Property tax savings
The Texas Tax Reform Commission is likely to propose a plan that would allow school districts to lower property tax rates for maintenance and operations from $1.50 per $100 of assessed value to $1. Here's what that could mean for taxpayers:
Appraised home value Current school tax bill Potential savings $100,000 $1,275 $425 $250,000 $3,525 $1,175 $500,000 $7,275 $2,425
Calculations assume a $15,000 state homestead exemption. School boards could tax beyond $1, so actual savings could vary.
Isn't John Sharp a Democrat. Taxes are always their first answer for everything. Another camel's nose to stick into the tent. Just ignore those other camels.
The Statesman never met a tax they didn't like - except the one that was passed on newspapers (later rescinded).
Add in Foghorn-Strayhorn's desire for a State Income tax and we'll start looking like New York (tax wise that is).
Maybe they ought to just increase the taxes on a pack of cigarettes by $25.00.
That will bring in 25 times as much money. :)
A state income tax is expressly prohibited by the Texas Constitution. In order for one to be enacted, a constitutional amendment would have to be approved by the voters.
What am I missing here. The state has a surplus but they still want to raise taxes. Have I stepped through the looking glass?
Gross less costs = income.
This is an income tax on businesses.
Not surprising coming for John Sharp, a long-time Dimocrat.
Sharp is the failed Dim candidate from Lieutenant Gov, in '02: why in the name of sanity would Go. Perry name HIM to chair this important commission?
Oh no, not a gross receipts tax. Are these people out of their minds?
I wouldn't worry about this (gross receipts tax) passing muster.. Perry killed a couple of proposals like this before.. remember, this article is just a proposal/suggestion, not an actual bill that is being presented..
OK, I've got an idea for you: get rid of the non-teachers!
Currently in the Aubrey ISD there is an "administrator" for about every two teachers!
My son's school has one person on staff whose single duty is to report grades to the principal's office - and every classroom already has a computer, on which those grades are stored.
Can't the teacher hit "send"?
Indeed you have, and they're about to have a tea party down in Austin!
Who was it said no man is safe when the legislature is in session?
When I left Texas some years ago, the Democrats controlled everything; there was a big surplus and talk of reducing the sales tax from 3% to 2%. Now the GOP controlls everything; income taxes are in the air and the sales tax seems to be going from up from 8%. Of course there are more toll roads to fund, not to mention new football stadiums for the high schools.
Amen.. The TEA is one of the worst Teacher's Unions in the country.. last time I checked, they received almost 10% of the education budget with another 25% going to districts 'administrative' costs.. They are now pushing this 'Teachers First' program which is an actual joke in regards to helping teachers.. it is all about keeping them under the thumb of the TEA.
But last year was the first time we could do that; and that too is ignorant of the fact that not all of us can deduct such things - you have to "qualify" for itemizing first...
See what happened because you left!
Muleteam1
Ah, you must have seen the "60 Minutes" piece on Denton ISD's new stadium!
"When I left Texas some years ago, the Democrats controlled everything; there was a big surplus and talk of reducing the sales tax from 3% to 2%."
That must have been some years ago indeed, and before the Yankees that moved here decided everything here should be just like the bankrupt Northern states they'd left.
Some folks just aren't trainable.
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