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Texas Debates Eliminating Business Tax

by Ken Parsons, Senior Vice President, Dallas, February 2013


With a projected budget surplus, there's a movement underway to repeal the Texas gross margin tax. The tax is unpopular because of its complexity, and because it taxes businesses whether they make a profit or not.


Higher Revenues Forecast


Texas Comptroller Susan Combs recently released revenue estimates for the remainder of fiscal 2013 and the upcoming 2014-15 biennium.


The projections show that for 2014-15, the state can expect to have $101.4 billion in funds available for general-purpose spending. This represents a 12.4% increase from the corresponding amount of funds available for 2012-13.


Some lawmakers believe the good-news revenue estimates make 2013 the perfect time to start getting rid of the margin tax.


Legislation Filed


Senator Craig Estes introduced Senate Bill 113, which eliminates the margin tax in 2014. Sen. Estes says the tax needs to go because "it has undermined the state's competitive advantage".


Some research organizations question whether the state can simply eliminate the margin tax without finding a replacement. The tax raised $4.5 billion in 2012, accounting for 10.3% of the state's total taxes.


The Texas Public Policy Foundation recommends phasing out the tax by 2018 and increasing the exemption for small businesses over the next three years. In a Fiscal Policy Brief researchers explained:


"The margin tax has had a detrimental impact on Texas' business and its capacity for economic growth. Despite the harm caused by the margin tax, Texas remains the number one state for new jobs. However, to retain its competitive advantage, Texas should consider changing the structure and level of its business taxes."