March 11, 2005
Hey, guys, what say we reform the franchise tax?

Turns out that the payroll tax floated in HB3 isn't so popular. Who knew?

Trying to build more support for a controversial $10.8 billion tax trade-off, House leaders worked Thursday to revise a business payroll levy to also give companies the option of paying an expanded franchise tax based on income.

Speaker Tom Craddick said efforts to draft the change were more difficult than anticipated, and after several hours of preliminary discussions, the House unexpectedly postponed further debate on the tax measure until today.


Craddick said he had enough votes to win approval of the bill even without changing the payroll tax, which had been approved by the House Ways and Means Committee but had drawn opposition from a number of companies with large numbers of employees, including Texas-based airlines and grocers.

But state Rep. Larry Taylor, R-Friendswood, said the payroll tax "was giving a lot of people heartburn."

Under changes being drafted for debate today, the franchise tax would be expanded to cover all forms of businesses including partnerships and sole proprietorships that hire employees. It wouldn't apply to sole proprietors without employees.

The bill would continue the franchise-tax exemption for businesses that have annual gross receipts less than $150,000. But it would close loopholes under which many major Texas corporations don't pay the franchise tax.

Companies would be given the option of paying the franchise tax or a new payroll option. The franchise tax is based on 4.5 percent of a company's net taxable earned surplus, an accounting term based on income, or 2.5 percent of assets. The new payroll option would be set at 1.15 percent of each employee's compensation, up to $90,000 per worker.

What a swell idea. Wonder how they ever thought of it. Ah, well, better late than never, I guess. And it looks like they'll have the weekend to think about it.

The House appeared to be lumbering toward a vote on a $10 billion tax bill that would restructure the way businesses pay taxes, while levying a slate of new consumer taxes on Texans.

But after lawmakers mulled over more changes to the bill this morning and some expressed worry about a proposed business tax Republican House Speaker Tom Craddick said he would postpone debate until next week to give legislators more time to study it.

"I don't want anybody to vote on something they don't understand," Craddick said.

I guess I can't argue with that. Of course, from my perspective if they do come to fully understand HB3 they'll have even less reason to vote for it. We'll see how it works out.

Posted by Charles Kuffner on March 11, 2005 to Budget ballyhoo | TrackBack