April 04, 2006
AG Abbott to rule on TTRC plan's constitutionality

Given all the talk about whether or not the TTRC's business tax plan constituted an income tax in some fashion, this was totally expected.

Texas Attorney General Greg Abbott has been asked to determine whether a proposed business tax being promoted by Gov. Rick Perry violates a constitutional prohibition of an income tax.

Perry's chief of staff, Deirdre Delisi, asked Abbott last week to respond to the issue prior to the April 17 start of a special legislative session. A 1993 amendment to the Texas Constitution prohibits legislation creating a state personal income tax without approval by Texas voters.

As we all know, of course, an income tax cannot be enacted in Texas because of former Lt. Gov. Bob Bullock, who proposed and helped pass a constitutional amendment to that effect in 1993 as penance for suggesting that we consider a state income tax in 1991. Which leads to exhanges like this, which will surely give some legislators hives in two weeks:

John Sharp, a former state comptroller who serves as chairman of the tax commission, told a Senate panel Monday that the business tax would not be an income tax because it is not based on net income. He said a company could lose money and still pay the tax.

Some lawmakers have said they are uncomfortable with making an unprofitable business pay tax. Sharp said that a tax based on income likely would invoke the constitutional prohibition.

I'll bet they're uncomfortable with that. When you put it that way, who in their right minds would want to have a vote in favor of such a thing on their records? Have I mentioned how much fun this special session is going to be?

For what it's worth, I fully expect Abbott to give his blessing to the draft legislation for this proposal. That's not binding, of course, it just means that Abbott thinks he can win the lawsuit that will inevitably be filed against the new tax. One would hope that the TTRC consulted with some sharp attorneys along the way to avoid any obvious pitfalls. You never know what the Supreme Court will do, of course, but I'll be surprised if there are any major gotchas lurking right now. After it goes through the sausage-grinder, well, that's a different matter.

Posted by Charles Kuffner on April 04, 2006 to Budget ballyhoo | TrackBack

Ah, the revenge of unintended consequences. Apparently, in Texas a payroll tax is only Constitutional if unprofitable businesses are forced to pay it as well as profitable ones, because providing relief to unprofitable business would make it an "income" tax!

Aren't we all glad we outlawed the dreaded, evil income tax now?

As with so many issues (gay marriage?), people cast their ballots on this issue with their guts instead of their brains. Unfortunately, there's very little CPU power in the gut.

Posted by: Mathwiz on April 4, 2006 2:59 PM

Oy vey.

Posted by: Jim D on April 4, 2006 4:34 PM