May 16, 2008
Business tax turmoil

Not too surprisingly, small businesses are complaining about the new margins tax even though it still hasn't been officially collected yet.

Small businesses launched a fresh push to change the revamped franchise tax Thursday, saying they're facing huge increases that will force them to raise prices and put off hiring people or making planned purchases.

"It's a boondoggle that's nailed small business to the wall," said Kurt Summers, an Austin businessman with the National Federation of Independent Business/Texas.

He spoke at a meeting of the coalition, which includes NFIB/Texas, the Independent Electrical Contractors of Texas, Air Conditioning Contractors of America Texas Chapter, Associated Plumbing-Heating-Cooling Contractors of Texas and Texas Courier & Logistics Association.

There was a suggestion of a ballot-box backlash based on the tax, which hasn't yet been collected. Tax reports had been due Thursday, but State Comptroller Susan Combs pushed that back to June 16.

Asked if the issue would affect how he votes in November, Jason Miller of San Antonio-based Dependable Express didn't hesitate: "Absolutely. I'm definitely going to look out for those that are going to look out for us."

His wife, Shelly Miller, said their company, because it was organized as a limited liability partnership, didn't have to pay the previous franchise tax. She said figures are being worked on but that she can already tell that the new tax bill will be higher than they'd expected.

"The money we had set aside to hire another person and purchase another large truck -- we're not able to offer that position and not able to buy" the vehicle, she said.

Rod Steinbrook of Supershot Delivery Service in Houston said he's expecting an increase from about a $500 bill under the old franchise tax to either $11,000 or $15,000 under the new tax, depending how it's figured.

"We'll have to raise prices," he said. "We're hampered with the fuel costs, also."

I have some sympathy for these folks. This tax is the sort of public policy you get when you have unwieldy restrictions like the constitutional ban on a state income tax and a shortsighted head-in-the-sand political environment that forbids any rational talk about the appropriate level and distribution of taxation. One reason why this tax made it through was the lack of opposition from the big corporations, who knew they'd make up the difference in property tax cuts. The smaller guys got shafted, and I can't blame them for being upset and wanting to do something about it.

But the sympathy only goes so far. The fact was that the old franchise tax was a joke, and was in dire need of replacement. Whether the margins tax is the best we can do, given current conditions, is certainly debatable, but what shouldn't be debatable is the idea that some form of business tax, one that actually gets levied on most businesses, is a requirement for a tax system in today's economy. Simply repealing it doesn't solve anything, especially given that this tax was imposed to (partially) pay for the massive property tax cuts of 2006. In an ideal world, we'd burn the whole thing down and start over from scratch, but since that will inevitably lead to verboten topics like an income tax, that ain't gonna happen. All I'm saying is that in the absence of a complete reboot, we need to accept the idea that the tax burden needs to be shared more broadly if we're serious about offering relief to anyone who really needs it.

Posted by Charles Kuffner on May 16, 2008 to Budget ballyhoo