Killing the state's franchise is a top priority for Texas' conservative lawmakers, but phasing out the $8 billion tax clearly will take longer than many business owners would prefer.
Both Sen. Jane Nelson, R-Flower Mound, and Sen. Don Huffines, R-Dallas, have filed bills to phase out the tax. Huffines' bill would not kick in until 2020, but it's on a more aggressive timeline: a 15 percent reduction in 2020, and 7.5 percent annually after that.
"It's one thing to cut a tax, and it's something completely different to kill a tax,â€ Huffines told the audience Thursday at the Texas Public Policy Foundation's policy orientation. "We need to kill a tax.â€
The franchise tax â€” often referred to as the margin tax because it taxes profit margins â€” was passed in 2006 to compress school district tax rates by one third. That was a compromise required after the last school finance case to give local school districts the ability to pass additional tax increases, referred to as meaningful discretion.
If it takes one year or 10 years, the controversial tax needs to be gone, Huffines said. Actions this session could be as simple as enshrining to end the tax in the budget, until growth in revenue is enough to replace it.
Analyst Dick Lavine of the progressive Center for Public Policy Priorities, which advocates for the poor, said putting any tax cut on the table would be a bad idea. The state already appears to have about $6 billion less than it needs to cover basic services.
According to the national conservative-leaning Tax Foundation, gross receipts-style taxes exist at the state level in three other states: Delaware, Washington and Ohio. A number of states have repealed the tax in recent years: Michigan in 2011; Kentucky in 2006, after one year of it on the books; New Jersey in 2006; and Indiana in 2002.
Sen. Van Taylor, R-Plano, said the "business-killing" franchise tax, passed in 2006, had compliance issues and had never yielded the $6 billion a year that was predicted when it went into effect. Instead, it currently produces about $3.5 billion a year following various reductions and cuts.