AUSTIN – On Tuesday, State Representative Leighton Schubert (R-Caldwell) filed House Bill 1052 to repeal the onerous and unpopular Texas Franchise Tax, or “margin tax,” as it is commonly known.
The Franchise Tax, which was rewritten in 2006, was intended to create a simpler business tax and raise approximately $3 billion in new state revenue annually, but the effects of that rewrite have been the opposite. The tax is complex, has unclear rules, has not raised what was expected and has become punitive for businesses that have narrow margins. It can also create scenarios in which businesses could owe tax to the state despite having recorded a loss.
The 84th Texas Legislature passed House Bill 32 which provided a 25% reduction in the franchise tax paid by businesses and raised the ceiling to file the E-Z computation from $10 million to $20 million at a lower tax rate.
“The Franchise Tax is as complex as it is burdensome for Texas business owners,” said Representative Schubert. “Last session we made significant strides towards phasing it out, but we need to do more. It’s time to get rid of it and create a better business climate in Texas.”
The Beacon Hill Institute at Suffolk University (BHI) has modeled the fiscal and economic effects of repealing the Franchise Tax. BHI’s economic model shows 31,500 net new jobs created across the entire Texas economy, as well as $3.2 billion in net new investment in the state, and $6 billion in new personal disposable income.
The Texas Comptroller of Public Accounts reports that the Franchise Tax in FY2016 accounts for, at most, just 3.5 percent of all state revenues as a result of the reductions enacted by House Bill 32.
“Some will ask what we plan to replace this tax with, but I will tell them that we will do what hardworking Texans do: watch our spending,” said Representative Schubert.
Representative Schubert represents District 13 in the Texas House of Representatives, which includes Austin, Burleson, Colorado, Fayette, Grimes, Lavaca, and Washington Counties.