Killing the Business Tax…

 When Texas lawmakers instituted the “gross margins” business tax, it is a safe bet they didn’t expect trail-lawyer-extraordinaire Mark Lanier to sue them over it. But that’s exactly what he’s planning on doing, according to today’s Houston Chronicle. 

Here’s what Rick Casey wrote about the lawsuit: 

Lawyer to sue over new business tax

By RICK CASEY
Copyright 2006 Houston Chronicle 

Houston attorney Mark Lanier is famous for his family Christmas party extravaganzas in which the likes of Reba McEntire, Dolly Parton and Diana Ross entertain a few thousand of his closest friends and their children. 

This Christmas season he will also make sure he’s dropped from the Christmas card lists of just about every member of the Texas political establishment. 

Lanier says he expects to file, either this week or next, a lawsuit seeking to throw out the new state business tax designed to lower local school property taxes. 

“We’re going to argue that the tax amounts to an income tax, which takes a constitutional amendment,” Lanier says. 

The new tax was passed last year only after the Supreme Court held that school districts were using so much of their property tax income to meet state mandates that it had, in reality, become a state property tax — something not allowed under the state constitution.   (Read the entire Casey piece here: https://www.chron.com/disp/story.mpl/metropolitan/casey/4391130.html.)

The business tax was bad public policy to begin with, as lots of folks said at the time, but was essentially the only option legislators thought was politically viable (cutting spending and limiting the growth of government wasn’t considered). The tax doesn’t actually start being collected until next year, which means the political fall-out won’t really take place until 2008.

 

By way of background, legislators implemented the business tax this last spring as a way to finance a buy-down of local school property taxes. Nevermind that “business tax” is just a polite way of saying, “We want to grab money from the productive economy without the people knowing how much government costs.”

 

People, not business, pay taxes – businesses only remit taxes. But people pay them in lost profits, lost gains, lost wage increases, lost employment opportunities, and higher prices. And the tax incidence studies produced by the Office of the Comptroller (and years of commonsense work by economists), demonstrates that business taxes hurt people at the lower end of the economic scale a LOT more than anyone else, and a lot more than any other kind of tax.

 

Of course, supporting the business tax were a large number of businesses. Particularly big businesses who had been suffering (unfairly) under the old franchise tax, as well as big businesses who knew they could hire fleets of lawyers and gaggles of accountants and simply avoid the blasted thing.

 

Will the courts rule the new business tax a violation of the state’s constitution? Wouldn’t be surprised a bit if they did. And then the politics gets very interesting.

 

Let’s face it: Republican lawmakers voted to implement a tax that wouldn’t be collected for some 18 months – that meant an intervening election AND a regular session filled with new and exciting issues to debate. Not hard to do the political calculation there; accountability is reduced with time.

 

But if Lanier is successful… That means legislators not only have to reopen the school finance can of worms, but possibly go on the record “constitionalizing” this new tax right before their next primary election season.

 

Very interesting, indeed.

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