New Business Tax Too Taxing - Texas Scorecard

Many business are bracing for the worst when they file their new gross margins tax report on June 15. Consider Mesquite-based Alco Glass, which reported a loss of $18,000 in 2007, but will owe $6,000 in margin taxes, which will require them to take out a loan. All told, the business tax is expected to forcibly transfer 6.1 billion from the private sector into government coffers.

On May 15, the National Federation of Independent Business (NFIB) Texas chapter will hold a news conference with other Texas business groups, such as electrical and air conditioning contractors, to call for major changes to this burdensome tax. Their proposed reforms include:

Exempt businesses that are losing money or that are marginally profitable;

Raise the exemption from gross revenues of $300,000 to $1 million;

Net margin-tax bills shouldn’t exceed 200 percent of what the original franchise tax was, if a business paid that tax.

Establish a small-business advisory council to study the taxes’ impacts on small business

Businesses should be allowed to deduct the cost of contract labor (currently businesses can choose to deduct either their material costs or employees’ salaries, but the latter does not include wages of independent contractors);

We’d prefer to see this tax abolished, particularly since a $15 billion surplus (overpayment of taxes) is projected for the 2010-11 biennium, but these reforms would certainly help, particularly in making sure that the business tax doesn’t kill of budding enterprises that are not yet profitable but could be major sources of employment and economic growth in the future.