State Sen. Brandon Creighton (R-Conroe) presented his three bills to the Senate Finance Committee last week that aim to provide relief from the state’s franchise tax, also known as the gross margins tax.
In his testimony, Creighton observed how the free economic conditions in Texas have surpassed those of other states like California and New York. He also argued that franchise tax reform would further Texas’ ability to “pass these states in every economic category and to lead in the business category.”
As Creighton advocated, it’s time for the Legislature to “make a bold move to reevaluate exactly how we assess this tax.” The Senator’s three bills seek to do just that.
SB 186 would require the Comptroller to research and provide alternatives for franchise tax assessments. Creighton recommended that the value-added tax, the transaction tax, and the net profit-based tax be reviewed as viable alternatives to the franchise tax, with the objective of phasing out the franchise tax by 2020. Creighton’s premise is that fair assessments will result in clearer expectations for business owners.
SB 330 would alter the formula used to calculate a taxable margin for the franchise tax. Currently, the margin subject to tax is calculated by subtracting one of four reductions – 30% of total revenue, cost of goods sold, cost of compensation, or a sum of $1 million – from the business’ total revenue. But because none of these reductions alone represents the true cost of doing business, the formula in SB 330 deducts cost of goods sold, cost of compensation, and the $1 million sum from total revenue to produce a more accurate taxable margin.
SB 331 would allow for the creation of a rebate for franchise taxpayers. At the end of each state fiscal biennium, the comptroller would issue a rebate to payers of the franchise tax based on their individual shares of franchise taxes paid.
The long derided franchise tax hurts Texas’ business climate, imposing high compliance costs and forcing businesses to pay taxes in order to market goods and services. Restricting the impact of the tax, or repealing it all together is a commonsense, conservative reform that would greatly benefit citizens across the Lone Star State. If emancipated from this unfair tax assessment, Texas business owners will continue to thrive and raise the standard for the rest of the nation.