The Unloading Zone: Rep. Ken Paxton: Texas Must Change the Business Tax

Keeping Texas a Business-Friendly State is absolutely essential, not only for it's continued growth, but to sustain the infrastructure we have now. Ken Paxton, Linda Harper-Brown, Wayne Christian and the Texas Conservative Coalition recognize this.

I have written on this vital issue before, and how under Governor Perry, the series of never ending taxes and usage fees are seriously eroding the State's attraction for corporate relocation and supporting existing businesses.

Austin and the mainstream media keep touting that Texas has one of the highest rates of job growth in the Country right now. That's great until you break down the types of jobs that are being created. Just under 70% of them are warehouse jobs; paying anywhere from minimum wage to $13/hr. Most are under $10/hr.

Another section of State Highway 121, already paid for by gas tax revenue, has become Tollway 121. The State is waiting to rename the former State Highway until it's complete. As I've commented before, there is only one name appropriate: The Governor Rick Perry Tollway.

And there was the $1 per pack increase in the Cigarette Tax, hurting convenience stores and consumers alike.

Another huge blow to business came in the form of the new State Business Tax. Texas companies didn't appreciate the impact it would have on them until the first filing year which was 2008.

It's convoluted formula forced small business owners who actually lost money that year to pay thousands of dollars in additional taxes based on their gross, not net, profits. More than a few were forced out of business because of it.

Representative Ken Paxton of District 70 and the Texas Conservative Coalition realize the dramatic negative effect this is already having on Texas business and how it will affect future corporate re-locations.

Rep. Paxton wrote the following article last month in his Capitol Steps newsletter.

Legislators to Recommend Changes to Business Tax

With thousands of Texas businesses filing the new business tax for the first time, members of the Texas Conservative Coalition, the conservative caucus of the Texas Legislature, announced the formation of a Business Tax Study Group to examine possible alternatives to the tax and necessary reforms to the new business tax.

State Representative Wayne Christian (R-Center), President of the Texas Conservative Coalition, noted: “With their backs against a wall two years ago, legislators met the Court’s school finance challenge by passing the largest property tax rate cut in this state’s history.” Christian added: “However, the Gross Margins Tax, which was one tool to pay for property tax rate relief, poses new challenges that we must now address.”

The Gross Margins Tax was passed in 2006 in order to raise the revenue necessary to fund reductions of school district property tax rates, as mandated by the State Supreme Court in its Neeley v. West Orange-Cove CISD decision. As a result of the Supreme Court’s 2005 decision, the Legislature had to reform the public education finance system by June 1, 2006 so that public schools could open in the Fall, 2006. Legislators approved the plan drafted by former Comptroller John Sharp.

According to the State Comptroller, the revised franchise tax has produced about $4.3 billion in revenue through June 2008, based on the approximately 133,000 payments that have been received. About 46,000 extension payments have been filed so far this year.

State Representative Bill Callegari (R-Katy), an active TCC member, stated, “Now that businesses have calculated their liability under the Gross Margins Tax, the need for reform is apparent based on concerns brought directly to me and other members.” Rep. Callegari continued, “The objective of the study group will be to have a plan to reform, if not eliminate, the tax to keep our economy the strongest in the nation.”

Some options to be considered by the Study Group include:

Scrapping the tax altogether and replacing it with an alternative plan
Cut the rates at which the tax is levied in half.
Ensure that only profitable businesses pay a business tax.
Raise the small business exemption to at least $1 million in total revenue.
Prohibit small business tax liability increases of more than 100 percent.
Ensure that any business tax is equitable to all businesses, including small and capital-intensive businesses

“Some justify the tax on the grounds that it is fairer because more businesses are paying. In my view, the tax should be judged on the grounds of how it impacts those businesses which had been paying. As a practitioner in the field, the tax is adversely impacting businesses and, in many instances, overwhelms the property tax rate reduction provided to those businesses,” added TCC Treasurer Ken Paxton (R-McKinney).

TCC Vice President Linda Harper-Brown (R-Irving) remarked, “Out of principle, some legislators voted against the new tax. Many voted for it solely for the purpose of meeting the immediate obligation that arose from the West Orange-Cove decision. However, the tax is not a viable, long-term solution to the school finance dilemma while also having the potential to adversely impact the economic climate in Texas.”

Christian, Harper-Brown and Paxton concluded, “We will remain strong proponents of making Texas the most attractive State to do business in the country. If we want increased revenues, job creation and wealth creation, Texas needs a business tax that does not excessively punish those who come to our State to create and operate job-creating businesses.”

The Texas Conservative Coalition Business Tax Study Group will release its recommendations later this year, prior to the start of the 81st Session of Texas Legislature which convenes in January 2009.

The upcoming 81st Session has a lot on it's plate: a lot to do and a lot to undo. Rep. Paxton and his fellow members of the Texas Conservative Coalition have their sleeves rolled up. For the sake of the future of Texas, I hope the politics and special interests can be pushed aside so that a unified, bi-partisan Legislature can work together to solve these and other critical issues in a way best for all Texans and all of Texas. And that Governor Perry, either as a partner or being dragged kicking and screaming from behind, will be a positive force in signing the legislation necessary.

Enough politics-as-usual and lets make Texas really business friendly, family friendly and world class once again. I wish Mr. Paxton and those true public servants like him great success in 2009. The future of Texas may well depend on it.