Texas Business Tax Winners and Losers

The Texas Legislature has approved a bill that would enact a new, broader-based tax on businesses while granting businesses and homeowners some relief from school property taxes.

Industries that are expected to see their taxes reduced in 2008 include:

– Mining, including oil and gas production, by 12.1 percent.
– Finance, insurance and real estate, by 9.8 percent.
– Wholesale and retail trade, by 3.8 percent.
– Utilities and transportation, which includes the state’s three big airlines, 2.5 percent.

Those that are expected to pay higher taxes:

– Construction, up 25.7 percent; firms get little help from property-tax relief.
– Services, up 19.7 percent; most now avoid the franchise tax.
– Information, up 13.6 percent.
– Manufacturing, up 8.3 percent.

House Bill 3, sent to Gov. Rick Perry this week, would replace the 4.5 percent franchise tax with a tax of 1 percent on a company’s gross receipts minus either its cost of producing goods or payroll expenses (including wages and benefits).

The staff of the Texas Tax Reform Commission estimates that only one in 16 businesses pay the franchise tax. Some companies avoid the tax by structuring as a general partnership, while others avoid it by claiming headquarters in another state, even if it’s only a post office box.

As of this week, 152,000 businesses paid franchise taxes out of 823,000 registered as franchise tax permit holders. Many more companies don’t bother to register because they are exempt from the tax.

The franchise tax accounted for $2.2 billion of the $65.2 billion in Texas state and local taxes collected in fiscal 2005.

Schools got more than half of the $30.9 billion in property taxes collected in fiscal 2005.