83(R) - 2013
Relating to the franchise tax.
Estimated Two-year Net Impact to General Revenue Related Funds for HB500, Committee Report 1st House, Substituted: an impact of $0 through the biennium ending August 31, 2015. Additionally, the bill will have a direct impact of a revenue loss to the Property Tax Relief Fund of ($396,768,000) for the 2014-15 biennium. Any loss to the Property Tax Relief Fund must be made up with an equal amount of General Revenue to fund the Foundation School Program.
Summary: HB 500 provides numerous tax exemptions to the franchise tax. HB 500 would:
- Change the computation of the franchise tax by lowering the percentage of a business’ total revenue from 70% to 65% to count for the business’ taxable margin.
- Allow taxable entities to exclude subcontract payments for various improvements on real property from their total revenue.
- Allow taxable entities to exclude subcontracting payments made to non-employee agents to perform delivery services if the entity transports aggregates such as crushed and broken limestone and granite to from their total revenue.
- Allow payments from tenants to commercial landlords to be excluded from their total revenue.
- Allow taxable entities to exclude subcontracting payments to non-employees to transport barite from total revenue.
- Allow landmen to exclude subcontracting payments to non-employees to perform landmen services from total revenue.
- Allow physicians to subtract the cost of vaccines from their revenues.
- Allow taxable entities to subtract the cost of goods sold if they are in the business of transporting goods by waterway.
- Allow taxable entities primarily engaged in agricultural aircraft operation to exclude certain inputs from their total revenue.
- Allow registered motor carriers to exclude flow-through revenue derived from taxes and fees from total revenue.
- Allow timber produces to reduce from their cost of goods sold the costs of various production steps such as moving harvesting equipment and severing timber.
- Change the apportionment process for internet hosting businesses in Texas to provide a tax break for these industries on out-of-state purchasers of their service
- Reduce the taxable margin of combined groups from 70% to 65%.
HB 500 will have a revenue cost of approximately $396 million to the Property Tax Relief Fund. $396 million will have to be taken out of General Revenue to fund the Foundation School Program.
Analysis: HB 500 demonstrates the burden the franchise tax places on Texas businesses. Our preferred approach to tax relief would be a comprehensive approach that makes the tax structure low rate, broad based, and visible. The fact that the Legislature recognizes the need to make targeted tax cuts amounts to a tacit admission that the tax is too high in the first place. Rather than taking an incremental approach to tax relief that benefits some businesses but not others, the Legislature should find a way to lower taxes for everyone, or better yet, eliminate the franchise tax altogether.
Despite the fact that this legislation does not take our preferred approach to tax cuts, we support HB 500 because it will limit the amount of revenue government can take in, if only for the few industries stipulated, and it will keep dollars in the private sector, promoting the property rights of Texas businesses. Vote “yes,” on HB 500.