84(R) - 2015
House Ways & Means
House Ways & Means
Economic & Small Business Development
Relating to the computation and rates of the franchise tax; decreasing tax rates; amending provisions subject to a criminal penalty.
A fiscal note dated April 21, 2015 anticipates a negative two-year net impact to General Revenue Related Funds from CSHB32 of $0 through the biennium ending August 31, 2017.
It adds that the bill would have a direct impact of a revenue loss to the Property Tax Relief Fund of $2,559,867,000 for the 2016-17 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.
House Bill 32 would amend Chapter 171 of the Tax Code related to the Franchise Tax.
It would decrease the rate of the franchise tax by 25 percent, from 0.5 percent to 0.375 percent of taxable margin for taxable entities primarily engaged in retail or wholesale trade, and from 1 percent to 0.75 percent for taxable entities not primarily engaged in retail or wholesale trade.
Following the 83rd Legislature, the franchise tax rates were already reduced (respectively to 0.475 percent and 0.95 percent ) but these decreases expire on December 31, 2015. House Bill 32 would further reduce the rates and make the decrease in rate it proposes permanent.
House Bill 32 also has provisions that would modify Sec. 171.1016 of the Tax code regarding the E-Z Computation method. It would increase the maximum total revenue under which a taxable entity can file the franchise tax using the E-Z computation method from $10 million to $20 million, and would reduce the rate used from 0.575 percent to 0.331 percent.
If passed, House Bill 32 would take effect on January 1, 2016.
House Bill 32 is similar but not identical to SB 7.
Vote Recommendation Notes
Amendments were introduced and some adopted on the House
floor, and a committee substitute was introduced by the Senate Finance
Committee since we first reported on House Bill 32. The amendments were not retained in the committee substitute
introduced by the Senate committee.
CSHB 32 is similar to House Bill 32 as we first reported on
it. Additionally, It adds a provision requiring the comptroller to conduct a study to identify
revenue growth allocation options to promote efficiency and sustainability in
meeting the revenue needs of Texas, including revenues allocated by Tax Code
171.4011, upon repeal of the franchise tax.
CSHB 32 affirms that the ultimate intent of the bill is to
promote economic growth by repealing the franchise tax. This is the right
direction to take. We continue to support the bill.
The second chamber sponsor is Senator Jane Nelson.
The Franchise tax is a complex and unfair tax. It costs money and time to businesses to comply with and to file - whether they ultimately pay it or not, and since it is similar to a gross receipts tax, some businesses may end up having to pay taxes even without making a profit.
Additionally, the franchise tax has failed to raise the amount of revenues expected from its collection.
House Bill 32 would bring considerable relief to businesses by decreasing the rate and making the decrease permanent. It would also broaden the scope of businesses that would be able to use the E-Z computation method, reducing the cost of filing the tax for more businesses.
As a consequence, House Bill 32 would allow businesses to keep more of the wealth they create -- which could translate into more investments and/or job creation. This would have a positive impact on property rights and the free market system, and it would reduce the impact of government on these businesses. Lower rates would also encourage businesses that want to expand or relocate to move to Texas.
We support House Bill 32 as filed but because a complete repeal of the franchise tax would better help all businesses and unleash more prosperity for the Texas economy and Texans as a result, we suggest that House Bill 32 be amended to plan for the repeal of the tax, by phasing it out over two to three years.
Several amendments have been pre-filed. The only amendments we are taking a position on are those below. We do not take a position on any of the pre-filed amendments not appearing below. The amendment numbers represent the barcode number in the pre-filed amendment packet.
Amendments We Support:
Amendments We Oppose: