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The Oakley Report
News from the State Capitol
By Keith Oakley
ASSIST Lobbyist
[email protected]
During one of the Special Sessions of the Texas Legislature in 2006, called to deal with high property taxes, the Legislature passed a sweeping change in the state business tax.
Proponents of the new �Margins Tax� said that the change was needed in order to lower property taxes and because the state�s franchise tax was filled with loopholes. Opponents of the new tax say that it is the largest tax increase in Texas history.
The tax has only recently taken effect. The comptroller extended the deadline for Texas businesses from May 15 to June 16 to file returns. As thousands of Texas businesses were calculating what they owe the state under the new tax, you could hear the screams statewide!
Supporters of the new tax said that the increases in business tax would be offset by lower school property taxes. The legislature cut school property taxes by about one third. School taxes make up about 60% of the average property tax bill.
However, many say that continued increases in property tax appraisals have more than wiped out any possible savings, and that the bottom line is that they are now paying much more in state taxes. The cries of �rampant appraisal increases� have been heard by House Speaker Tom Craddick and he has recently appointed a special committee charged with property tax relief and appraisal reform.
The National Federation of Independent Business has said that the new tax will hurt Texas business and that it is, �the most confusing, complicated system of taxation ever devised.� They say that just the cost of preparing tax returns will be a tremendous burden for many Texas businesses.
The new tax is expected to generate about $6 billion per year. A business that owes less than $1,000 in margin tax and those with a total revenues of $300,000 or less are exempt from the tax. The $300,000 minimum will be indexed to inflation beginning in 2009.
The tax is based on a taxpayer�s tax margin, which is calculated as follows:
Tax Margin = Total revenue (minus) the greater of: (A) cost of goods sold; or (B) compensation.
The tax margin may not exceed 70% of the taxpayer�s total revenue. The tax rate is 1% per year of taxable margin. Total revenue represents total income as reported to the IRS.
The deduction for compensation includes wages and cash compensation paid to officers, directors, owners, partners, employees, and the cost of all benefits provided. Compensation paid to undocumented workers may not be deducted.
The deduction for cost of goods sold covers the direct costs of acquiring or producing goods, including labor, materials expenses, handling costs, storage costs, depreciation, cost of renting or leasing equipment, facilities or real property, repairs and research and development costs.
The first margin tax returns will be due June 15 and will be based on business done in 2007 for calendar year taxpayers. Accountants across the state will be busy. If you have questions about the new margins tax, check the State Comptroller of Public Accounts web site.
We will be busy during the next session of the legislature with the Sunset bill for the Private Security Board and the Texas Department of Public Safety, but you can also bet that we will be hearing a lot more about this new tax on Texas businesses.
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