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Reasons for Voting Against Business Margins Tax
Representative Gary Elkins
Monday, April 24, 2006
I cast a "no" vote today on HB 3 for a number of significant reasons. First,
this bill calls for the imposition of nothing less than an income tax on Texas
business owners—a gross net receipts tax. Texas has a long-standing tradition of
paying our way as we go. Given the substantial and ever-growing budget
surplus, it is unconscionable to burden Texans with a new tax when we can
simply use their money to meet the mandate imposed on us by the Texas
Supreme Court.
Second, the new income tax will result in the crippling of many new
businesses. New companies generally lose money during their first few years of
operation, yet such businesses will nevertheless owe taxes to the state under this
new tax scheme. Unlike the federal tax system that grants businesses a means by
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Texas Representative Gary Elkins
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which to record losses and carry them forward against future profits, this new tax
would require a complete tax payment regardless of actual losses. I cannot in
good conscience support a bill that has the effect of penalizing entrepreneurs and
that discourages the creation of new businesses.
Third, this new tax will have the effect of punishing many businesses that
have unexpected expenses. For example, a service company that has a gross
revenue of $1 million and payroll expenses of half a million dollars will pay a
new income (franchise) tax of 1 percent on $500,000, or $5,000. Suppose that
this company was frivolously sued and spent half a million dollars defending
itself. This company would likely sustain a net operating loss in the year that it
was sued but would nevertheless owe the State of Texas a franchise tax on
income that was never realized. In addition, HB 3 does not take into
consideration the numerous other expenses that are not related to payroll. For
example, rent, phones, advertising, maintenance contracts on business equipment,
casualty insurance, key man insurance, property taxes on real estate and business
equipment, bank interest on notes, lease payments on equipment, occupancy
taxes, filing fees, and a myriad of other expenses are not deductible under this
new tax scheme.
Many supporters of HB 3 have argued that this new tax actually reflects a
tax shift, shifting the tax burden from property owners to businesses that are
currently not paying the franchise tax. I agree that this bill creates a tax shift, not
a shift from property owners to businesses, but a shift from big business to
thousands of small businesses. The governor s’ own policy advisor has informed
members of the house that the average small service sector business will pay
more in taxes and in most cases double, triple, or even quadruple what they are
currently paying under the current franchise tax system.
This new tax is bad public policy and is harmful to most of our small
businesses. More importantly, my constituents can see through this subterfuge
and recognize this tax to be what it actually is, a state income tax. For the cited
reasons, I must respectfully oppose this measure.
download the original text here
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