November 26, 2008
Texas’ new business tax is $1.2 billion short of what it was expected to bring into state coffers its first year, even after adding extension payments made so far, the comptroller’s office said Tuesday.
The shortfall means lawmakers will have to rely more heavily on other revenue sources to help offset the cost of subsidizing a cut in local school property tax rates.
Officials said higher-than-anticipated sales, oil-and-gas and cigarette tax collections will more than make up the gap — but lawmakers also face new demands, including costs associated with damage from Hurricane Ike and the impact on Texas from the national economic downturn.
“What we thought was a surplus very well may not be a surplus at all,” said House Appropriations Committee Chairman Warren Chisum, R-Pampa, referring to $10.7 billion in unspent revenue that lawmakers have been expecting when they return in regular session in January.
Comptroller Susan Combs won’t issue a new revenue estimate until Jan. 12, the day before the Legislature convenes, said her spokesman, R.J. DeSilva.
The business-tax tally isn’t final because extension filings, which had to be postmarked by Nov. 17, still are coming in, DeSilva said.
Any remaining payments, however, aren’t expected to make up the difference between the nearly $4.7 billion collected, based on 2007 business activity, and the $5.9 billion forecast.
“I think we’re pretty much on the verge of putting the first year to bed,” said Dale Craymer, chief economist for the Texas Taxpayers and Research Association and a member of the state’s Business Tax Advisory Committee.
“We’ll know a lot more in year two,” he said, when businesses are more familiar with the tax and transitional provisions expire.
The business tax, due for the first time this year, was revamped in 2006 as part of a package that lowered local school property tax rates when the state faced a court order to change the public education tax system.
The changes were meant to close provisions that allowed many businesses to avoid the tax and to help make up funds lost through the cut in property tax rates.
About $4.5 billion had been paid by businesses by Aug. 31, the end of fiscal year 2008, and $195.7 million has been netted so far from those who filed for an extension, DeSilva said.
Chisum and House Ways and Means Committee Chairman Jim Keffer, R-Eastland, agreed with Craymer that the tax’s true yield won’t be apparent until at least the second year.
“Really, we won’t know till next cycle,” said Keffer. “It’s certainly not what some in the business community and some of the right-wingers were saying — that we’re going to be killing business” with higher-than-projected tax collections.
He said, however, that the tax should be examined to be sure it’s being applied fairly to all industries.
Will Newton of the National Federation of Independent Business/Texas, a group critical of the new tax, said it “places a greater share of the burden on the backs of small business owners. While the shortfall was expected in the first year, this is still the largest business tax increase in Texas history and its effect is already being felt in our job market.”
Chisum said it may take three years of tax collections “before you get a real good feeling of where you are.”
DeSilva said the comptroller will have a better idea about the shortfall in December, after analyzing tax reports.
Sen. Kirk Watson, D-Austin, however, voiced concern that lawmakers have so little information now, with the legislative session looming.
“It was supposed to be money that we could count on meeting a basic promise, but yet here we are on the eve of a session and we have so little data about why it may be failing to live up to the promise that was made,” said Watson, a member of the state’s Business Tax Advisory Committee.
He said the fact that it’s a new tax can’t be used to avoid action this session, because that means the Legislature could turn to “old practices of the past, which are to compromise already compromised programs,” such as transportation and the Children’s Health Insurance Program to bridge budget gaps.