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Legislation

Cutting taxes for small Texas businesses

Tuesday, February 10, 2009

This Bill:

  1. Raises the franchise tax exemption for small businesses to cover all of those with $1 million or less in total revenue.
  2. Creates a “stair-step” process, requiring businesses with $1 million-$1.5 million in gross receipts to pay only a fraction of the franchise tax.


How:

  • The bill raises the blanket tax exemption from $300,000 in total revenue to $1 million.
  • It sets a lower tax rate on businesses with $1 million to $1.5 million in total revenue:
    • $1 million to $1.1 million: 20% of rate
    • $1.1 million to $1.2 million: 40% of rate
    • $1.2 million to $1.35 million: 60% of rate
    • $1.35 million to $1.5 million: 80% of rate
  • Though not in the bill, Senator Watson proposes paying for the increased exemption by closing loopholes that benefit some payers.


Why:

  • Many small business owners report that their tax bills have skyrocketed since the Legislature in 2006 increased business taxes while cutting school district property tax rates.  Property tax savings haven’t begun to make up the difference, these owners say.
  • This bill would offer relief to small business owners, providing a needed economic stimulus.


Relevant Statistics:

  • Small businesses represent well over 90 percent of all Texas businesses.  They employ more than half of all working Texans.
  • About 85% of the new franchise tax is being paid by businesses with more than $10 million in gross receipts.  This bill would affect only a small fraction of the remaining 15%.
  • Different indices show that small businesses and the Texans they employ are struggling.  In health coverage, for example, 7 out of 8 small business employees (more than half of the state’s workforce) either aren’t offered or can’t afford health coverage through their employers.
  • Estimates have varied, but the Comptroller currently projects that increasing the exemption to $1 million would cost $166 million for the biennium (not counting the stair-step rate adjustments, the effects of which are now being calculated).
  • The franchise tax is projected to bring in at least $5.3 billion for the biennium, so the exemption would equate to a roughly 3% impact on the remaining taxpayers.