SENATE COMMITTEE CONSIDERS GOVERNOR'S TAX PLAN

The Senate Select Committee on Education Reform and Public School Finance today heard testimony on the new business tax plan proposal recommended by Governor Rick Perry's Tax Reform Commission.
Last week, the commission headed by former state senator and comptroller John Sharp unveiled the new plan that would require most businesses to pay a modified franchise tax and would increase the tax on cigarettes and other tobacco products. Sharp appeared before the Senate Committee today to answer questions regarding the Commission's findings.

Perry formed the Tax Reform Commission as a non-partisan method to find the best way to reform the state's tax code in order to reduce property taxes without decreasing funding to schools. The Commission returned a tax plan that would tax the gross receipts of most Texas businesses that earn more than $300,000 dollars at one percent.
Retail businesses would pay a one-half percent rate. The plan also calls for an increase in the cigarette tax by one dollar per pack, and would use about $1.4 billion of the current budget surplus to balance the plan. The plan would not increase the state sales tax.

The Commission plan would reduce the property tax rate by 17 cents in 2006 and a further 33 cents in 2007. It would reduce the property tax cap from $1.50 per $100 valuation to $1.30. Districts would be allowed to gradually raise the local property taxes back up to this cap at a maximum rate of six cents per year.

Today's committee meeting served as a place for senator's to question the Commission on the rationale and logistics behind the recommended tax plan. Several senators were concerned about spending part of the state's surplus to balance the new tax code. Sharp replied that conventional wisdom says that states can spend about a quarter of a surplus with out worrying about causing a short-fall. He added that the new tax plan will grow at about six percent a year, compared with five percent per year for property tax growth, and that the increased revenue will help offset the cost of spending part of the state's surplus.

Senator Kip Averitt of Waco expressed concern about contractors who negotiated long-term contracts who will now face taxes on their services. Commission member Howard Wolf admitted that there are no provisions in the recommended plan to address these concerns.

This plan is only a recommendation and may or may not reflect the tax plans that come out of the House and Senate in the upcoming special sessions. Earlier this year, the Texas Supreme Court ruled that state's current property tax system represented an unconstitutional state property tax, and set a deadline of June 1 for the Legislature to address this problem. The next special session will begin on April 17.

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