COMMITTEE WEIGHS FRANCHISE TAX REFORM

Senate Education Committee Chair Larry Taylor laid out his priorities for education reform this session at a Tuesday press conference.

(AUSTIN) — Members of the Senate Finance Committee expressed frustration with the state franchise tax and discussed ways to reform or even eliminate the tax altogether. Passed in 2006 as a way to cover the revenue gap created by a property tax cut, the state franchise tax has consistently performed below expectations and has left the state with a budget deficit. Initial projections for the franchise tax was that it would bring in nearly $9 billion in the 2008-2009 biennium and would continue to grow each year. Now, seven years later, the Comptroller's office projects that the next biennium franchise tax will only raise $5.6 billion. Members further argued that the franchise tax was confusing, inadequate and unfair. "I wish I hadn't voted for that franchise tax," said Finance Committee Chair Jane Nelson. But she added that she wants lawmakers to stop looking backwards and to move forward and find solutions to improve the franchise tax this session.

Though more than a million businesses are required to file for the franchise tax each year, not many end up paying it. According to testimony from the Comptroller's office, only 984,000 of the 1.1 million franchise tax filings end up owing money to the state. That doesn't mean those businesses are free from burden, argued Senator Charles Schwertner of Georgetown. "Having to go to a CPA and take in your returns and the compliance issues and the irritation of having to do that is real for those small business individuals," he said.

The committee heard a number of proposals Tuesday, ranging from simple changes to the tax rate to outright repeal of the franchise tax. Nelson presented a measure, SB 7, that would lower the franchise tax rate by 15 percent and Schwertner laid out one, SB 8, that raises the franchise tax exemption from $1 million to $4 million. That would exempt more than 62,000 small businesses that currently pay some franchise tax, but it would reduce collections by only eight percent, he said.

Senator Craig Estes of Wichita Falls filed a proposal to completely eliminate the franchise tax. "It's been confusing, non-competitive, inequitable and has repeatedly failed to meet revenue estimate," he said. He cited studies that claimed that eliminating the franchise tax will make up lost revenue by increasing economic activity.

Also Tuesday, Education Committee Chair Larry Taylor held a press conference to lay out some of his top priorities for the current session. He promoted a package of measures aimed at increasing school accountability, improving teacher performance and using technology to increase student learning. One bill would create an A through F accountability standard for individual campuses similar to the one that exists for school districts today. This would be easy to understand for parents, said Taylor and could highlight problem campuses existing in otherwise high performing districts. Further measures would increase online learning opportunities for students, create a statewide opportunity district to manage schools with failing ratings multiple years in a row and create programs for career and college readiness in middle school. Lt. Governor Dan Patrick, who joined Taylor at Tuesday's press conference, said that these bills represent only part of his committee's education reform efforts, and promised future bills relating to school choice and early education as the session goes on.

The Senate will reconvene Wednesday, March 4, at 11 a.m.

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