May 18, 2007

Quorum Report
Franchise Tax Cleanup Given Initial OK by Senate – Ogden removes the poison pill

Clean-up legislation for the soon to be imposed business margins tax won tentative approval this afternoon in the Senate. An amendment by HB 3928 Senate sponsor Sen. Steve Ogden (R-Bryan) removed language submitted in committee that some thought created a flat gross receipts tax.

The Texas Association of Manufacturers had described the language as a poison pill.

In addition to removing the poison pill, Ogden’s amendment created a new alternative maximum tax rate for businesses that earn less than $10 million a year. For those businesses, the maximum tax rate would be dropped from 0.7 percent to 0.575 percent.

In addition, businesses that don’t do business primarily in the state would still be excluded from the franchise tax but under Ogden’s amendment would have to report their gross receipts to the state.

Unchanged in the bill is the House’s original language to fix an error in how apartment rental income is recorded. Also included are the changes on apportionment for firms that deal securities and language on carrying over net losses.

The Senate also keeps a change to the small business exemption, changing the House’s hard revenue threshold of $600,000 to a scale where a business would pay more of the tax at higher revenue levels. Businesses earning between $300,000 and $400,000 would pay 20 percent of their tax liability. Those earning between $400,000 and $500,000 would pay 40 percent. Those earning between $500,000 and $700,000 would pay 60 percent. Those earning between $700,000 and $900,000 would pay 80 percent. Above that final threshold, they would pay the entire tax bill.

Ogden held off on final reading of HB 3928 because an additional amendment might be needed. The Senate is returning for an evening session momentarily to deal with the rest of today’s eligible bills.