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June 5, 2009
New threshold exempts more businesses from margin tax

The Legislature gave a tax break to an estimated 40,000 small businesses in Texas by exempting those making less than $1 million from the state’s business margin tax.

Some tax policy watchers say recession hindered passing a bigger break as the exemption threshold was originally set at $300,000 in annual revenue.

The move will cost the state about $172 million in revenue over the next two years. The business margin tax raised about $4.3 billion in the 2008 fiscal year, but was originally projected to raise $6 billion annually. The money goes to support public education in Texas.

The $172 million reduction in the coming two years is too great a cut, said Dick Lavine, senior fiscal analyst for the Center for Public Policy Priorities.

“We’re against any reduction in revenue until we’ve met all basic needs,” he said. “We’re clearly under funding public education and transportation.”

While pro-business groups generally supported the tax break for small businesses, it’s a small consolation prize when compared with the sort of business tax overhaul they had hoped for.

A similar bill sponsored by state Sen. Dan Patrick, R-Houston, would have reduced tax rates for businesses with $1 million to $10 million annual revenue.

The margin tax, which replaced a state franchise tax, hasn’t produced as much revenue as originally projected, and now will have fewer businesses paying into it than its predecessor did, Craymer said. That’s contrary to its original purpose: to spread the tax burden across a greater range of businesses.

“Instead, we’re moving away from that and actually shrinking the number of taxpayers,” Craymer said.

The exemption measure, sponsored by Rep. Rene Oliveira, D-Brownsville, passed both houses and next goes to the governor.

It exempts an additional 132,000 small businesses from paying a business tax to the state, according to the Texas Comptroller of Public Accounts. Some 451,000 entities fall below the $300,000 revenue threshold.

The higher threshold is set to expire and revert to the $300,000 bar in 2012.

Dallas Business Journal

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