State's small businesses call for tax changes

New coalition wants Lege to change business tax.

Demands for changes to Texas' new business tax grew louder Thursday from small-business owners who say they will be unfairly burdened.

Speaking at an event to launch the Texas Business Tax Coalition, electrical contractor Keith Bell said the tax bill for his Dallas-area firm will skyrocket from about $3,900 to $50,000 under the so-called margin tax, which is due for the first time in June.

Harry Cabluck/ASSOCIATED PRESS (enlarge photo) Ben Stark, right, a small-business owner from Hurst, and Rod Steinbrook, vice president of a delivery service in Houston, attended a meeting Thursday to organize to change a new tax.

"I cannot believe that if the legislators knew that the inequities and the unintended consequences were going to occur ... that they would have voted for it," said Bell, who leads the government affairs committee for the Independent Electrical Contractors of Texas, a trade association.

But now that "the devil has been exposed in the details," Bell said, the Legislature needs to act.

For most qualifying businesses, the tax is 1 percent of their total revenue minus one of three options: the cost of goods sold, employee compensation or 30 percent of total revenue. Adopted in 2006, the tax applies to about 200,000 more businesses than the franchise tax it replaced.

The coalition, which includes several trade associations as well as the National Federation of Independent Business/Texas, is calling for changes that will lessen the tax burden on small businesses. The proposal includes exempting small businesses that do not make a profit and those that generate less than $1 million in revenue.

State Rep. Jim Keffer, chairman of the House Ways and Means Committee, said legislators are sensitive to the concerns about the tax and are open to addressing any problems once more is known about the tax impact.

"Our goal is always to keep Texas business-friendly," said Keffer, an Eastland Republican. "We will work had to make sure that no industry is overtaxed and overburdened."

Gov. Rick Perry has said the Legislature should revisit the business tax if it brings in more revenue than anticipated or if there are unintended consequences, spokeswoman Allison Castle said.

But the coalition's call for change is "putting the cart before the horse. The tax hasn't been collected yet," Castle said.

The state estimates that the new business tax will raise almost $12 billion in the next two years, more than double what the previous franchise tax generated. The additional money coming to the state will go to school districts, which were required to reduce their property tax rates as part of the same legislative deal that created the margin tax.

Actual details about how much money has been generated and the impact on certain kinds of businesses will not be known for months.

Some members of the Legislature agree with the coalition that change is necessary.

"It is a mess," said Sen. Dan Patrick, R-Houston, who was not in the state Senate in 2006 when the margin tax was adopted.

The tax is convoluted and confusing, and it punishes many small businesses, Patrick said.

State Rep. Debbie Riddle, R-Tomball, opposed the tax in 2006 and said it continues to be a mistake.

"We need to nuke the tax, we need to repeal the tax, we need to drive a stake through the heart of the margin tax," said Riddle, who attended the coalition event Thursday.

She said the revenue should be made up through cuts in the budget, an idea that has been seconded by Patrick.

Patrick also suggested raising the sales tax to generate more revenue.

The coalition announced its proposed changes on what was supposed to be the deadline to pay the new business tax. Texas Comptroller Susan Combs last month bumped the deadline to June 16 because of the complexity and newness of the tax.

Proposed business tax reforms

Exempt small businesses that are losing money

Raise the small-business exemption to $1 million

Lower the tax rate

Allow deductions for contract labor

Limit tax increase a business could face

Require two-thirds vote of the Legislature to raise tax rate

SOURCE: Texas Business Tax Coalition

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