Montgomery County lawmakers have introduced bills to repeal or amend the Texas business franchise tax this legislative session.
Sen. Brandon Creighton, R-Conroe, Rep. Mark Keough, R-The Woodlands and Rep. Will Metcalf, R-Conroe, each have introduced legislation that would either repeal or substantially alter the franchise tax—a tax that was last revised in 2006 and is levied on businesses with more than $1 million in receipts.
"There are a number of bills that are filed that address this issue," Keough's Chief of Staff Jason Millsaps said. "The tax was put [into effect] back in 2007 when we were in a budget shortfall, and it was designed to prop up the state budget to keep us from running a deficit. We have not run a deficit since and we actually have a surplus, so it is punitively taxing businesses' productivity."
Franchise tax revenue is divided between the Texas General Revenue Fund and the Property Tax Relief Fund—which is used to reduce school district maintenance and operations tax rates. In 2014, the franchise tax generated about $4.73 billion for the state, according to the Texas Comptroller of Public Accounts.
In a speech delivered at the National Federation of Independent Business luncheon Feb. 3, Gov. Greg Abbott said lowering the franchise tax would help job creation, and that he would not approved any budget proposed by the Legislature that does not include tax relief for small businesses.
"It's a proven fact that lowering the business franchise tax is one of the best ways to stimulate job growth," Abbott said. "I will reject any budget that does not include tax relief to Texas businesses."
While proposals from local legislators all seek to address franchise tax concerns, each proposal takes its own approach toward the goal.
One of Creighton's bills, SB 186, seeks to repeal the tax by 2020, and require that in the interim Comptroller of Public Accounts Glenn Hegar find alternative revenue sources to replace funds lost by the state. With bills SB 330 and SB 331, Creighton also seeks to halt taxation on businesses that are above the $1 million revenue margin but did not generate profit, and propose a franchise tax rebate program to benefit businesses.
"Setting a repeal of the Franchise Tax for the year 2020 would allow us [to have] ample time to rely on Comptroller Hegar's expertise to suggest alternative solutions for the Legislature," Creighton said.
Keough alternatively proposed the Business Tax Relief Act, or HB 321, which calls for the immediate repeal of the franchise tax.
"If a business ends up losing money for the year, where the IRS gives them a break on that and they don't pay taxes on their income if they lost money, the margins would still require that [business] to pay taxes on their income that year even though the business lost funds," Millsaps said.
Metcalf also co-authored HB 552 along with Rep. Dan Huberty, R-Humble, and like Creighton, seeks to repeal the franchise tax by 2020, Chief of Staff Seth Juergens said.
"This bill will lower the overall franchise tax around 20 percent per year until it is completely phased out in 2020," Juergens said. "This extra money will allow businesses to create more jobs, and give Texas a better business environment."
