So what does the 2013 Legislative session (beginning tomorrow) have in store for the Texas franchise tax? Laylan Copelin of the Austin American-Statesman wrote a great in-depth article about this topic over the weekend. See “Eliminating business tax on the agenda?” published January 5. At this time, it’s way too early to predict the tax’s fate, but my hunch is that we will see some fairly substantial changes to the Texas franchise tax, particularly after today’s announcement from the Comptroller about the amount of revenue the state has available for the next two years.
Nestle’s Constitutional “Shotgun Blast” to the Texas Franchise Tax Results in a Loss: Any Positives for Texas Taxpayers?
Last Friday, the Texas Supreme Court announced its decision in the Nestle USA, Inc. case. This was Nestle’s second constitutional challenge to the Texas franchise tax. Not surprisingly, the Court rejected Nestle’s challenge–it upheld the tax.
Nestle’s Challenge to the Texas Franchise Tax
Nestle’s approach was to take a “shotgun blast” to the tax. I call it this because the challenge was quite broad–Nestle’s brief contained a whole host of constitutional challenges to the tax. This included claims that the tax violated the Texas Constitution’s requirement that taxation be “equal and uniform,” as well as the U.S. Constitution’s guarantees of equal protection and due process. Nestle also included a Commerce Clause argument.
Nestle spent most of its time, effort, and briefing space on its argument under the Texas Constitution’s Equal and Uniform Clause. This Clause states, very simply, that “[t]axation shall be equal and uniform.” But Nestle continued to use its shotgun approach even under this single argument. Instead of focusing on just a few provisions that appeared to create an unequal tax, Nestle took aim at many different parts of the Texas franchise tax. Nestle also went gunning for the tax as a whole. It argued that the entire tax should be struck down, presumably for all taxpayers. This would have blown a multi-billion dollar hole in the Texas budget, and that’s just for taxes due in 2013. Had Nestle’s challenge succeeded, every taxpayer in the state would have presumably qualified for a full refund of all franchise tax paid in the last four years.
Texas Franchise Tax: Good News Regarding Half-Percent Rate for Home and Commercial Remodelers
Good news about the Texas Franchise Tax–the Comptroller has recently conceded that more taxpayers qualify for the special half-percent rate.
Sexually Oriented Business Fee Declared Constitutional
Last month I posted an entry about a constitutional challenge to the “Sexually Oriented Business Fee,” or SOB Tax. This is the $5 per-customer charge imposed on Texas adult entertainment establishments that allow alcohol to be consumed on their premises. See my June 29 post on the Sexually Oriented Business Fee for additional background.
In that entry, I speculated that a Travis County District Court may soon declare the Fee to be unconstitutional because it is an improperly allocated occupation tax. This was based on the Judge’s comments and questions during the June 28 hearing. However, the Judge did appear hesitant to declare the statute unconstitutional, because he is required to find a statute constitutional if there is any possible way that it can be reconciled with the constitution.
Judge Jenkins appears to believe he’s found a way to reconcile the SOB Fee provision with the Texas Constitution. On July 9, he issued a Final Judgment holding that the Sexually Oriented Business Fee does not violate the Texas Constitution.
Sexually Oriented Business Fee May Soon be Declared Unconstitutional . . . Again
Update: On July 9, Judge Jenkins published a Final Judgment holding that the SOB Fee does NOT violate the Texas Constitution. See my July 30 post on the Texas Sexually Oriented Business Fee for more details.
The Texas Sexually Oriented Business Fee may soon be declared unconstitutional as an improperly allocated occupation tax. Yesterday, District Court Judge Scott Jenkins (Travis County) heard arguments in Combs v. Texas Entertainment Association, Inc. He appeared to have already spent significant time considering the arguments. He also appeared to be inclined to invalidate the tax.
House Ways & Means Appears Willing to Make the Texas Franchise Tax “More Fair” by Making it Even More Complicated
On June 5, the Texas House Ways & Means Committee held a hearing on potential Texas franchise tax changes. The Austin American Statesman has published an article about the hearing, and the TSCPA has also covered it in its blog. A four and a half hour long recording of the hearing is available here.
After watching the hearing, it appears that the Committee is prepared to propose some fairly substantial fixes to the franchise tax. But the Committee doesn’t appear ready to repeal the tax altogether, and replace it with a simpler method. (Several witnesses and Committee member Mike Villarreal, D-San Antonio, recommended reverting back to a modified version of the old earned surplus method, now applied to partnerships as well as other entities, but most of the others on the Committee didn’t appear to be too excited about this plan.)
Texas Franchise Tax Hearing on June 5
The Texas House Ways & Means Committee recently announced a hearing on changes to the Texas franchise tax, also known as the margin tax. The hearing is scheduled for June 5. The notice for the meeting is posted here. The Committee wishes to discuss “equity and administrative issues” about the margin tax, including but not limited to “pass through, definition of retailer, cost of goods sold, and compensation deduction.” They’ve invited testimony from the public. Those wishing to testify should contact the committee at 512-463-0822.
The Committee appears to be well aware of the hot-button issues surrounding the Texas franchise tax:
Amazon.com’s Texas Sales Tax Settlement: Is It Even Legal?
You’ve probably heard about Amazon.com recent $269 million Texas sales tax settlement with the Comptroller. Back in 2010, the Comptroller alleged that under existing state law, Amazon should have been collecting Texas sales tax from all of its Texas customers. Then in 2011, the Legislature balanced the budget by adding a provision to the tax code making it clearer that companies like Amazon should be collecting tax from customers (See article 30 of Senate Bill 1, passed in the first special session). The Comptroller’s $269 million claim against Amazon arose from transactions occurring before the effective date of the law change.
Texas Franchise Tax Filing Deadline Quickly Approaches
We’re only a little over a week away from the May 15 filing deadline for the 2012 Texas franchise tax reports. With that in mind, I wanted to discuss a few areas you may wish to consider while you prepare those Texas franchise tax reports and extensions.
Scrapping the Texas Property Tax?
This morning, three public policy experts asked the Ways & Means Committee of the Texas House of Representatives to consider a full repeal of the Texas property tax. The speakers included Peggy Venable from the Texas Chapter of American for Prosperity, Talmadge Heflin from the Texas Public Policy Foundation, and Debra Medina, former GOP Texas gubernatorial candidate (Ms. Medina packed the room with supporters of her proposal). Testimony was by invitation only, so the Committee members apparently welcomed the experts’ suggestions.
For Prompt Updates on Texas Tax Law
