No matter how you evaluate Texas’ business franchise tax, commonly called the “margins tax,” it fails the least-burden- some-tax test and fails to allow Texans the opportunity to flourish. This broad-based, gross-receipts-style margins tax is far more complex and unique among all taxes nationwide—with only Nevada having a similar gross-receipts-style tax. Eliminating this onerous tax would best serve Texans.

Businesses do not pay taxes; people do, in the form of higher prices, lower wages, and fewer jobs available. Given taxes exist to fund only the preservation of liberty, the least burdensome taxes should fund conservative budgets that grow, if at all, by no more than population growth plus inflation.

The Facts

  • Texas’ margins tax is complex, costly, and difficult to comply with, giving rise to a less competitive business tax climate, for which the Tax Foundation ranks Texas 13th overall and second worst in the corporate tax ranking.
  • Texas does not have a revenue problem. Between the 2004-05 to 2018-19 budgets, the state’s estimated total tax collections increase is 97%, much faster than the 63% increase in population growth and inflation.
  • The margins tax fails to be a least burdensome tax and to allow Texans the opportunity to prosper.

Recommendations

  • Eliminate the business margins tax. Potential budget surpluses, more tax revenue from new economic growth, and spend- ing restraint should fund this without imposing a new tax.
  • Pass a bill requiring a supermajority (two-thirds) vote of each chamber to raise taxes or implement a new tax.