Last session, the Texas Legislature took positive steps to reduce the tax burden on businesses and subsequently consumers by reforming the state’s franchise tax—otherwise known as the margin tax. Voters understand the high cost of this tax and suggest that legislators should eliminate it.
The margin tax taxes a firm’s taxable margin at either 0.5 percent for wholesalers and retailers or 1 percent for all firms. Complying with this complex tax wastes time and resources because the taxable margin is based on calculating different formulas to determine a firm’s tax liability. These higher costs force firms to cut costs or pass them on to consumers in the form of higher prices, leaving firms and consumers worse off.
Because of this complexity, the margin tax’s revenue has been lower each year than originally projected, providing more reason to reform or eliminate it.
Fortunately, legislators made permanent the $1 million deduction for businesses and temporarily lowered the tax rates last session. After these changes, the American Legislative Exchange Council (ALEC) ranks Texas as having the 12th best economic outlook. This means there is more work to do.
On a primary election ballot yesterday, Proposition 3 asked voters whether legislators should “abolish the franchise tax to encourage business growth.” The results were astonishing: 9 out of 10 voters agreed!
The margin tax is an inefficient form of taxation that presents both a financial and compliance burden on small businesses and the Texas economy. To further get the government off the backs of business and provide pro-growth measures, legislators should take this overwhelming voter approval and eliminate the margin tax next session.