The Facts
  • Texas’ margin tax is complex, costly, and difficult to comply with, giving rise to a less competitive business climate in the state.
  • The margin tax has consistently underperformed. With the exception of the current fiscal year, collections have fallen below expectations every year since its inception, partially resulting from legal tax avoidance strategies, a common issue with complex tax schemes.
  • The state’s business tax is contradictory to the idea of a limited liability entity.
  • The margin tax is collected irrespective of a business’ profitability.
  • Texas does not have a revenue problem. From fiscal 1990 to fiscal 2010, the state’s total revenue grew by 270.3%, much faster than inflation increases, 66.8%, or population growth, 48%, over the same period.
 
Recommendations
  • Phase out the margin tax by 2018 by extending and increasing the amount of total revenue below which a taxable entity would owe no tax up to $10 million in 2013 and $50 million in 2015, and then eliminating the tax altogether after 2017;
  • Require any increase in the margin tax rate to be approved by two-thirds of all members of each house of the Legislature.

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