The Texas House on Tuesday tentatively cut hundreds of millions of
dollars from the state's primary business tax -- cuts that proponents say will
keep the Texas economy humming and opponents argue cost too much.
House Bill 500 is the primary legislative vehicle to address the state franchise tax, commonly called the margins tax, but it is just one in a series of bills this session that either cut taxes broadly or target specific industries.
The price tag for House Bill 500 has yo-yoed through the session, as Gov. Rick Perry last month called for $1.6 billion in franchise tax cuts, only to see a House committee shrink it to $396 million three days later.
The bill permanently exempts small firms from paying the tax if they have less than $1 million in gross annual receipts. It also attempts to fix inequities between certain classes of taxpayers.
On Tuesday, the House added amendments that swelled the bottom line to $667 million.
The measure, which passed 112-27, will be considered for final House passage Wednesday before it goes to the Senate.
The bottom-line number could have been much larger, but several expensive amendments, including one for almost $1 billion, were offered -- then withdrawn -- to make political points. .
Also, in some instances the House approved tax cuts but delayed the effective date to push the cost to the next budget cycle -- a tactic that several Democratic lawmakers called disingenuous.
"If we're going to fix the inequities, fix them now, or don't fix them at all," said state Rep. Craig Eiland, D-Galveston.
State Rep. Sylvester Turner, a Houston Democrat on the Appropriations Committee, said the tax cuts for businesses will come at the expense of public schools.
"That money will come directly from our public schools," Turner said.
"We don't know that," responded state Rep. Harvey Hilderbran, a Kerrville Republican and the bill's author.
"I want a truthful answer," Turner shot back. "Do we need to have the comptroller to come in and testify?"
Hilderbran, chairman of the House tax writing committee, said the Legislature must reconcile the appropriations bill and several bills that cut taxes during the final days of the session. The Legislature adjourns May 27.
In 2006, the margins tax was part of a deal to cut property taxes for homeowners and businesses. Critics argue that it never raised as much as was projected, but it accounted for $4.5 billion in revenue in fiscal 2012 -- or about 10 percent of the state's tax revenue.
It remains unpopular among many small businesses, in part because it taxes companies whether they are profitable or not.
State Rep. Mark Strama, D-Austin, echoed that complaint, saying HB 500 makes an inequitable system more inequitable.
"House Bill 500 takes a stupid tax policy and makes it stupider," Strama said. "We should have a profit-based tax on revenue."
Hilderbran said the tax bill returns money to taxpayers to grow the economy, but Turner said it did nothing for working families.
"Did you give anything to anybody who's not a business owner?" Turner asked.
"If they work for these businesses, they'll be better off," Hilderbran said.
Among the amendments, the legislation made a minor cut to the tax rate for companies that can't deduct expenses and increased the percentage of costs of goods sold that can be deducted.
It also allowed more deductions for the aerospace and defense industries, private hospitals treating Medicaid patients and some pipeline companies as well as apartment owners who can't now deduct depreciation.
Retailers could deduct a portion of the fees charged by credit or debit card companies. Companies relocating to Texas could deduct the moving costs.
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