The Senate Committee on Finance met on February 28 to take up legislation concerning tax credits, the franchise tax, and reporting on and purchasing of Information Technology by state agencies. This report covers all bills discussed during the hearing except for SJR 1 and SB 15.
SB 550, Campbell – Relating to the sale or assignment of tax credits for the certified rehabilitation of certified historic structures.
- Provides that credits earned under the program can be used by entities for the franchise or premium tax
- Allowing entities to use credits for the premium tax will help protect Texas buildings
SB 518, Miles – Relating to a franchise tax credit for entities that employ certain students in certain paid internship or similar programs.
- Provides $1,000 franchise tax credits for companies offering paid internships to high school students
- CSSB 518 would cap franchise tax credits to $5 million per biennium, also provides for study by TSU to assess effect of credit (adopted)
- Would help prepare disenfranchised students to become a productive part of the Texas economy
- Sen. Bettencourt – Do other states limit this to public high schools?
- Yes
- Sen. Bettencourt – Why is this limited to public high schools?
- It should not be, will accept a recommendation on this
- Sen. Nichols – Fiscal note states that this would be $8 million per biennium?
- Sen. Nelson – Substitute revision was to make sure the fiscal note is controlled
Rhonda Skillern-Jones, HISD – For SB 518
- Incentive to companies to hire students is beneficial and equips them with skills to meet workforce demands
SB 142, V. Taylor – Relating to the determination of cost of goods sold for purposes of computing the franchise tax.
- Franchise tax allows one of three methods to calculate tax, but the problem with cost of goods method is complexity of Texas’ requirements; accounting can cost more than the tax
- Consolidates bookkeeping and accounting procedures and reduces compliance requirements to keep pace with reduction of tax
- Sen. Uresti – So the fiscal note is big
- Sen. Taylor – Big for this session, but it’s important to have this conversation while considering reducing franchise tax
- Businesses will be better off reducing overhead rather than a straight $500 million cut
- Sen. Bettencourt – Have you seen a total compliance cost for the state?
- Unaware, but businesses have stated they are high and is higher for complex businesses
- Sen. Bettencourt – Has there been other studies on what this might cost the state?
- Thinks the fiscal note might be realistically half the calculated amount, but will still be $100s of millions
- Regardless, this is a smart move if the goal is to reduce franchise tax
Vance Ginn, TPPF – For SB 142
- Simplifies franchise tax process which has largely been a failure on many metrics
- Fiscal note is based on static analysis and might not be accurate
- Sen. Hinojosa – Always been against the franchise tax, but would business income tax be acceptable?
- No, TPPF is in favor of eliminating margins tax entirely
- Sen. Hinojosa – So how does the state ensure revenue?
- Revenue growth and limiting spending
- Sen. Hinojosa – This method has not worked in many other states, revenue is needed to pay the bills for Texas; while franchise tax is not a good idea, state needs to think of how to replace lost revenue, Texas needs to be able to pay revenue
- Sen. Bettencourt – Could TPPF look at cost of compliance generally?
- TPPF has looked at the implicit tax & imputed cost of the tax, imputed tax is large
- Sen. Nelson – Agrees that franchise tax was a horrible idea
SB 575, Schwertner – Relating to the total revenue exemption for the franchise tax.
- Raises revenue exemption from $1 million to $4 million, businesses with revenue $4 million and under would not pay franchise tax at all
- Would result in reduction of 9% of franchise tax collections and ~$450 million in state revenue
- Would help small businesses in Texas & incentivize job creation
- Reasonable step to take
Will Newton, NFIB Texas – For SB 575
- Franchise tax accounting is a very heavy weight on small business, this bill specifically helps Texas business to operate
James LeBas, Texas Chemical Council – Against SB 575
- Balance is important in the tax system, every entity that can pay something, should; this leads to a stable tax system
- If franchise tax needs to go away, it needs to affect all business equally
Dale Craymer, Texas Taxpayers and Research Association – Against SB 575
- Most entities do not pay franchise tax; bill would lead to a far too concentrated tax-paying base
- Previously supported exemptions for small business, but this bill is one exemption too far
- Sen. Bettencourt – So is the solution a long-term rate reduction?
- Can be
SB 17, Nelson – Relating to the decrease of the rates of the franchise tax under certain circumstances and the expiration of that tax.
- Reduces franchise tax every biennium if the comptroller certifies the state will experience at least 5% revenue growth, dedicates half of revenue over 5% growth to reducing franchise tax
- CSSB 17 clarifies comptroller uses GR from the BRE to growth margin and clarifies that tax records remain sealed even if tax disappears (adopted)
Dale Craymer, Texas Taxpayers and Research Association – For SB 17
- Best part of bill is the trigger when revenue is available and sets franchise tax on path to zero
James LeBas, Texas Chemical Council – For SB 17
- Best franchise tax reduction plan TCC has seen
Samuel Sheetz, Americans for Prosperity – For SB 17
- Supports elimination of the franchise tax
- Sen. Bettencourt – You say businesses spend $45,000 annually to comply with franchise tax?
- This cost comes from certifying books, hiring CPAs, etc., these numbers come from Comptroller’s Office
Vince Ginn, TPPF
- TPPF agrees with elimination of margins tax, reductions boost economic competitiveness
- Entire elimination of margins tax would put Texas in a great place
- Sen. Bettencourt – What is the gain on productivity for elimination of franchise tax?
- Will see 130,000 new private sector jobs
Jaime Puente, Texas Latino Education Coalition – Against SB 17
- Reduction means business contribution to schools will be eliminated, will negatively impact school finance and pressure increases in property taxes
- Sen. Nelson – Education is greatly important, but reductions will increase business component and drive education funding
- Not personally convinced tax reduction will increase jobs and drive education funding
Will Newton, NFIB Texas – For SB 17
- Reduction of franchise tax will benefit small business
- Sen. Bettencourt – Elimination of this tax will help businesses hire new employees
Dennis Borel, Coalition of Texans with Disabilities – Against SB 17
- Waiting list for healthcare is very high, Texas cannot afford to pay attendants, Texas ranks last for services for IDD individuals, franchise tax brings revenue that can bolster this
- Texas will see greater reductions as franchise tax is not ratcheted up in downturns
Dick Lavine, Center for Public Policy Priorities – Against SB 17
- If there are defects in the franchise tax, the answer is to repeal and replace the revenue
- Regardless, the revenue trigger is too low and will fall below the average revenue growth per biennium
- Further, reductions should rely on the more accurate certification estimate rather than the BRE
- Bill should also include an opt-out clause
- Sen. Nichols – Have you supported tax reductions at all recently?
- Supported statewide homestead exemptions
SB 532, Nelson – Relating to reports on and purchase of information technology by state agencies.
- Improves IT capability and protects against cybersecurity risks
- CSSB 532 – Directs DIR to perform a risk assessment of each agency’s IT programs, also requires agencies to consider State Datacenter Services when making IT purchases (adopted)
Vote Outs
SB 15 (11-0)
SJR 1 (11-0)
CSSB 17 (10-1)
CSSB 532 (11-0)
SB 550 (10-0-1PNV)
Left Pending
SB 142
CSSB 518
SB 575