Texas Insider Report: AUSTIN Texas The margins tax was flawed from the outset and we heard a lot of testimony confirming this" said
House Ways & Means Committee chairman Harvey Hilderbran (R-Kerrville) following a hearing in Austin earlier this month. There is bipartisan consensus in the committee that we have to make this tax fairer & simpler. Thats going to be one of the committees main goals in the upcoming session" Hilderbran said.
With Hilderbrans initiative the state House Ways & Means Committee is focused on tackling the inequities in the states margins tax prior to the 2013 Legislative Session in order to change the Texas Tax Code which many say hurts small businesses and has resulted in similar companies paying different tax rates.
As it is now the margins tax is hurting small businesses" Hilderbran said. At Tuesdays hearing we heard firsthand from business owners who want to expand but are unable to do so because of the way the margins tax is currently set up."
Theres much more than just anecdotal evidence of flaws with this tax. There are widespread problems such as similar businesses being taxed at different rates" Hilderbran said.
The tax rate for retailers and wholesalers who have a smaller profit margin is half that of other industries. Some businesses however fall into both categories such as an auto repair shop that also sells auto parts and pay only the lower tax rate. A competing repair shop that does not sell parts would pay a tax rate twice as high.
In order to address this and other inequities Hilderbran said the committee plans to address:
- How a business is defined
- When to allow the most common deduction (cost of goods sold) and
- How to handle passed-through revenue.
Currently some businesses are taxed on 100 of incoming revenue even if some of that revenue belongs and is passed-through" to independent contractors.
In 2009 the Legislature sought to decrease the burden on small businesses by exempting those with gross revenues of $1 million or less from paying the margins tax. That exemption was extended during last years 2011 Legislative Session.
Hilderbran said that in 2013 the committee will look at making a better permanent exemption that helps even more small businesses.
Small business owners are largely responsible for job creation in Texas" said Hilderbran who voted against the bill that created the tax in 2006.
We provided them with some relief in 2009 and 2011 and now Texas is seeing its lowest unemployment rate level in three years. Weve been named the friendliest state for small businesses and are leading the nation in job growth. Were proud of those statistics but we know we can do even better.
We need to work toward a fair simple system that encourages even more business growth keeping job creation high and unemployment low" Hilderbran said.
