Relating to the phaseout and repeal of the franchise tax; lowering the rates of the tax.
If enacted, SB138 would significantly impact existing tax structures by repealing Chapter 171 of the Tax Code, which currently governs the franchise tax. This action is expected to simplify the tax obligations for many businesses operating in Texas, as it reduces the complexity associated with varying tax rates and the overall tax burden. The transitional tax would apply to businesses affected by the repeal, thus ensuring a smoother transition for revenue collection while minimizing abrupt changes in tax policy.
SB138 proposes to phase out and ultimately repeal the franchise tax in Texas while progressively lowering its rates over a three-year period starting in 2016. The bill intends to decrease the franchise tax from a current rate of 0.75% to 0.25% for most taxable entities and to 0.13% for retail and wholesale entities by 2018. This comprehensive reform aims to alleviate the tax burden on businesses, thereby enhancing the state's economic competitiveness and potentially attracting new businesses to Texas.
The bill has been met with diverse opinions among stakeholders. Supporters argue that reducing and eventually eliminating the franchise tax would stimulate economic growth and job creation by allowing businesses to reinvest savings. Conversely, opponents raise concerns about potential revenue losses that could impact public services and infrastructure. As Texas relies significantly on franchise tax revenue, the repeal raises questions about how the state will adapt its budget and funding mechanisms to compensate for the expected reduction in tax income.