Texas Senate Bill SB112

Texas 2017 - 85th Regular

• Filed: 11/14/16

Caption

Relating to the decrease of the rates of the franchise tax under certain circumstances and the expiration of that tax.

Impact

The modifications proposed by SB112 are expected to have significant implications for state laws surrounding taxation. By allowing for a possible reduction of the franchise tax to zero, the bill could ease the tax burden on many businesses, potentially stimulating economic growth. However, the tax adjustments depend heavily on state revenue, which may vary yearly. This legislation could change the competitive landscape for retail and wholesale businesses in Texas, as lower taxes might incentivize business investments and expansions in these sectors.

Summary

SB112 proposes changes to the franchise tax rates in Texas, aiming to decrease the tax burden on businesses under certain circumstances. Specifically, it lowers the franchise tax rate from 0.75% to 0.375% for entities primarily engaged in retail or wholesale trade. This bill also introduces a mechanism for annual adjustments to the tax rates based on the state's revenue, wherein if the general revenue fund appropriations exceed $110 billion, the tax rates will be further adjusted downward. Notably, there is a provision that, if franchise tax rates are reduced to zero, taxable entities would not be required to file tax reports or pay any tax, effectively abolishing the franchise tax.

Contention

Despite the potential benefits, the bill also opens up discussions regarding the state’s financial health and the sustainability of public services that rely on tax revenues. Critics might argue that reducing the franchise tax could diminish state resources necessary for funding essential services. Furthermore, the criteria for tax rate adjustments based on achieving specific revenue milestones may lead to volatility in the tax environment, prompting concerns over fiscal responsibility and consistency for businesses planning for future investments in Texas.