AUSTIN, Texas — State Senator Dr. Charles Schwertner (R-Georgetown) sent an open letter on Tuesday to a group of business associations, challenging their opposition to SB 8, the Small Business Tax Relief Act. The bill was filed by Schwertner filed in February. The letter acknowledges the contribution that big businesses make to the Texas economy, but accuses them of neglecting the state’s small businesses in favor of protecting the interests of powerful big businesses.
Schwertner’s letter was addressed to the heads of the Texas Association of Manufacturers, Texas Taxpayers and Research Association, Association of Electric Companies of Texas, Texas Association of Business, Texas Chemical Council, Texas Oil and Gas Association, and the Texas Association of Retailers, in response to a letter they wrote on March 20 that, in Schwertner’s words, expressed their “collective opposition to the tax relief package being considered by the Texas Senate,” and specifically SB 8. A copy of the letter is embedded at the end of this article.
Schwertner’s bill is but one of several that have been filed in the Senate this session that would abolish or significantly reform the franchise tax. In a recent interview with Senator Brandon Creighton (R-Conroe), who has sponsored his own package of franchise tax reforms, Creighton told Breitbart Texas the elimination of the franchise tax was one of his top priorities this session. He views successfully reforming the tax as criticial to Texas’ long term economic competitiveness. State Senator Charles Perry (R-Lubbock) is another legislator who has filed a bill to phase out the franchise tax. Governor Greg Abbott (R) has also joined the call for reform, vowing in his State of the State address to veto any budget that did not include genuine tax relief for Texas employers and job creators, and saying it was necessary to “permanently reduce the business franchise tax” in a recent web video.
According to Schwertner, Texas’ franchise tax “represents an unreasonable and unnecessary regulatory obstacle that limits job growth and stifles new investment for many Texas businesses.” He goes on to explain that SB 8 would raise the total franchise tax exemption from $1 million to $4 million. This would provide over $380 million in annual tax relief and completely eliminate the tax for over 61,000 small businesses in Texas.
Schwertner calls the groups’ opposition to SB 8 “disappointing and discouraging,” and challenges whether they truly represent all businesses in their industries and organizations, or just the powerful big business interests:
This opposition is particularly troubling since many of your organizations — namely, the Texas Association of Business — claim to not only represent the interests of big business, but also the very same small businesses that stand to realize substantial tax relief under SB 8.
The Texas Association of Business claims to be “the voice of business in Texas,” but how can that claim be reconciled with an active opposition to legislation that would relieve over half of Texas businesses from the burden of the franchise tax?
Schwertner notes the “surprising” lack of support for tax relief and goes so far as to make the accusation that they may be trying to keep small businesses from growing and competing with the larger companies:
Rather than see struggling small businesses lifted from the quagmire of the state franchise tax, it appears you’d prefer to pull them back down…
If you’ll forgive me, it doesn’t seem as though you’re concerned with the state of Texas providing tax relief per se, just in providing tax relief that doesn’t directly benefit big business.
Schwertner then describes the many benefits that small businesses provide the state of Texas and its people, including generating higher incomes for employees, and economic mobility for minorities, women, and veterans. According to Schwertner, a greater percentage of the money spent at Texas small businesses stays in Texas, and they account for two out of every three new jobs in Texas, 96 percent of all Texas businesses, and over half of the entire state’s private sector workforce.
He then points out two major burdens that the franchise tax disproportionately imposes on small businesses: the risk that the tax could still be owed by a business operating at a loss, and the costs of compliance. Many small businesses actually pay more for the accounting services to calculate their franchise tax than they actually end up paying for the tax obligation itself, according to Schwertner.
In a blog post last Friday, Texas Monthly Senior Editor Erica Grieder called SB 8 “easily the best of the tax proposals on offer this session,” focusing on its many benefits to small businesses. Writes Grieder:
[SB 8] would help thousands of businesses across the state, and unlike blanket changes to the franchise tax rate, it differentiates between small businesses, which could probably use the help, and big ones, which don’t like the franchise tax but manage to survive it. And because these businesses are small, the aggregate cost to the state—the taxes that the businesses would no longer be paying—would be modest; the fiscal note puts it at about $380m a year…
And since small businesses usually aren’t wildly profitable, the tax cut would probably spur some extra activity on their end—the money would reappear on the payroll, as business spending, or even just as consumer spending from the business owners themselves. Some of the foregone revenue would thus be recaptured via the sales tax and so on. I doubt it would add up to $380m a year, but the damage to overall state receipts, under this proposal, would be more of a ding than a disaster.
The Texas Senate will debate franchise tax reform starting on Wednesday, and the House is expected to address it later this session. Breitbart Texas will continue to follow this issue.
Follow Sarah Rumpf on Twitter @rumpfshaker.
This article has been updated.
Senator Charles Schwertner letter re franchise tax reform