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Texas Agriculture Archive

April 21, 2006

In short order, the Texas Legislature will convene for yet another special session.

Gov. Perry has called this session to deal primarily with the Supreme Court ruling regarding school finance. Former Comptroller John Sharp led a blue ribbon commission appointed by Perry to answer the questions on school finance posed by the Court.

The Commission has provided recommendations by way of legislation to overhaul the complete tax structure in Texas. The bill reduces the School Maintenance and Operation tax rate by 17 cents in 2006 and 33 cents in 2007, for a total reduction of 50 cents/$100 of valuation within two years. The property tax cut would be funded largely by an expanded business tax that would replace the current franchise tax, which is paid by only one in 16 businesses.

The second tier of the tax overhaul allows the taxpayer to choose one of two options to pay the margins tax. The taxpayer can deduct "compensation expenses" or "cost of goods sold." The margin of most businesses will be taxed at a rate of 1 percent.

The "cost of goods sold" is defined as the inputs required to produce a "good." Deductions include utilities, water, normal agricultural inputs such as feed, seed, fertilizer, etc., as well as some 20 other items. The total revenue minus the chosen deduction option is the "margin."

"Compensation"—the second choice for Texas taxpayers—is based on deducting payroll expenses, benefits, health care, workers compensation and the like from their gross receipts and paying the margins tax rate (1 percent) on the difference. Retailers and wholesalers are taxed at .5 percent in the plan with the same choice.

Additionally, there is proposed legislation which would create a "hold harmless" provision. The "hold harmless" legislation ensures, during the transition period (school years `06-`07 and `07-`08), that each school district will have at least the same amount of funding as they currently have.

As the Legislature convenes, remember to talk with your state elected officials regarding the margins tax. The plan has received broad-based support from many businesses and associations in Texas. It is important legislators hear from the "Voice of Agriculture" regarding this important issue.