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Texas Sen. Creighton Hopeful Franchise Tax Reforms Will Pass

Texas State Senator Brandon Creighton (R-Conroe) told Breitbart Texas he expects franchise tax relief bills to pass in the Senate. Multiple bills proposing changes to Texas’ franchise tax have been filed in both chambers of the Texas Legislature, and multiple elected officials have told Breitbart Texas that they are hopeful that the 84th Legislative Session will see substantive changes to the tax, ultimately resulting in it being abolished. Creighton spoke to Breitbart Texas about a package of four bills that he had filed.

Creighton told Breitbart Texas that the elimination of the franchise tax is one of his top priorities. He views that reform as crucial to making sure that Texas stays competitive. The governors in other states that are trying to compete with Texas usually bring up three issues, said Creighton, the lack of a “bold plan” for the state’s water needs, inadequacies with transportation infrastructure, and the “unfair business tax.” Since the Legislature has worked on water and transportation already, that leaves the franchise tax as the last major stumbling block.

As mentioned, multiple legislators have filed bills to eliminate or substantially reform the franchise tax, including Senator Charles Perry (R-Lubbock), whose bill would phase it out over four years, and Senator Craig Estes (R-Wichita Falls), who would eliminate it immediately. Governor Greg Abbott has 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.

Creighton’s bill, SB 186, asks the Comptroller to look for alternative funding sources and then would repeal the franchise tax by 2020, a similar time frame to Perry’s bill. Breitbart Texas asked Creighton why his bill phased out the tax, rather than eliminate it right away. “I completely support killing it immediately,” he replied, adding that he did not buy into the concerns that the Legislature would not be able to quickly adjust to the loss of that revenue stream.

He pointed out that when he served on the House Appropriations Committee in 2009, they had to find $16 billion, an amount much larger the approximately $4.5 billion that would be needed to cover for the elimination of the franchise tax, “and we did it.” However, Creighton continued, “you also have to count your votes,” and “understand where you are in this building to get things done.”

“I did not think the votes were in place or the political will was here” to eliminate the tax immediately, said Creighton, “but if those votes are here, I’m all for it.”

Creighton also filed SB 330, which reforms the way that the franchise tax is calculated. Currently, he said, it is done on a gross margins formula, operating like a personal income tax, and can impose a tax on business that are taking a loss. Creighton’s proposal in SB 330 ends taxation on businesses operating at a loss, lets profitable businesses deduct both the costs of goods sold and compensation paid to employees, and creates an across-the-board $1 million revenue deduction.

The final two bills Creighton filed on the issue of the franchise tax, SB 331 and SJR 23, provide further tax relief by creating a franchise tax rebate program under which half of the unencumbered balance of funds collected from the tax that remain at the end of the biennium (the two year period on which the Legislature bases their budgets) would be returned to businesses, after the required transfers to the Economic Stabilization Fund (better known as the “Rainy Day Fund”).

Creighton told Breitbart Texas that this would create “the first rebate ever in state government.” He noted that in 2008, there was $1.8 billion left unspent and unencumbered. “If we don’t send it back, they’ll spend it,” he said, preferring to return those funds to the taxpayers.

Overall, the fact not only was the Legislature seriously considering ending the franchise tax, but the state’s budget was strong enough to eliminate an entire revenue stream, was proof to Creighton that “several things that we’re implementing as a culture” in the Legislature are working, that the efforts to add more transparency and strict adherence to principles of fiscal responsibility were successful.

At the Senate Finance Committee meeting on March 3, Creighton presented his bills and answered questions from the Committee members:

Creighton told Breitbart Texas that they are waiting to see which bills the Committee prefers to send to the floor of the Senate for discussion, possible amendments, and a vote, which he expects to happen late this week or the following week.

Follow Sarah Rumpf on Twitter @rumpfshaker.

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