The Fort Worth Chamberletter

Revised tax stirs questions

Pioneering efforts face unexplored territory and roadmaps take shape along the way, but not usually without a few bumps and detours.

That applies to Texas’ restructured franchise tax, a longstanding tax on businesses that was heavily revised in a 2006 special session of the Legislature and in the 2007 regular session, creating a complex and controversial tax structure that has required several filing extensions and much time to help businesses and tax preparers learn a new tax universe.

Texas Comptroller Susan Combs, the state’s chief tax collector and chief revenue estimator, will be in Fort Worth Sept. 25 to provide an update on the state of the journey. She will address a Leaders in Government luncheon co-hosted by the Fort Worth Chapter of the Texas Society of Certified Public Accountants and the Fort Worth Chamber of Commerce at the Sheraton Fort Worth Hotel & Spa downtown.

Donna Rutter, a tax partner with Hartman, Leito & Bolt, LLP, and a member of the comptroller’s Business Tax Advisory Council, expects many questions to be raised at the luncheon: “Is the tax a neutral tax as promised by the governor? Will small- to medium-size businesses see additional relief, such as additional deductions or discounts? Can we expect an expansion of revenue exclusions for flow-through funds?”

Rutter feels that Combs will address a core issue: there isn’t sufficient information to evaluate the tax and the impact on Texas business and economy. “We may not know until 2010,” Rutter said.

Allyson Baumeister, a partner at Sanford, Baumeister & Frazier, PLLC, has been working with clients and the CPA association on franchise tax issues for the past 18 months.

Baumeister, who serves on the Chamber’s board of directors, said, “Most all of my business clients are subject to the new franchise tax. Less than 5 percent fall below the minimum reporting levels. The greatest strength {about the tax} is that it will generate much more revenue for the state. Greatest weakness, bar none, is its complexity.”

The new structure taxes the revenues of an expanded number of businesses on revenues earned in 2007 and thereafter. The move opens new tax territory and aims to replace state tax revenue that was lost to property tax relief enacted in 2006.

Revisions aimed to replace a system in which only about six percent of Texas businesses paying the tax, which generated $2.6 billion in fiscal 2006.

The new tax structure will apply to about 12 percent of Texas businesses and is projected to raise $11.9 billion this year and in 2009.

The true impact of the first full year of the tax won’t be known until after the final payment deadline — Nov. 17 — when the comptroller’s office will tally payments and the number of complying businesses.

Through June 24, the revised tax had generated about $4.2 billion in revenue with about 133,000 payments, Combs said in a news release, adding that about 46,000 extension payments had been filed, but “the first year of a revised tax can be somewhat unpredictable without a previous roadmap.”

Rutter and Baumeister have heard concerns about the onslaught of filings on the comptroller’s staff in November.

“There are some concerns,” Rutter said, “that (the franchise tax) will be a challenge to enforce due to lack of franchise tax auditors, lack of federal tax expertise, and the record-keeping requirements.”

Baumeister added that “as business taxpayers’ advisors in the tax compliance process, CPAs in Fort Worth and statewide have been actively involved working to resolve ambiguities in the legislation that created the revised tax.”

Ultimately, Rutter said, Texas must have a fair franchise tax. “You don’t want to see the small- to medium-size companies cease to exist if they do not generate sufficient cash to pay the tax or the increased costs of compliance.”

Revised tax stirs questions

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