Sunday, July 27, 2008
In 2006, therefore, the Texas Legislature adopted the new margin tax, which expands the outdated franchise tax. The margin tax increases the number and kind of entities taxed and, true to its nomenclature, taxes a business's margin, or revenue, instead of mere capital. The controversial nature of the new tax lies in its significant reform. Long-used methods of circumventing the franchise tax, such as business restructuring and asset reallocation, are curtailed by the margin tax. ...
Before analyzing the new margin tax, we must first understand the basic history of business taxation in Texas in order to understand how and why the state legislature has made this latest change. Furthermore, analyzing the differences between the franchise tax and the margin tax will allow greater understanding of the complicated margin tax and help Texas businesses estimate their new tax liability. By examining the policy and substance behind the changes to the franchise tax, and by comparing the margin tax with business taxes of other states, we can further anticipate problems and ponder the possible solutions to this controversial change in Texas tax law. The margin tax is both positive and problematic, and even more changes should and probably will be made before the first returns are filed. More than anything, however, the Texas Legislature and Comptroller for Public Accounts need to clarify terms, simplify instructions, and provide example calculations--in addition to the online margin tax calculations worksheet--in order to reduce the confusion and ambiguity surrounding the tax.