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Franchise Reform Could Soon Boost Texas Economy

April 7, 2015

Franchise Reform Could Soon Boost Texas Economy

The Texas Senate has passed a package of bills that include substantial reforms to the state's franchise tax, a tax on a business' gross margins. Conservatives are cheering the news, and turning a hopeful eye toward the House, where the fate of these reforms now rests.

The bill package passed on March 25 and includes significant cuts to the franchise and property tax, and reforms to both that are designed to make the taxes simpler and lower compliance costs. Here is what the bill includes:

  • SB 7 cuts the franchise tax rate by 15 percent and expands eligibility for the "EZ" reporting, doubling the amount of revenue allowed to be reported on the "EZ" form from $10 million to $20 million.
  • The bill also cuts the rate for EZ filers by 42 percent. In addition to the direct savings from the reduced taxes, many Texas businesses would save money on reduced compliance costs from being able to use the simplified "EZ" form.
  • SB 7 also includes a key provision that directs the Comptroller to conduct a study to be ready for the next legislative session, advising the Legislature on how the franchise tax could be abolished by identifying alternative revenue sources that could replace the franchise tax.

For now, all eyes turn to the House, where several bills proposing a number of different franchise tax reforms have been filed. Passage of SB 7 could set an example for other states to follow. In terms of economic growth, SB 7 is a landmark tax cut that supports small business owners and creates more jobs. Other states could improve their economies by advancing similar legislation.   

Source: Sarah Rumpf, "Conservatives Cheer Texas Senate's Passage of Franchise Tax Reform," Texas Public Policy Foundation, March 27, 2015. 


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