No tax law will ever make any taxpayer happy, and the laws are confusing to follow. That is certainly true for a group of mostly small business owners, who told state lawmakers that Texas tax agencies do not apply laws consistently to all businesses. They said that some of their competitors received deductions that they are denied, or that their businesses are taxed at a higher rate.
One state representative acknowledged that problems exist with what is known as the margins tax. He said that some companies struck a better deal in 2006 in exchange for their support for the new tax law at the time.
Now, state officials say the House Ways and Means Committee will look at how to make the law fairer, applying more similar regulations to all businesses, as well as simplifying it. The state is going to have to clarify how businesses are categorized, for starters. As an example, one national retailer that services cars but also sells parts for autos pays a lower tax bill because it is considered a retailer. An auto repair shop without the retail component pays more.
One way to solve that problem, legislators said, would be for businesses to pay different tax rates within a business, depending on its function. While one legislator said that was worth discussing, others said it would make the situation even more complicated.
When the legislature passed the tax law in 2006, the mission was to find a way to tax businesses, such as service companies, that paid no tax. One supporter said it accomplished that mission, while others were left to wonder.
Source: Austin American-Statesman, “Smaller companies to lawmakers: Margins tax creates unlevel playing field,” Laylan Copelin, June 5, 2012