Texas Margin Tax: Is It Time for the Curtain Call?

47 TEX. J. BUS. L. 11 (2017)

47 Pages Posted: 19 Aug 2016 Last revised: 2 Apr 2017

Date Written: July 13, 2016

Abstract

On January 1, 2008, the business landscape changed dramatically for tens of thousands of Texas-based businesses. This change was the result of legislation which made significant revisions to the Texas franchise tax (now commonly called the “margin” tax) by expanding its scope to include entities that never before had been subject to the tax and significantly altering how the tax is calculated. To put it mildly, the margin tax has not been well received, and it is doubtful that the tax will reach its tenth anniversary.

The margin tax has survived two constitutional challenges in the Texas Supreme Court (one in which the author participated as an amicus curiae), and it is still under attack. As of last August, there were more than 60 franchise tax cases pending against the Texas Comptroller. Earlier this year, Governor Abbott signed into law House Bill 32, which states that “[i]t is the intent of the legislature to promote economic growth by repealing the franchise tax.” Interestingly, this bill was called the “Franchise Tax Repeal Act of 2015” in a prior version, but its name was changed to the “Franchise Tax Reduction Action of 2015” in the enrolled version.

This paper begins with a brief review of the basics of the margin tax. Next, the paper summarizes various constitutional challenges brought against the margin tax, as well as the outcome of each, and looks at other significant cases that have impacted the application of the tax. The paper closes by observing the uncertain future of the margin tax in light of its numerous opponents and dismal financial results.

Keywords: Texas Franchise Tax, Margin Tax, Franchise Tax

JEL Classification: H25, H71, K34

Suggested Citation

Laing, Nikki, Texas Margin Tax: Is It Time for the Curtain Call? (July 13, 2016). 47 TEX. J. BUS. L. 11 (2017). Available at SSRN: https://ssrn.com/abstract=2824647
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