LEGISLATIVE UPDATE - Chamber of Commerce

Governor Rick Perry will be in Corpus Christi at 3:30pm on Tuesday, May 4, 2004 at Unique Employment Services located at 4646 Corona, Suite 105 to discuss school finance and the impact it will have on small business.

SPECIAL SESSION LEGISLATIVE UPDATE

May, 3, 2004


The House Select Committee on Public School Finance reported a bill on Saturday very much along the lines of the provisions described in your Chamber e-mail of April 29th. The bill reduces property taxes by 30% and raises an additional 1.35 billion for public school enhancements. The bill pays for this by raising sales tax rates and expanding their application to some previously uncovered activities and imposes a business payroll tax of 1.25% or $125 per quarter, whichever is lower. This applies to wages paid to an employee for an annual maximum of $500 per employee per year. The bill also eliminates the current franchise tax.

New Payroll Tax

The coverage of the new payroll tax is much broader than the franchise tax that is being repealed. While the franchise tax is primarily limited to corporations and limited liability companies, the payroll tax will include all of the following to the extent that they have employees:

Sole proprietorships

General partnerships and Limited partnerships

Limited liability partnerships

Professional associations and corporations

Business corporations and limited liability companies

Non-profit corporations other than those exempt under 501(c)(3) [such as chambers of commerce and visitors bureaus]

Legislative Outlook

HB-1, as substituted by the Committee, was reported on a 21 to 7 vote with only one vote by a Democrat, Ron Wilson of Houston. (Vice Chair Vilma Luna voted against the bill.) The constitutional provision necessary to implement the bill will require 100 votes in the House. Republicans enjoy an 88 to 62 vote advantage in the House, well short of the 100 needed unless they can convince more Democrats to vote for the plan. Also, some of the Republican members who voted to send the bill to the Floor have reservations about the bill. Representative Mike Kruse, (R) Round Rock, expressed concern about shifting the tax burden to the service economy and said he would have a hard time voting for the bill on the House floor. Representative Kenny Merchant, (R) Carrollton, said that he intended to look for a replacement source of funding the $1.5 billion to be generated by legalizing and then taxing video lottery terminals at race tracks and Indian reservations. That could place more pressure on sales tax increases and the new business payroll tax. In addition, many local governments are opposing the 5% annual appraisal cap on residential property.

The House is expected to take up the bill Tuesday or Wednesday May 4th or 5th.