Senate Sponsor Significantly Rewrites Franchise Tax Bill

The highest-profile bill related to tax relief this session was drastically rewritten by its Senate sponsor Thursday morning, less than two weeks before the end of the legislative session.

State Sen. Glenn Hegar, R-Katy, passed out of the Finance Subcommittee on Fiscal Matters — which he chairs — a simpler and slightly cheaper version of House Bill 500, a sweeping franchise tax proposal. Hegar said the time left in the session made it “impossible” for him to get the bill through the Senate as it passed the House.

“With literally just a week and a half left in the session, with that complexity and those fighting interests, I don’t see how I can get a bill passed in that form or fashion,” Hegar explained in presenting his substitute. If the full Senate approves the altered version of HB 500, the two chambers will conference on a final agreement before the bill is sent to the governor.

Hegar kept the bill’s provision making a $1 million exemption on paying the franchise tax. He replaced all of the other provisions, most of which provided tax relief to specific industries, and replaced it with a broad 5 percent cut in the franchise tax rate.

State Rep. Harvey Hilderbran, R-Kerrville, brought HB 500 to the House floor last week with a price tag of nearly $400 million. By the time it passed the House, amendments had increased the cost to about $666 million.

Hegar said his substitute reduces the bill’s cost to $630 million.

Businesses have complained about the franchise tax since lawmakers created it in 2006 to pay for property tax cuts and to address inequities in the school finance system. Among the key complaints is that the tax treats similar businesses in certain industries differently based on how they are structured. More than 90 bills have been filed this session related to the tax. Hilderbran had said the targeted provisions in his bill addressed many of the concerns with the franchise tax.

Hegar praised Hilderbran’s work on the bill but noted that many industries that had sought their own exemptions in the bill did not get them.

“The difficulty at this point in time is to find a fair, equitable manner to find meaningful tax relief for the businesses of Texas,” Hegar said.

Senate Finance Chairman Tommy Williams, R-The Woodlands, had said he planned to carry HB 500 in the Senate but Hegar ended up picking up the legislation.

Dick Lavine, of the left-leaning Center for Public Policy Priorities, agreed that the franchise tax treats some businesses unfairly but said Hegar’s $630 million price tag was too large given the state’s other needs.

“That is a great deal of money when you’re still short of where we used to be before the recession in regards to education,” Lavine said.

Along with HB 500, the Legislature appears poised to approve a bill providing tax credits on research and development spending and another tax bill aimed at the telecommunications industry, Texas Association of Business President Bill Hammond said.

“As best I understand it, right now, what’s moving is about $930 million in tax cuts,” Hammond said.