Abbott's Business Tax Remarks Spark Confusion

In his campaign for governor, Republican Attorney General Greg Abbott has repeatedly vowed to keep taxes low in Texas. But a remark during a speech to a conservative group this month might have stretched that sentiment further than he planned.

"The time has come to return tax dollars to taxpayers,” Abbott said at the RedState Gathering in Fort Worth. “Texas is known as having no income tax. Think how many more jobs we could attract to Texas if we also had no business franchise tax.”

The crowd cheered at Abbott’s remark, which some in attendance said they interpreted to mean he was planning to repeal the franchise tax if elected governor. Asked later about the remark, his office said that Abbott was not calling for a repeal of the tax. Campaign spokesman Amelia Chasse declined to say what Abbott intended to convey with his remark.

“He has not put forward any proposal to repeal the franchise tax,” Chasse said. “He has said many times before that he is open to any proposals that will make Texas a better business climate.”

Repealing the franchise tax in its entirety would conflict with a policy proposal Abbott unveiled in July to encourage entrepreneurship among veterans. Abbott said he wanted to exempt newly created businesses owned by veterans from the franchise tax for the first five years.

“Greg Abbott’s plan lowers financial barriers and makes it easier for vets to start and run a business,” Joe Esparza, a veteran and member of Abbott’s campaign, wrote in a fundraising email sent to supporters in July.

Such an incentive would be made irrelevant if the franchise tax were completely repealed.

State Sen. Wendy Davis, the Democratic candidate for governor, declined to comment on Abbott's remarks or whether she plans to make changes to the franchise tax. Davis has said in the past that she supports a thorough study of all of the state's tax exemptions.

Texas lawmakers created the business franchise tax, also known as the margins tax, in 2006 to help pay for a property tax cut. Businesses pay the franchise tax on gross receipts, leading to some paying it even in years when they make little or no profit. It has long drawn criticism from business groups and education groups. Among the concerns has been that the tax drew less than initially anticipated. In the 2009 fiscal year, the tax raised $4.4 billion, 30 percent less than lawmakers had predicted it would in 2006. Since that initial rollout, the Legislature has made several revisions to the bill, including exemptions for some smaller businesses. The tax is estimated to draw more than $4.5 billion this fiscal year, which ends Aug. 31, according to the Legislative Budget Board.

In last year’s legislative session, more than 90 bills were filed aimed at reforming the tax, including nine proposing to repeal it entirely. Lawmakers ultimately passed a one-year 2.5 percent cut of the franchise tax rate for the first year of the 2014-15 biennium. They also approved a separate 5 percent cut in the tax rate to go into effect Sept. 1 if the comptroller’s office certified that other state tax revenue came in high enough to offset the costs of the tax cut.

At a hearing of the Legislative Budget Board this month, John Heleman, chief revenue estimator for the comptroller’s office, confirmed that state tax revenue has been robust enough for the 5 percent cut to be implemented.