Monday, October 24, 2011

If Supreme Court strikes down margins tax it triggers a special session

The Texas Supreme Court heard arguments Monday on the constitutionality of the state's business franchise tax. Plaintiffs in the case argue that the Texas Constitution doesn't allow a personal income tax without voter approval and that the decision to tax partnerships amounts to a personal income tax.

The state contends that a partnership is a separate entity from the individual partners and can be subject to a tax.

For school districts, the big question is what happens to that revenue stream if the court strikes it down? The tax was enacted by the Legislature in 2006 to make up the difference when lawmakers cut property taxes by a third. The tax has far underperformed what it was projected to bring in, setting up the budget shortfall schools now face.

This past legislative session there was discussion of closing loopholes in the tax to bring in more money. Now, the decision rests with the state Supreme Court on whether to cut off the stream entirely.

Chief Justice Wallace Jefferson asked Deputy Solicitor General Danica Milios what it means for school funding if the tax is found unconstitutional.

Milios responded that it would send the Legislature back into special session.

A ruling is expected sometime in the next month.

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