According to most economists, it is necessary that how a government imposes taxes is just as necessary as how much it collects.
Tax foundation tries to seek more attention to the above principle by publishing State Business Tax Climate Index, to compare the usefulness of tax policies between the states, in order to promote growth and business investments.
Taxes in Texas and the policies were evaluated and given the 13th position, which doesn’t changed from the last year. This is not bad, but it disappoints the Texas taxpayers other than corporates and personal property taxes.
Raising taxes in Texas will not allow to pierce through the top 10 positions, until the state floats on a whooping property taxes, high sales tax and a futile business tax. Texas taxpayers, especially who owns a business is affected with the poor tax system.
According to Tax Foundation, taxation is unavoidable, but the particulars of the tax structure matters. As per records, states those follows a sensible tax system will attract more new businesses, and will stay in a clear path for economic and employment growth. For example, states like New York and New Jersey with huge taxation ranks the lowest. But Wyoming and Alaska, without income taxes ranks highest.
As reported by Tax Foundation, Margin taxes in Texas is considered as a reputation killer, which is considered as the worst business tax after Delaware’s Manufacturers’ and Merchants’ License Tax. Since the limited liability corporation pays the margin tax unlike other companies that passes the profits to the members, margin taxes in Texas has become an indirect income, and this will resist Texas to come forward in terms of ranking.
Margin taxes are levied based on a company’s gross receipts, or the revenue made by the company in the last financial year. Economists are against the margin taxes, as they are not based on pure profits or total income. Businesses that are losing money may actually end up in paying taxes. Margin taxes are actually originated in 2007 to fix the finance system of schools. School property taxes has reached the highest and the Supreme Court of Texas has declared it as unconstitutional.
Lawmakers, in an eagerness to evade income taxes, has chosen to revamp the little franchise tax charged by Texas for doing a business. By the time, Legislators were in need of $ 10 billion to be transferred to school districts, to cut property taxes.
Government allows bookkeepers (accountants) to calculate a company’s margin using any one of the four methods. Accountants usually uses all the four and finds one that generates least tax. The margin tax however didn’t turn up with expected money, created budget shortfalls. Several attempts were made to eradicate margin tax, but lawmakers do not want to replace the income lost with some other terms, as they may blamed because of increased taxes in other areas.
When property tax, Lt. Gov. is taken into account, Dan Patrick tried to help the homeowners, but no help offered towards business in Texas, which made Texas to be pushed to 37th in ranking which made it worst.
Texas Taxpayers who owns a business pay 100 percent value of the inventory (most states don’t tax on inventory), putting a big burden to the retail business owners.
Taxation is unavoidable, but “how taxation is done, and on what” matters a lot. To be general, government should never tax for the things it wants to develop or encourage, and should tax heavily to the things it wants to stop. Texas tax system is almost broken and seriously needs an overhaul.