MARGIN TAX - TEXAS HAS A NEW STATE TAX

In May of 2006, Governor Rick Perry signed into law a new 1% (.5% for certain taxpayers) margin tax that will take the place of the current franchise tax, effective January 1, 2007.  The revised franchise tax will apply to business entities that are not currently subject to the franchise tax, such as partnerships and professional associations, which means it will affect the majority of Texas businesses no matter what entity structure they have adopted.

The new tax will be based on the taxable entity’s total revenue reduced by either a cost of goods sold adjustment or a compensation adjustment.  The state does provide for some relief by declaring certain types of income exempt and by allowing special deductions and allowances.

While the first alternative margin tax reports will not be due until May 15, 2008, a key provision of the new legislation will affect many Texas taxpayers much sooner.  A number of taxpayers will be required to complete and submit information reports to the comptroller by February 15, 2007 to which no extensions will be granted by the state.

This new tax law is evolutionary and Goldin Peiser & Peiser anticipate a great deal of legislation in 2007 modifying many of its features.  GPP plans on revising these implications during our year end tax planning sessions with our clients.  In the meantime, please do not hesitate to contact us if you have any questions regarding the new Texas gross receipts tax and how it will most certainly affect you and your business. For more information or a more technical version of the margin tax, contact Erick Cutler at 972-818-5300, ext. 141.