Giving an “F” to the Franchise Tax: The Texas Franchise Tax Fails to Fund
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In 2006, Texas faced a fiscal double whammy. Not only had the Texas Supreme Court ordered the state to pick up more of the tab for K-12 education, but the legislature promised voters significant property tax relief. To achieve both goals simultaneously, the Texas Legislature expanded the state’s franchise tax (a form of corporate income tax) to include businesses other than corporations. A good idea in principle, but not in execution.
DescriptionWHAT’S THE TAKEAWAY? The Texas franchise tax burdens taxpayers without generating sufficient tax revenue. The tax is particularly hostile to smaller businesses and the business services industry. Revenue would be better raised by replacing the franchise tax with either a value added tax (VAT) or a broader sales tax that includes consumer services.
Taylor, Lori L.; Cottingham, Erica; Shea, Allison (2016). Giving an “F” to the Franchise Tax: The Texas Franchise Tax Fails to Fund. Mosbacher Institute for Trade, Economics & Public Policy. Available electronically from
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