April 5, 2003
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No New Taxes? Not This Session

Even if the Legislature defers franchise tax reform until next year or later, the regular session of the 78th Legislature may still go down in history as a “tax” session. That’s because numerous revenue-raising proposals, from fee increases to general tax hikes, are on the table, together with proposals that will shift taxes from one category of taxpayers to another. So while the rhetoric from the Governor’s office and the legislative leadership has been consistent, the actual performance has not.

Let’s start with H.B. 1365, the Texas emissions reduction program legislation designed to raise funds for compliance with federal clean air standards. Scheduled for House debate on Monday, the bill currently imposes a temporary fee on off-loading diesel fuel from a bulk facility to generate most of the $100 million or so needed for the program. Assuming the bill passes the House without substantive change (not a sure thing, by any means), it will go to a Senate with radically different plans. There the primary financing alternatives include a 2 cent increase in the oil and gas severance tax and a throughput charge on pipelines. Both ideas involve direct taxes on oil and gas, and a severance tax increase would be the first in more than a decade.

While we’re on the subject of oil and gas taxes, another bill, H.B. 3263, would effectively raise taxes on the production of high cost gas. High cost gas currently receives the benefit of a severance tax exemption if it meets certain recovery criteria. The exemption is designed to encourage the development of marginal gas wells that would not be economically viable but for the exemption. The problem is, a contingency fee tax consultant has made a killing poring over Railroad Commission records to find gas producers who qualified for but did not apply for the exemption. He filed refund claims on behalf of these producers, costing the state millions in cash that would otherwise have ended up in the Rainy Day Fund. Unhappy with the situation, the Comptroller prepared legislation to restrict both the scope and availability of the exemption, and the Governor’s office is actively pursuing it. Here is a tax bill in the guise of technical clean-up legislation.

Yet another technical bill, H.B. 1123, attempts to deal with refund claims for state taxes by essentially allowing the Comptroller to leave an audit open for an indefinite period of time, but prohibiting a taxpayer from discovering and asserting a refund claim for the same period. This one-way street is designed to shut down aggressive tax consulting firms from pursuing new refund claims during the pendency of an audit on other issues, but in reality deprives taxpayers of due process for taxes paid but not owed. Again, beware of technical bills that have the effect of increasing taxes, this time by cutting off taxpayer remedies.

One of the most obscure yet significant tax increases on the table this session is the so-called streamlined sales tax legislation. H.B. 3143 would take a step toward implementing a compact between states that would bring their sales tax laws into rough conformity with respect to rates and taxability of goods and services. The idea is to convince Congress to allow the states to collect sales tax on remote sales of goods, particularly Internet and catalogue transactions. In order to make such action constitutional, states are required to make compliance with their individual sales tax laws much easier and “streamlined” for remote sellers responsible for collecting and remitting the tax. Obviously, brick-and-mortar merchants, which cannot escape the tax, would like to see their electronically-based brethren share the pain. The only problem is, imposing a sales tax on remote sales would in effect constitute a tax increase on consumers, although arguably one they should be paying anyway. Nevertheless, with revenue estimates in the hundreds of millions, the money will have come out of a pocket it’s not coming from currently. That’s certainly a tax increase to the one paying the tax.

Finally, we have spoken before about H.B. 3146, which directly taxes partnerships and ownership interests in partnerships, and H.B. 474, which shifts hundreds of millions of dollars in property taxes from residential to other residential and business taxpayers by slashing in half the current 10% appraisal cap. The former will be heard this Wednesday in the House Ways and Means Committee, the latter received a new breath of life on Friday when Comptroller Strayhorn endorsed it and proposed to pay for it with revenues from video lottery games at racetracks and other lottery venues. Consequently, we now have the bizarre prospect of a gambling tax, which tends to fall heavily on the people with less ability to pay, being used to replace part of the property tax on middle and upper-class suburban homeowners. Regressive? Yes. Good politics? That remains to be seen, since the proposal will pit the traditionally anti-gambling wing of the GOP against the property tax revolt wing.

And what about the “no new taxes” wing of the majority party? Surely you didn’t believe that stuff anyway.