AUSTIN — For people who run businesses ranging from taquerias to retail shops and engineering firms, tax time next spring will come with a whole new set of rules.

A new state business tax the Texas Legislature passed in 2006 is set to be due on May 15 for the first time.

About 200,000 businesses that didn’t pay before will either have to pay or file a report with the state, according to the Texas Comptroller of Public Accounts office. (For more details on the tax and to estimate your tax liability, click here.)

From now until Oct. 14, anyone may comment on the rules the office has published regarding the new tax. Comptroller Susan Combs is expected to release a final version in December.

For years, thousands of Texas businesses owners, including doctors and attorneys, have found ways to avoid paying the state franchise tax by creating partnerships that were exempt from it.

In 2006, lawmakers searching for a way to pay for public schools and at the same time cut property taxes lowered the tax’s overall rate and closed the partnership loophole. The idea was that more businesses would pay, but at a lower rate.

The new law forgives businesses from paying taxes if they have less than $300,000 in revenue, and it gives credits to businesses with revenues between $300,000 and $900,000. Even so, most businesses will have to pay.

“Very few exceptions now will be out there,” said Rudy Salinas, a Weslaco accountant and partner with Salinas, Allen and Schmitt, which counts businesses from many sectors of the economy as its clients.

Small business

To figure the taxable amount, business owners can take their total revenue and deduct either the cost of goods sold or the amount paid in salaries and benefits. Wholesalers and retailers are set to pay about 0.5 percent of that amount; all others about 1 percent.

Large department stores in the Rio Grande Valley and other businesses that operate with both high payrolls and high costs of goods stand to take big hits, Salinas said. In the past, they have been allowed to deduct both payroll and cost of goods, but now they must choose one or the other.

Many Valley doctors, law firms and other service-sector partnerships will have to pay the franchise tax for the first time, some of them at high rates because they don’t have high costs of goods or large payrolls to deduct. Even Salinas’ own accounting firm must pony up, he said.

If there are any winners, they might be the small businesses that have lower revenue and therefore are exempt or receive credits, he said.

The new tax continues to exclude sole proprietorships, since a tax on them would be a sort of income tax, which is not allowed under the Texas Constitution.

Leaders at the McAllen Chamber of Commerce are still studying the rules before they comment in detail, said Steve Ahlenius, the chamber’s president and chief executive officer.

The business tax was designed in part to compensate for a reduction in property taxes, but business owners haven’t necessarily seen lower property tax bills, he said.

“Our concern is ... what the impact is on small business,” he said.

It’s fair

The tax comes at a tenuous time for Barry Patel, who owns nine hotels in the Valley, including La Copa Inn, La Quinta Inn locations and Super 8 Motel.

The Valley hotel industry finally felt symptoms of a national economic slowdown in August and the first part of September, when Patel says occupancy rates dropped. A tax could add to his woes.

“I hope this is not a double whammy,” he said.

Lawmakers who debated the tax said they thought it was the fairest way to update an old tax system, said state Rep. Ismael “Kino” Flores, D-Palmview, who sits on the House Ways and Means Committee, which passed a bill in 2007 to tie up loose ends with the new law before it takes affect.

“It’s about time,” Flores said of the new tax structure.

Bill Summers, president and CEO of the Rio Grande Valley Partnership, a regional chamber of commerce, said he hasn’t heard a word of grumbling from member businesses that are about to pay the revised tax. He suspects most will pay closer attention when they have to start keeping stricter records next year.

As far as taxes go, this one’s fair, he said.

“If they need to raise more money, then this is the way for everybody to have to be involved from all walks of life, so to speak,” Summers said.

Criticism

The new tax is likely to help accountants more than anyone, since businesses will have to rely more on their expertise to find ways to get around the tax, said Michael Brandl, an economist at the McCombs School of Business at the University of Texas at Austin.

It will make it harder and more expensive for businesses to get off the ground, which has a ripple effect in training new workers for the economy, he said. Companies will now have to spend more time and money looking for ways to reduce their tax burden and less time mentoring and training their next leaders, he said.

And most of the tax won’t be shouldered by businesses, since they will most likely just pass the cost on to customers by raising the prices of their goods and services, Brandl said.

“The working people end up paying these taxes anyway,” he said.

Many of Salinas’ clients already have contacted him to learn how they can lessen their tax burden before the books close on the 2006 tax year.

“That’s when we can do something for them,” Salinas said. “After the fact, it’s different.”

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Elizabeth Pierson Hernandez covers the state capital for Valley Freedom Newspapers. She is based in Austin and can be reached at (512) 323-0622.

How the new tax is figured

Businesses with revenue of $10 million or less may either:

*Pay 5.75 percent of total revenue OR

*Pay tax on their margin (see below)

Businesses with revenue greater than $10 million must pay tax on their margin.

*A margin is the least of these three calculations:

1. Revenue minus cost of goods sold.

2. Revenue minus cost of compensation.

3. 70 percent of total revenue.

*Wholesalers and retailers pay about 5 percent taxes on their margin; all others pay about 1 percent

Source: Texas Office of the Comptroller