Question

The legislature of the State of Texas has adopted a series of laws which impose a charge on business entities operating within the State. They say this is not an income tax because the taxpayer can use several different bases for calculating the amount of money due the State. Because of the federal system under which we operate, each state has legal jurisdiction over the entities operating within the bounds of the state. The legal reach of the state does not extend beyond the borders of the state for tax purposes. The legislature of the State of Texas has recognized that it is inappropriate to levy a tax on the sales value of items being shipped outside the State of Texas for consumption. The authorities will tell you that the Franchise Tax is a charge because the state has given a business the privilege of operating within the bounds of the state. The law in Texas provides for an allocation of sales revenue between Texas and other jurisdictions. Please prepare a short memo explaining the revenue allocation process.

Answer 1

• Texas is considered as a low spending state at the expenses of the most necessary services like education and health and human services
• it has a bienniel budget system
• ranked 45th at the state taxes per resident which is low but it is one of the highest in local taxes bill makes it 16th in rank because the larger share of cost is pushed down to the local government while the sales tax and local property taxes per resident are also high and these two taxes are high because texas does not have a state personal incme tax
• combining other taxes like the motor vehicle sales tax,franchise tax, gosline tax, alcohol tax,cigarettes tax constitues to only one fifth of the all the local and state tax of texas
• it is stated that Texas state and local tax is regressive in nature,where in low and moderate families are required their income ina disproportionate manner to support vital public services,because they take a higher percentage of income fromthe low and moderate income family than the higher income family, this regression pushes down families to come to a mkderate level
• texas heavly depends upon the sales tax and it is oneof the barriers to their economic growth
• it adopted the sales tax in 1961 which had many exclusions. taxes were levied on tangible goods only and in the mordern economy, the fastes growing sector involves services.
• internet sales is also major concern because goods purchased from other states by people of texas via internet are suppose to pay the sales tax or called the use tax on these items and majority fail to pay them
• as per the US supreme court the state is not allowed to collect tax on goods from an out of state retailer, ant the states cannot force the retailer to collect sales taxes unless he is present in the state
• the school property taxes were reduced by one third by the legislature in 2006 in order for the school to replace their forgone property tax revenue so that school district could maintain their local and state revenue, thus a franchise tax was formed which is popularly known as margins tax also increased the cigarette tax
• few unrelated taxes to the property tax reduction which donot get included in the structural defecit
• texas is short of $10 billion in each biennium of replacing the proeprty tax revenue given up by the school districts, thus a $10 billion hole will appear every budget until it is filled with additional revenue