Current Texas Tax Code regarding the business franchise tax references the 1987 Standard Industrial Classification Manual published by the Federal Office of Management and Budget. The problem with this publication is that it was published in 1987 and by the Federal Government, over a decade prior to the business margins tax being implemented in the state of Texas. This publication was never intended to be used in such a way.
The state provides different methods to calculate the business margins tax based upon the classification. Service Industries use one method, retail another, and other trades a third. Although the manual accurately classifies the industries, for purposes of using it to steer taxing policy is not efficient or fair.
Independently owned auto repair shops in Texas are taxed at the service industry rate which is twice as much as dealerships who too have a garage and do auto work. This is because a dealership is classified as retail according to the manual. Independent auto repair shops have a much higher cost of goods sold as a barber shop who is also considered a service industry. Auto dealerships, Wal-Mart, Sears, and Firestone also fall into the retail category creating an unfair tax advantage over the independently owned auto repair shops who must charge higher prices to help offset their increased taxes.
Representative Fletcher has been approached by multiple owners of auto repair shops and expressed their concern over these unfair tax advantages that big businesses inadvertently have over their smaller competition.
Fletcher drafted House Bill 429 to reclassify auto repair shops as retail trade for purposes of the franchise tax. This will ultimately result in a lower cost to car owners seeking auto repairs and a more level playing field among businesses engaged in the same activity.
The Houston Chronicle ran a story about this bill on February 6, 2011
HOUSTON CHRONICLE: Quirk in state tax law favors large businesses »