Small businesses could save under franchise tax bill

Doug Kvalvog doesn't understand policies that propose raising taxes on small business owners.

As owner of the New Workout Fitness Center, a 1,300-member exercise facility in Brownsville, Kvalvog has struggled to compete against fitness giants such at Gold's Gym, particularly amid a recession.

Instead of increasing taxes, Kvalvog said, government should be looking for ways to relieve the burden on small businesses.

"We pay enough taxes as it is," Kvalvog said. "It makes it tough on a small business to survive, especially in this economy."

Kvalvog could be getting some help soon.

The Texas House of Representatives recently approved a measure that would change the way Texas' franchise tax is computed, giving an estimated 40,000 small businesses temporary tax breaks.

The bill, filed by state Rep. Rene Oliveira, D-Brownsville, would exempt businesses earning up to $1 million in gross receipts, up from $300,000 in gross receipts under current law.

The bill passed the House unanimously and would take effect in January of 2010 for a period of two years. The Senate is expected to approve the bill.

"I am convinced that it is wise to give small business, the state's leading creator of jobs, some relief in these toughest of times," Oliveira said. "The idea has broad-based support, offers job retention potential and provides tangible rewards to every corner of our state."

In Cameron, Hidalgo, Starr and Willacy counties, the state comptroller's chief revenue estimator said that 935 businesses would receive tax exemptions under the franchise tax, which has also come to be known as the margins tax. On average, businesses would save about $4,500 for each year of the exemption.

In 2012, the tax discounts should be adjusted back to keep the state's budget balanced, Oliveira said.

"It's a way to create jobs while helping troubled businesses get back on their feet until the economy rebounds," Oliveira said.

Small business owners have voiced displeasure over the state's margin's tax, which was adopted in 2006 as part of the Legislature's school finance package.

Currently, businesses pay a franchise tax, which is calculated at 70 percent of total revenue or total revenue minus the cost of goods sold or compensation.

"Offering small businesses relief may be the most creative option available given the state's tax structure, which is tied to school finance," Oliveira said.

If the bill passes Kvalvog already knows what he'd do with the extra savings.

"Basically I'd invest it back into the gym," he said.