SALT Blawg – State and Local Tax
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Chamberlain Hrdlicka Blawgs
By Paul Masters
The Texas Office of the Attorney General and Allcat have filed their briefs for the argument challenging the constitutionality of the revised Texas Franchise Tax (aka, Margin Tax) under the Bullock Amendment. In a twist, the Texas Taxpayers and Research Association ("TTARA") filed an amicus letter that sides with Texas. TTARA is an organization representing major business entities in tax matters before the Texas legislature and the tax enforcement agencies. It had a significant role in connection with the development of the legislation creating the franchise tax under challenge.
In essence, Allcat argues that original jurisdiction was proper, and the Texas legislature properly provided for such in the underlying legislation. The OAG counters that there is no jurisdiction, and the legislative attempt was improper - citing prior court precedent for this position. It attempts to force the Texas Supreme Court to overrule two prior case, Love v. Wilcox (Tex. 1930) and Lane v. Ross (Tex. 2005) to even allow Allcat in the front door.
Allcat then pushes that the Texas franchise tax is a "net income tax". Without this, the Bullock Amendment does not apply. The OAG does not even offer up anything of substance to dispute the notion. This is where TTARA comes in, strongly opining that the Texas franchise tax is NOT a net income tax and points to the U.S. Census Bureau's classification of the tax as a fee, not a tax on net income. Where's the OAG? Silent.
Allcat then hits the OAG's main substantive point - that the franchise tax is not imposed on the partnership income of a natural person. Allcat makes a lot of solid points, but it is hard to escape the reasoning put forward by the OAG. In essence, the tax is imposed at the partnership level, the partnership is a separate entity from the partner, and that the Bullock Amendment should not be construed to prohibit all entity level taxes. TTARA also chimes in, stridently pointing to its own work in setting up the legislation, and the focus by the legislature to ensure that no violation of the Bullock Amendment occurred.
We should quickly see a reply from Allcat, and then it is on to oral argument on October 24, 2011 in Austin. A decision must be rendered in late November.