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A new tax has some area business owners scrambling to figure out how much they'll owe come May 15.
The margin tax, passed by the Texas Legislature in 2006 to eliminate loopholes in the franchise tax, casts a wider net than its predecessor. In mid-2008, out-of-state limited partnerships, investment partnerships, law firms, doctors' groups, joint ventures and others not previously liable under the franchise tax will funnel thousands into state coffers under the new law.
"Business owners are definitely concerned, because all of a sudden they're going to pay taxes, even if they recorded losses instead of gains," said April Eyeington, a managing partner with Bryan accounting firm Brewer, Eyeington, Patout & Co.
Because the margin tax is calculated from gross revenue -- the money a company makes before expenses -- a business could end up owing even if it's not profitable.
Tim Prater, the manager of Coufal-Prater Equipment, said he is bracing for the tax's effects on the chain of John Deere dealerships.
"There's a tremendous difference between gross and net," Prater said. "In this case, you're paying a tax on money where you haven't even been able to expense property taxes or other assessments. It's ridiculous."
Larry Isham, president of Aerofit, said his health club will pay between $10,000 and $12,000 in 2008.
"It definitely is a chunk of change," he said.
While Isham and others have already determined their tax liability, Eyeington said the tax is still confusing others.
Under the new law, businesses can opt to pay the lowest of three calculations: one percent of gross revenue after deducting payroll, the cost of goods sold or 30 percent of gross revenue.
Meanwhile, retailers and distributors pay a different assessment, 0.5 percent, and businesses with less than $10 million in revenue can opt to pay 0.575 percent of their gross revenue.
The tax impacts a broad range of businesses that bring in more than $300,000 per year.
Some types of businesses, such as sole proprietorships, grantor trusts and estate or investment partnerships that get at least 90 percent of their income from interest, dividends or capital gains, are exempt from the tax. Limited liability partnerships are exempt from the 2008 assessment.
Mike Gentry, a partner with College Station's West Webb Allbritton Gentry law firm, said he had a flurry of calls from clients over the summer. At the time, the state had given business owners a small window within which they could convert their businesses from limited partnerships to limited liability partnerships to avoid their 2008 assessments.
"For most clients, it wasn't worth the legal fees associated with the conversion," Gentry said. "I had maybe one company go through with the change."
Lawmakers have said the Legislature could review the tax during the 2009 session. The state comptroller estimates the tax -- created to help the state capture revenue it missed because of loopholes in the franchise tax -- will generate $5.95 billion in 2008.
• Holli L. Estridge's e-mail address is holli.estridge@theeagle.com.
