In this issue:
Federal Taxes and the Economy
Taxing Business
Value Added Tax: A Primer
Computing Value Added
Taking Stock of Inventory Taxes
From the Comptroller: Reuniting Texans With Their Money
Making a Living on the Land
Texas stats -- Fiscal and economic data
Federal Taxes and the Texas Economy
Tax work generates paychecks for thousands of TexansThe day most Americans love to hate--April 15, the deadline to file income taxes with the Internal Revenue Service (IRS)--is just around the corner. As in past years, it will mark the culmination of hundreds of thousands of hours spent poring over tax forms and regulations, organizing receipts and other supporting documents, meeting with tax preparers, accountants or other advisers and completing the required forms and schedules.
The sheer volume of paperwork and the complexity of the federal tax code and forms generate paychecks for thousands of Texans in the public and private sectors. The collection of federal taxes, along with related private-sector activities, forms a sizeable part of the Texas economy.
In 1996, the IRS received nearly 210 million tax returns nationwide. About 119 million were for individual income taxes; the rest were for estimated tax reports, employment taxes, supplemental documents and other tax returns.
If each of those returns took up one standard-size sheet of paper and they were placed end to end, they would circle the earth almost one and a half times. Fortunately, new paperless filing methods are emerging to help save the world's forests. Taxpayers filed nearly 15 million individual returns by computer or by telephone in 1996.
Public sector presence: Nationally, the IRS has about 112,000 employees, with about 6,000 regularly working in Texas. According to Census Bureau data, about three of every 100 federal civilian employees in Texas work for the IRS.
Dallas is home to the Midstates Region headquarters, one of four regional IRS offices. After a recent reorganization--the agency's first major shakeup since 1952--IRS regional offices oversee the operation of 33 district offices, downsized from 63 in previous years. Texas contains three of the Midstates Region's eight districts: the North Texas (Dallas), South Texas (Austin) and Houston districts. Austin is home to one of the 10 IRS service centers and its national compliance center.
The Dallas district office employs about 2,700 workers. District staff received more than 5.8 million returns and issued $3.3 billion in refunds in fiscal 1995. They also collected more than $39 billion in taxes, including $31.4 billion in individual income taxes, and conducted almost 38,000 audits.
The Houston district office's 1,400 employees, responsible for IRS activities in 17 area counties, handled 3.4 million returns and $2.4 billion in refunds in fiscal 1994. Total tax collections in the district came to almost $30 billion.
The South Texas district, headquartered in Austin, has 900 employees and offices in Bryan, Corpus Christi, El Paso, Harlingen, Laredo, McAllen, San Antonio, Victoria and Waco. In fiscal 1995, the district received 4.2 million returns and issued $2.7 billion in refunds.
The Austin Service Center, with a peak staff of 5,200, processes some 20 million returns and issues more than $7 billion in refunds annually. In addition to handling paper and electronic returns for Texas, Kansas, New Mexico and Oklahoma, the Austin center processes electronic returns for residents of Illinois, Iowa, Minnesota, Missouri and Wisconsin.
All together, IRS district offices and other facilities in Texas spent $316 million in fiscal 1995, about 4% of the agency's national operating costs. Most of that--$292 million--covered personnel expenses.
Nationally, IRS employment has dropped by nearly 3,000 positions since 1988. The agency has sought to reduce overhead and increase employment in front-line activities without adding more personnel. This effort seems to be paying off: per $100 of federal taxes collected, the agency's operational cost was 55 cents in 1995, its lowest level since 1990.
Private expertise for hire: IRS tax forms are supposed to be easy enough for Americans to complete on their own, but millions of taxpayers enlist the aid of tax preparation or planning services.
The complexity of the federal forms and tax code, with year-to-year changes in the deductibility of expenses and the taxability of different kinds of income, will likely prompt more and more Americans to seek professional help at tax time. Economic changes, such as the growing share of contractors or self-employed workers in the workforce, also complicate individual filers' tax situations.
IRS data show that of 7.7 million individual income tax returns filed by Texans for tax year 1994, 3.5 million contained a paid preparer's signature. Nationally, half of all individual returns are prepared by a paid third party, at a cost of at least $7 billion in 1992; some analysts put the figure as high as $13 billion.
Tax assistance is available from national tax preparation franchises, certified public accountants (CPAs), other accountants and enrolled agents who specialize in preparing income tax returns. Fees vary from less than $100 to several hundred dollars or more, depending on the complexity of the return and the degree of tax planning and consultation the taxpayer requires.
H&R Block, which has been in business for more than 40 years and has been called the "Wal-Mart" of the industry, grossed $730 million in fiscal 1996 on tax return preparation services, 82% of its annual revenue. As of November 1996, H&R Block had 579 offices in Texas. A newer company in the industry, Jackson Hewitt Inc., has more than 130 offices in Texas and reported sales of $25 million nationwide in 1996.
The main customer base for tax preparation franchises is individuals filing the relatively straightforward Form 1040 or 1040A. Those with more complicated returns tend to go to accountants and other tax professionals, who may be self-employed or work for accounting or tax firms.
The Texas State Board of Public Accountancy licensed nearly 51,000 CPAs in fiscal 1995. Many other Texas accountants decide not to keep their licenses current because of the expense (the annual fee is $240) or because their current job duties do not require licensure, but they can and do provide tax return preparation services in the busy season.
Employment in tax preparation is highly cyclical, peaking in April. In 1994, tax preparation services in Texas reported peak employment of 8,300 and an annual payroll of $34.4 million. Since 1988, industry employment has grown much faster in Texas (up 84%) than nationally (up 60%); payroll growth has been about the same, roughly 50%. According to the State Occupational Information Coordinating Committee, about one in 10 tax preparers in Texas is self-employed.
Federal tax bite: IRS tax collections in Texas totaled $84.1 billion in fiscal 1994, including $63.9 billion in individual income and employment taxes and $9.7 billion in corporate income taxes. Most of the remainder was estate, gift and excise taxes.
Looking at individual income taxes, Texans' liability in tax year 1994 came to $37 billion, 7% of the national tab. The average liability was $6,050 per return, ranking the state 12th nationally. One reason for this relatively high ranking may be that Texas' state and local governments rely heavily on sales taxes, which are not deductible from federal income taxes. In 1994, only 17% of Texans claimed a deduction for taxes paid, compared to 28% of all U.S. filers. The average deduction claimed for taxes paid was also much lower for Texans ($2,872) than for filers nationwide ($5,416).
Texans claimed $20.1 billion in itemized deductions on their 1994 individual income taxes. The largest share was $9 billion for interest paid (primarily the home mortgage interest deduction), followed by $4 billion for contributions, $3.8 billion for taxes paid (mainly local property taxes) and $1.8 billion for medical and dental expenses.
For corporate returns filed in Texas, the average amount of income tax paid in 1994 was $35,959, 17th among the states.
Happy returns: In tax year 1994, about 5.7 million returns from Texans--72% of returns filed in the state--reflected an overpayment of individual income taxes to the tune of $7.0 billion. Total income tax refunds to Texas individuals and corporations amounted to $7.4 billion in fiscal 1994. The average individual income tax refund for Texans was $1,058; for Texas corporations, the average refund was $37,833.
This year, IRS is making it easier for tax refunds to be directly deposited into U.S. bank accounts. Choosing this option, which in the past required a separate form or use of electronic filing, usually speeds up the receipt of a refund by about one week. Taxpayers may now request this option by providing bank account information on two extra lines on the 1040, 1040A or 1040EZ form.
Federal tax collections also come back to Texas in the form of grants to state and local government agencies, military base spending, highway funding, entitlement programs for individuals and other federal spending. Exact expenditures and their economic impact are difficult to pin down, fueling a debate over whether Texas gets less from the federal treasury than it contributes.
An analysis by the Kennedy School of Government at Harvard University fixes Texas' per-capita federal tax burden at $4,637. For fiscal 1995, per-capita federal spending in Texas came to $4,699. The ratio of federal spending in Texas to federal taxes collected in the state was 1.01, just below the national average. In contrast, New Mexico received $1.91 of federal spending per tax dollar paid into the federal treasury, while at the other end of the spectrum, New Jersey saw only 67 cents in federal funds per dollar of federal taxes collected.
Compliance burden: A popular but controversial measure of the burden of taxation is Tax Freedom Day, which fell on May 7 in 1996 for the average American taxpayer but a little earlier (May 2) for Texans. The Tax Foundation, a national policy research organization, estimates that the average taxpayer needs 128 days of wages and salary just to pay local, state and federal taxes. Only 34 of those days go toward paying federal income taxes, though; the most time (39 days) is spent paying Social Security and Medicare taxes.
The Tax Foundation also calculates the cost of complying with tax regulations, including time and money spent maintaining records, filing forms and keeping up with tax code changes. These costs are especially heavy for small businesses and for firms subject to the Alternative Minimum Tax or with income from foreign sources. According to the Tax Foundation, compliance costs in 1994 came to $197 billion, about 15% of the $1.3 trillion paid in federal taxes that year.
Despite the widespread animosity toward federal taxes--particularly the income tax--IRS over the past 20 years has collected about 87% of taxes that it estimated were due. About 83% is collected through normal filing and payment, while the other 4% comes from enforcement activities such as audits.
The IRS hopes to improve "voluntary" compliance by making forms and filing processes more user-friendly, providing more individual assistance and making full use of technological advances. But at least in the immediate future, federal tax filing, collection and processing will continue to provide employment, as well as hours of frustration, for many Texans.
Contributing to this article:
Eva DeLuna-Castro
Taxing Business
Governor's plan would restructure state taxes to reduce local property taxesBig changes could be in store for Texas taxpayers--particularly businesses--in the 1997 Legislature. Lawmakers are considering proposals by Governor George W. Bush that would reduce school property taxes, in part by restructuring the state's main tax on businesses.
The Governor's plan calls for reducing school maintenance and operations (M&O) taxes and would not affect taxes levied for debt service. The plan would:
* exempt business inventory from M&O taxes,
* reduce M&O tax rates by 20 cents per $100 of property value across the board, and
* increase the standard homestead exemption from $5,000 to $25,000.Texas voters would have to amend the state constitution to exempt business inventory and increase the homestead exemption. The proposed amendment would create a trust fund from which the state would reimburse school districts for local taxes lost because of reductions in their tax base.
To pay for this property tax relief, the Governor proposes to:
* set aside a $1 billion surplus in the state's 1998-99 budget;
* replace the corporate franchise tax, Texas' largest business tax, with a new Texas Business Tax (TBT); and
* increase the state sales tax and motor vehicle sales tax from 6.25% to 6.75%.A constitutional amendment would be required to keep the new TBT from violating the constitutional ban on personal income taxes.
TBT impact: As proposed, the TBT would be a flat 1.25% tax on the activity of all businesses in Texas, including partnerships and sole proprietorships not now subject to the franchise tax. The first $500,000 of business activity, however, would be exempted from the tax, effectively eliminating the tax liability of more than 90% of all businesses. Also, the TBT would allow a deduction for the full value of capital equipment in the year purchased.
The TBT is projected to generate $2.8 billion in tax revenue in fiscal 1999, the first full year of enactment. Revenues would be deposited into the new school trust fund.
In fiscal 1996, about 148,000 businesses paid franchise taxes totaling $1.7 billion. If the TBT were in place with a $500,000 standard deduction, roughly 92,000 businesses would pay the tax. The lower the standard deduction, the greater the number of businesses that would incur tax liability.
Initial impacts would vary greatly according to the size and nature of a business. In replacing the franchise tax with the TBT, the Governor's proposal generally would shift the business tax burden from capital-intensive firms to labor-intensive firms in the state. The new tax would most adversely affect the labor-intensive sectors of services and construction.
All industry sectors would see some dollar increase in state business taxes as a result of the proposed change. Within a given industry, however, some firms would likely pay lower business taxes or none at all.
As for the impact on state finances, the Comptroller estimates that the net effect of the plan's new revenue and tax relief measures would be a shortfall of $400 million in the budget for fiscal 1998-99, after subtracting the $1 billion "down payment" from available revenues. In fiscal 2000-01, the shortfall is estimated at $2 billion, since the state cannot count on a $1 billion surplus each year after fiscal 1998-99.
Although Governor George W. Bush's proposed Texas Business Tax is styled as a tax on business activity, it is essentially a variation on a value added tax (VAT). Of the many tax systems existing today, VAT systems seem to generate more questions and confusion than any other type.
The questions begin with the definition of what is being taxed. "Value added" is not the same as profits, nor is it the same as gross receipts.
In producing goods and services for sale, a business transforms raw materials into finished products, thus adding value to the raw materials purchased. The selling price of the finished product covers the cost of the raw materials, the cost of production (capital and labor costs) and profit. Thus, the value added generally is greater than the firm's profits but less than its gross receipts.
In essence, the value added during production equals the selling price minus the cost of the raw materials and other expenses such as repair charges. Stated another way, value added equals profits plus production costs.
VAT administration: VATs may be administered by either the invoice-credit method or the business transfer method.
The invoice-credit method, used in Europe, Canada and Japan, requires the collection of taxes on each sale. Firms pay tax to their suppliers when buying raw materials and services, then charge tax on each sale to their customers, whether on intermediate or final products. In the end, each business remits to the government the net value of tax collected on its sales minus the tax paid on its purchases.
The business transfer method works much like a typical state business tax. The tax is computed to reflect each firm's annual value added, apportioned to exclude out-of-state business activity. Each individual transaction may or may not cause a tax liability to arise. In the business transfer method, the net results of the flows of value during the entire accounting period determine the firmıs VAT liability.
Business transfer VATs using an "additive" calculation method, such as that proposed by Governor Bush, rely greatly on the income of the business and the compensation of its employees to derive the tax base. Such a calculation method causes the tax to resemble an employer-paid income tax.
To date, the invoice-credit method has been used strictly at national levels; no U.S. state or foreign subnational jurisdiction employs it. Michigan and New Hampshire, the only states using the value-added concept, use the business transfer method, and most discussions of VATs at the state level focus on this method.
Pros and cons: One major goal of tax policy is to limit the distortions that taxes impose on economic activity. When an economic activity is favored by tax preferences, resources flow to that activity more than would otherwise be demanded by consumers. In other words, economic resources are wasted.
In their purest form, VATs impose few economic distortions. Since they tax all types of businesses, no particular form of business organization is favored over another. Also, VATs do not distort economic choices between capital and labor because each is taxed in proportion to its use.
Another advantage of VATs is that their broad base allows a low tax rate, which fosters higher voluntary compliance and presents less motivation for tax avoidance.
VATs have been criticized for being more regressive than taxes on profits. A tax is considered regressive if wealthier individuals pay a smaller portion of their income in tax than do poorer individuals.
The evidence on this issue is mixed. To determine the regressivity of a VAT levied as a business tax requires assumptions about how much of the tax is passed forward in higher prices and how much is absorbed in lower profits and wages. This question becomes even more difficult when considered in an open economy, where a state's goods subject to a VAT must compete with goods from out of state that are not taxed at every stage of production.
According to a 1992 study by the Congressional Budget Office (CBO), a broad-based national VAT would have a neutral economic impact and thus would allocate economic resources more efficiently than other tax systems. In addition, because the VAT would tax consumption and exempt savings, more investment capital could be available to the economy. In the long run, increased labor productivity and economic growth could result.
The CBO study, however, noted the drawback of adopting a narrowly based VAT: "If the VAT was like those actually used in Europe--with multiple tax rates and numerous tax preferences--the economic benefit would probably be negligible."
Passing through: With a business transfer VAT such as those discussed for use at state levels, the tax is not added to the invoice, as happens with a retail sales tax or with the invoice-credit VAT system. There is no direct link between tax paid by the business and the sales invoice.
A business subject to a state VAT may choose one of three ways to absorb the costs. As with any apportioned business tax, the business may pass through the tax cost in the form of higher prices, lower wages or lower profits. The firm's choice will largely depend upon its competitive position.
If the firm competes only with local firms that are also subject to the tax, all firms may be able to raise prices without losing significant sales. Conversely, if the taxed business competes with out-of-state firms unaffected by the VAT, the business can pass on its VAT cost only to the extent that its out-of-state competitor passes on its home-state business tax cost, which may or may not equal the VAT cost. If the full amount of the VAT cost cannot be passed on in prices, the business must absorb it either in lower wage payments or in lower profits.
Not a sales tax: A VAT is similar but not identical to a retail sales tax. In some cases, the two taxes generate the same final tax liability; in other cases, they do not.
A retail sales tax generally applies only to tangible goods and to a few services; many services go untaxed. A VAT encompasses all goods and services. Another difference is the number of taxpayers. The retail sales tax has few collection points (retailers only) when compared to a VAT, in which all firms become tax collectors.
Yet another difference is that a sales tax is based exclusively on consumption, whereas a VAT may be based more on income when calculated by the business transfer method.
As applied to tangible goods, a retail sales tax will perform the same as a VAT, because the final selling price on which the sales tax is charged embodies the sum of the value added from each step in the production process.
Most experts agree that retail sales taxes are largely passed forward to consumers. In the case of a VAT of the business transfer type, the extent to which the seller can pass the full value of the tax forward to consumers by raising the price of the good is not clear.
Existing VAT systems: The Michigan Single Business Tax (SBT) is levied at a 2.3% rate. The Michigan tax is considered to have a narrow base because it contains many special deductions, exemptions and credits, including a deduction for capital equipment purchased. In 1995, the SBT raised $2.1 billion. Overall, Michigan's economy is half as large as the Texas economy.
New Hampshire's Business Enterprise Tax (BET) is levied at a rate of 0.25%. The BET deviates from a pure VAT in that profits are excluded from the tax base. As an adjunct to the state's primary business tax, the New Hampshire VAT generated $28.6 million in fiscal 1994. The Texas economy is more than 16 times larger than that of New Hampshire.
The Texas Business Tax (TBT) proposed by Governor Bush would be a business transfer VAT imposed on all businesses in the state. As proposed, it would resemble a consumption type VAT calculated by the additive method, as described on page 4. The tax rate would be 1.25% with an exemption for the first $500,000 of business activity.
Contributing to this article:
Craig DaughertyWithin the realm of apportioned business value-added taxes, two means of computation are possible. The "additive" method computes value added by adding together labor costs, capital costs and profits. The "subtractive" method begins with sales and subtracts the cost of raw materials to arrive at value added. Three types of VATs exist, distinguished by the extent to which they tax capital expenditures. "Consumption" type VATs completely exempt capital machinery and equipment from taxation. An "income" or "net product" type VAT allows the deduction of annual depreciation installments but does not allow the immediate expensing of capital equipment. "Gross product" type VATs allow no deduction for capital purchases--neither expensing nor depreciation charges.
Consumption VAT
Additive method:
Value Added = Labor + Profits + Depreciation - Capital ExpendituresSubtractive method:
Value Added = Sales - Raw Materials + (Non-Operating Receipts - Expenses) - Capital Expenditures
Income or Net Product VAT
Additive method:
Value Added = Labor + ProfitsSubtractive method:
Value Added = Sales - Raw Materials + (Non-Operating Receipts - Expenses) - Depreciation
Gross Product VAT
Additive method:
Value Added = Labor + Profits + DepreciationSubtractive method:
Value Added = Sales - Raw Materials + (Non-Operating Receipts - Expenses)
Taking Stock of Inventory Taxes
Business inventories in Texas are worth billionsGovernor George W. Bush has proposed exempting all inventory owned by businesses in Texas from the maintenance and operations (M&O) portion of school taxes. The Comptroller's Office estimates that this exemption would reduce businesses' tax liability--and local school districts' tax revenues--by $859 million in 1999, when the exemption would take effect.
The value of business inventory in Texas is hard to pin down because many county appraisal districts' records do not distinguish inventory from other personal property owned by businesses, such as supplies, furniture, fixtures and equipment. Also, the share of personal property represented by inventory varies widely from one school district to another, depending on the types of businesses in each district.
The Comptroller's Property Tax Division surveyed each of Texas' 1,038 school districts to collect detailed data on business inventories. According to initial results, eliminating M&O taxes only on the inventory portion of business personal property would have lowered businesses' tax bills by at least $625 million in 1996. Under a more expansive definition of inventory, including property reported in other categories, and applying growth rates for the next few years, the amount of tax relief would be even greater in 1999. The Governor's tax reform plan calls for using state funds to make up the school districts' loss of revenues due to this and other property tax reduction measures.
What is inventory? In 1996, Texas school districts levied nearly $9.9 billion in property taxes. The average tax rate was $1.39 per $100 of assessed value, including $1.24 for M&O and $0.15 for debt service.
School tax levies are calculated by applying local tax rates to the taxable value of property in the district. The local tax rolls for Texas school districts in 1996 included $752.5 billion worth of property before deducting exemptions. Business personal property--inventory, supplies, furniture, fixtures and equipment--accounted for $105.4 billion or about 14% of this total appraised value.
Although all business personal property is lumped together for tax purposes, tax law makes distinctions between inventory, supplies, furniture, fixtures and equipment.
Inventory is generally the property a firm holds with the intention of reselling it for a profit. For example, unsold items on the shelves of your neighborhood drugstore are categorized as inventory. In practice, some business supplies--consumable items used in operating a business, such as the mops used to clean the floor of the drugstore after closing time--may also be included in inventory. While Texas is one of 44 states that allow taxation of business personal property, it is one of only 11 states that allow taxation of business inventory.
Business furniture, fixtures and equipment, as distinct from inventory, include durable items used in operating a business which are not intended to be resold for a profit--for example, the shelves that hold the inventory at your drugstore.
For tax purposes, most firms calculate the value of inventory they hold on January 1 of each year. Other firms have obtained legislative approval to report their inventory on September 1 instead, presumably because it represents a more logical break in their annual business cycle.
Motor vehicle and boat dealers use yet another method to calculate their taxable inventory. Under a statute passed by the Legislature in 1994, these dealers measure their inventory as the average monthly value of their total vehicle or boat sales during the year.
In certain local jurisdictions, some inventory is already exempt from property taxation under the "freeport" exemption, enacted in 1989. Currently, 265 school districts grant the local-option freeport exemption.
Who pays inventory taxes? Most businesses in Texas pay at least some personal property taxes every year. Retail establishments pay taxes on their inventory as well as on equipment and supplies. For retail concerns, inventory probably accounts for a large share of all taxable personal property. The inventory share is likely even larger for wholesale or warehousing operations, especially those where inventory is stored on wooden pallets laid on a concrete floor.
The opposite may be true for industrial or manufacturing companies that rely on multimillion-dollar machinery to produce their products. Efficient manufacturing firms are becoming increasingly sophisticated at minimizing both inventory and raw material stocks to lower their operating costs and tax bills.
The complex process of calculating business inventory has created headaches for taxpayers and tax appraisers over the years. While your local drugstore may still count the bottles of aspirin left on the shelves after the holidays each year, big businesses calculate their inventory on the basis of standard formulas, without actually counting anything.
Legislative changes in the calculation of inventory have been aimed at lowering the costs of compliance for businesses and at ending businesses' efforts to avoid inventory taxes completely. For example, firms have been known to move all of their inventory out of state, or even offshore, on December 31--thereby eliminating their inventory tax liability--and move it back on January 2. Such loopholes and the efforts to close them have created a system in which certain types of companies pay significantly more inventory taxes than do other firms.
Who doesn't pay? Various exemptions reduce the amount of inventory on which Texas businesses actually owe property taxes. The freeport exemption is one of the largest. To a lesser extent, the property tax abatements granted by local governments in an effort to attract new businesses or retain existing ones also allow firms to lower the amount of taxable inventory.
Most states in which business personal property is taxed allow some sort of exemption for goods in transit through the state. Texas' freeport exemption allows local jurisdictions to exempt from taxation certain goods that are shipped into the state and intended for later sale outside the state. If such items are warehoused in Texas for fewer than 175 days, they are not counted as business inventory for property tax purposes. In 1996, school districts that grant the exemption reported $3.6 billion in exempt freeport property.
The 1995 Legislature considered, but did not approve, a measure that would have raised from 175 to 270 the number of days freeport goods could remain in Texas, and would have eliminated the requirement that goods be shipped out of state for sale. The Comptroller estimated that this expanded exemption would have lowered school districts' statewide taxable values by $17.6 billion in 1996.
Although local tax abatements primarily apply to real property (buildings, land and improvements), some companies have managed to negotiate abatements of the tax owed on inventory.
Tax relief estimate: The existing freeport exemption tends to favor manufacturing and shipping firms that cater to a national or global market. Although these firms would benefit from a repeal of school property taxes on all inventory, they might not see their tax burdens fall as much as would some other firms.
Texas firms engaged primarily in retail sales would benefit greatly from the elimination of school taxes on inventory. The local drugstore would still pay taxes on the value of its shelves and cash registers, but its overall tax bill would fall-though again, the size of the reduction is uncertain.
Initial results of the Comptroller's survey show $44.1 billion worth of taxable inventory in school districts that contain nearly 92% of all business personal property in the state. This indicates that the statewide taxable value of inventory in 1996 was at least $48 billion.
Applying the 1996 M&O tax rates to the inventory portion of business personal property alone yields a statewide estimate of $625 million in tax relief if the exemption were in effect today. Language in House Bill 4, the Governor's tax proposal, could extend the exemption to cover certain inventories owned by firms in the oil and gas, mineral and utility industries as well, thus reducing taxes even further. Additional tax relief would be provided if residential inventory (real property held by developers) were exempted.
Contributing to this article:
Seth Johnson
From the Comptroller:
Dollars for Working Texas FamiliesThis year, at least 1.8 million hard-working Texas families could pocket nearly $3 billion through the Earned Income Tax Credit (EITC)--an average of more than $1,500 per family--if they act before the April 15 deadline.
The EITC is one of the quickest ways I know to inject that much money into local communities from one corner of Texas to the other.
For the past six years, I have served as statewide spokesman for the EITC. Created in 1975, the EITC is a tax break for low- or moderate-income families who are trying their best to play by the rules--holding jobs while supporting their children. It's a pro-work, pro-family incentive that helps qualified families get what they've earned--an extra paycheck each year.
In the year before we began publicizing the EITC, refunds to Texas families totaled about $750 million. Since then, more than $8.7 billion has come back to Texas.
Last year, some 719,000 families in the Internal Revenue Service (IRS) area that stretches from Laredo to Brownsville to San Antonio and El Paso ranked second in the nation for EITC returns, behind only the Los Angeles region. Texans in that region brought home more than $1.1 billion.
To qualify this year, families with two or more children, earning less than $28,495, may be entitled to an EITC refund of as much as $3,556. Families with one child and earning less than $25,078 may qualify for refunds up to $2,152.
If you think you may be eligible, or if you know someone else who may qualify, please call me toll-free at 1-800-277-8383, or call the IRS at 1-800-829-1040.
-John Sharp
Reuniting Texans With Their MoneyThe State of Texas now holds in trust approximately $700 million worth of unclaimed property. The Comptroller of Public Accounts administers the Texas Unclaimed Property program and acts as custodian of these funds, holding them in trust until claimed. The Comptroller assumed this former responsibility of the State Treasurer on September 1, 1996. In fiscal 1996, the state returned $32.8 million worth of unclaimed property to Texans.
Financial assets in the custody of financial institutions or other entities must be reported to the state after they have been inactive for at least three years and efforts to locate the owner have failed.
To make it easier for Texans to locate their missing property, the Comptroller has made general information and claim instructions accessible on the World Wide Web through the Window on State Government site and on the National Association of Unclaimed Property Administrators' Web page.
The most common types of abandoned property include dormant checking and savings accounts, stocks, bonds, credit balances and utility refunds. Funds for lost or uncashed cashier's checks, payroll, dividend and royalty checks can also wind up with the state, as well as the contents of abandoned safe deposit boxes. Even proceeds from insurance policies often go unclaimed.
Unclaimed property is never "lost" or forfeited, as there is no time limit on filing a claim. To check for unclaimed funds, contact the Comptroller's Unclaimed Property Section by phone, mail or e-mail. Call toll-free 1-800-321-2274 within Texas or (512) 463-3120 locally, or write to the Comptroller of Public Accounts, Unclaimed Property, P.O. Box 12019, Austin, Texas 78711-2019. The e-mail address is unclaimed.property@cpa.state.tx.us.
Contributing to this article:
Greg Mt.Joy
Making a Living on the Land
Farm and ranch income doesn't just grow on treesCity folks may think all there is to farming is to plant some seeds, wait for them to grow and harvest a crop. Ranching may seem even easier: just buy some calves, let them graze the "back 40" and sell them for profit once they are ready to market.
Agricultural producers know it's not that easy. As with any business, they must keep track of every dollar they spend on their operations to keep costs down and wind up in the black at year"s end.
In addition to intermediate product expenses such as seed and feed costs, agricultural producers must figure in costs of manufactured inputs, equipment maintenance, interest on loans, labor costs and real estate payments each year when they calculate their budgets.
In 1995, gross farm income from the more than 202,000 farms in Texas totaled $15.7 billion. After subtracting $13.3 billion in production expenses, operators realized net income of slightly more than $2.4 billion. Subtract from that nonfactored payments such as property taxes and capital consumption (depreciation/damages), and returns to operators totaled $2.1 billion.
Many owners of Texas farms have other means of income that exceed their farm earnings. In 1995, 123,000 farms in Texas produced less than $10,000 in crops, and 61,000 farms produced less than $100,000 in crops. Only 18,000 farms across the state produced crops earning more than $100,000.
Intermediate costs: Depending on the type of agricultural operation, a producer can count on having to buy certain materials each year. These intermediate expenses can include feed, seed, livestock, poultry, fertilizer, pesticides, fuel and oil. Other normal costs include repair and maintenance of farm equipment, irrigation, storage and transportation.
Feed, seed and livestock purchases cost Texas farmers and ranchers more than $4 billion in 1995. Fuel and oil cost an additional $546 million. Adding fertilizer and other expenses, intermediate costs totaled $9.2 billion. Payments to landlords, hired labor expenses, capital consumption and property taxes accounted for the rest of production costs.
The price of change: Not long ago, farmers gathered at the cafe to discuss their new plows. Today, they e-mail each other about how their new computers have helped improve farm operations, about the Global Positioning Satellite hookups they have acquired to aid their planting decisions or about the biotechnologically engineered seeds they have planted.
The down payment on a large piece of equipment today averages between $22,000 and $25,000--about as much as a new pickup truck. Prices of pickups, long a necessity for producers, are an indicator of the rising cost of operations.
In 1996, a drought year when calf prices plunged, a farmer or rancher had to sell about 60 calves to be able to afford a new base-model, three-quarter-ton truck. The calf-to-truck index has climbed gradually over the past 30 years, as truck prices have risen steadily while calf prices have fluctuated. Back in the early 1970s, a farmer or rancher had to sell only 15 to 20 calves to buy the standard working truck.
Contributing to this article:
Troy Glasson
Fiscal Notes
March 1997
March 1997