Greenfield: The property tax swap impact on business
Several sectors including Construction, Wholesale and Retail Trade, and Other Services will find their total sales and property taxes increasing
A former colleague suggested that I might also look at how the sales tax – property tax swap would affect the distribution of taxes among business sectors. As noted in my previous analysis, eighty percent of Texas households would find the increase in sales tax they paid would exceed the reduced property taxes. Only those with incomes above $149,451 would benefit from this swap.
Using the Comptroller’s Initial Distribution of a Tax estimates result in the tax swap providing business with a $619.3 million reduction in taxes paid by businesses. The reason for this change is that the Comptroller has estimated that businesses pay 42.4 percent of the sales tax while paying 52.9 percent of school property taxes. The 10.5 percent point difference applied to the $5.9 billion that the tax swap involves would generate a $619.3 million reduction in the initial distribution of taxes paid by business. As the tax swap is revenue neutral individuals will pay $619.3 million more in taxes.
So ladies and gentlemen and business lobbyists of all ages before putting on your finest designer garments and heading over to the Capitol to promote the swap, I’d suggest reviewing the following as the tax swap is not only not equitably distributed among households it is also not equitably distributed among businesses.
While the business sector will experience an overall $619.3 million decrease in combined sales and school property taxes, several sectors including Construction, Wholesale and Retail Trade, and Other Services will find their total sales and property taxes increasing.
As shown in Table 1 the Finance/Insurance/Real Estate (FIRE) sector will be the biggest beneficiary of the swap. The FIRE sector will realize a $736.3 million reduction (-11.4 percent) in their state sales and school property tax payment. The reason for this substantial reduction in this sector is that the FIRE sector accounts for 15.2 percent of the $36.1 billion in school property taxes, but only 2.7 percent of the $36.6 billion in sales taxes paid by businesses.
The reason for this disparity is that the FIRE sector is a service-oriented industry and while they pay use tax on new plant and equipment, they do not sell many durable goods which are subject to the sales tax. The substantial percentage of property tax paid by the FIRE sector is because there are over 6,000 bank branches. There are almost as many Wells Fargo Bank branches in Texas as there are 7-Eleven’s.
While the FIRE sector is the largest dollar beneficiary of the swap, the Agriculture sector will also receive a double-digit (11.1 percent) reduction in their combined tax obligation.
Table 2 shows the change and percentage change in taxes by sector and the percent of the current tax structure and proposed tax structure by sector.
While Other Services will experience the largest increase in net taxes, the Construction industry will have the largest percent change (8.5 percent).
The Trade sector will also witness an increase (3.5 percent) under the swap. Those sectors which receive tax reductions under the swap will also find their contribution to public services declining.
Overall; the business sector will find their taxes declining by $619.3 million (-1.8 percent) while consumers will face a relative increase (1.6 percent) in sales and property taxes after the proposed swap.
Within the consumer sector, there will be one group that finds “tax relief,” the group with household incomes of $146,000 or more. The swap will also result in the proportion of state sales tax and school property taxes paid by business declining from 47.6 percent to 46.7 percent. A decrease in proportion of these taxes paid by business will result the consumer proportion of these taxes increasing from 52.4 percent to 53.3.
Our political leadership has been groping for ways to reduce school district property taxes.
The sales property tax swap was an attempt to accomplish this, and while it does decrease property taxes, it accomplishes this by increasing the total amount of sales and property taxes eighty percent of consumers will pay.