by JAY ROOT
The Texas Tribune
The business tax overhaul that Gov. Rick Perry and fellow GOP leaders championed in 2006 as a fix for the school finance system is now under attack in the Texas Supreme Court — as an unconstitutional state income tax.
An insurance claims adjustment company from the San Antonio area, Boerne-based Allstate Claims Service, L.P., filed the lawsuit a few days ago. It’s too early to gauge how far it will go, and the state of Texas — sure to vigorously defend the tax — hasn’t given the court its official answer yet.
But the case has the potential to throw a wrench into state and perhaps even national politics: If the allegations aren’t quickly tossed out by the all-Republican court, Perry could be forced to deal with a thorny tax issue just as he’s trying to win a presidential nominating contest. And the Legislature would be faced with a big new revenue shortfall if it’s declared unconstitutional.
“Perry is very good when he is on solid ideological ground, job creation and balancing the budget with no new taxes,” said Cal Jillson, political scientist at Southern Methodist University. “But if he has to explain in paragraph length, rather than bumper sticker length, a complicated issue like taxation, or even cuts to public schools, he is in much more difficulty.”
Perry spokeswoman Catherine Frazier said the Texas Franchise Tax, also known as the “margins tax,” is not an income tax and was supported by the Texas Association of Business and other groups as part of necessary tax swap legislation that reduced property taxes. She also noted that under more recently passed exemptions, taxpayers making less than $1 million don’t have to pay.
The office of State Comptroller Susan Combs, named in the lawsuit, referred questions to Attorney General Greg Abbott. A spokesman for Abbott, whose office has to defend the state in such matters, declined to comment on pending litigation. Calls placed to the plaintiff and the company’s lawyer also went unreturned.
