The Devil’s in the Detail: Did the Texas Legislature Inadvertently Prohibit a Franchise Tax on Certain Business Entities?

Abstract

In the Spring of 2019, the Texas Legislature approved a constitutional amendment to the Texas Constitution that prohibits the state from collecting a statewide personal income tax. The voters approved this constitutional amendment by a three to four margin. It seemed like everything worked out well. The voters became protected from paying a state income tax, and the legislators who approved this amendment got the political credit for banning an unpopular tax that the State of Texas has never relied on. However, the euphoria of politics and the legislative process may have blinded the Texas Legislature from the actual language in the constitutional amendment. During the legislative process, the staff of the Texas Comptroller of Public Accounts warned that the amendment’s prohibition may be interpreted to include business entities currently subject to the state’s franchise tax, but few heeded this warning and the amendment passed without any changes. If a court were to interpret this amendment in the way that the Comptroller warned, the effects could be disastrous for school districts as one of the main purposes behind the franchise tax was to fund Texas’s schools. However, this Article will argue that courts should interpret this constitutional amendment from its plain language and the legislative history which shows an intention in the voters and legislators to prohibit only a statewide personal income tax and not part of the state’s franchise tax.