The constitutionality of the Texas franchise tax is challenged again by a new lawsuit filed with the Texas Supreme Court. This case was filed by Nestle USA, Inc., Switchplace, LLC and NSBMA LP claiming that the margin tax violates the Equal and Uniform Clause of the Texas Constitution as well as the Equal Protection Clause, the Due Process Clause and the Commerce Clause of the United States Constitution.
Nestle claims that although the company is engaged only in wholesale activity in Texas, it must pay the one percent tax rate of a manufacturer because it has manufacturing facilities outside the state of Texas.
Switchplace provides temporary accommodations services and complains that it is inappropriately denied the cost of goods sold deduction. NSBMA rents construction equipment and objects that it cannot claim a deduction for cost of goods sold while other types of suppliers of construction equipment do qualify for the deduction.
The suit was filed with the Texas Supreme Court as directed by the margin tax legislation and states that the Supreme Court jurisdiction is supported by Article V of the Texas Constitution and Texas Government Code, Section 22.002. The brief states that the franchise tax is a tax for the privilege of doing business in Texas and is unconstitutional because the tax “results in a non-uniform tax that causes similarly situated taxpayers to have a much higher taxable margin relative to their peers” and “provides certain ad hoc exclusions available to only some taxpayers.” Click here to read the complete filing.
The initial case filed by Allcat Claims Service, LP and John Weekly to overturn the margin tax included the contention that the tax is a personal income tax and is therefore unconstitutional because it violates the Bullock Amendment requiring a referendum before such a tax can be implemented. There have been several friend-of-the-court briefs filed in that case including one filed by Nikki Laing, CPA and a host of others that included Nestle, Switchplace and NSBMA. The Laing brief supported the Allcat claims.
The Texas Association of Realtors and The Texas Taxpayers and Research Association (TTARA) have also filed briefs in support of the state’s position that the margin tax is not a tax on personal income.
You can find all the filings related to the Allcat case at The Supreme Court of Texas Electronic Briefing.