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April 24, 2013


Texas Not a State of Nirvana for Business Taxes

Nirvana is a Buddhist term for the state of consciousness that transcends desire and suffering. More figuratively, it is a blissful state of freedom from cares and concerns – a state, however, that may always remain just out of reach.

By the second definition, no American state is a tax nirvana. And that certainly includes Texas.

To be sure, Texas ranks well on a recent list of states compiled by a research group called the Tax Foundation. The group ranked Texas in the top ten tax-friendly states for business.

There is no individual income tax in Texas. The Lone Star State is one of only seven states in the country to have that status.

But the business tax structure in Texas hardly makes for the bliss of nirvana. For one thing, business tax in Texas is based not on profits, but on gross receipts. This can impose a significant burden on businesses that are struggling or not very profitable.

Most states take a different approach. They base taxes on how much profit a corporation makes, not on how much its overall sales are. Texas is one of only five states to tax businesses in this way.

But state tax is only half the battle. There are also federal tax issues to consider. For example, many Texas businesses have been facing IRS audits regarding their worker classification practices. The IRS has been seeking to determine workers were properly classified as independent contractors rather than employees. We discussed this issue in our March 18 post.

In short, there is no tax nirvana in the U.S., neither in Texas or any other state.

Please visit our page on business income taxes.