Texas Margin Tax Survives Challenge!

 by William Grimsinger

On Monday, November 28, 2011, the Texas Supreme Court ruled that the margin tax does not violate the Texas Constitution (specifically, the Bullock Amendment at Article VIII, Section 24) because it is not a tax on the net incomes of natural partners and that the Court did not have jurisdiction to entertain an equal and uniform taxation challenge.

This decisive ruling, with seven justices in the majority and two dissenting, puts an end to speculation about the fate of the margin tax.  The margin tax will remain in place at least through 2012 and likely 2013.  However, there was much discussion in the weeks leading up to this decision about tackling significant tax reform in the next legislative session, which will kick off in January 2013.  Moreover, many school districts have joined the recently filed lawsuit that challenges the school finance system in Texas.   Thus, while we now know that the margin tax passes muster under the Texas Constitution, the Supreme Court’s ruling answers only one of the many open questions about the future of taxes in Texas.

The opinion of the Texas Supreme Court can be found here.

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