Texas operators wary about tax law changes
Nation's Restaurant News, July 10, 2006 by Ron Ruggless HOUSTON -- Amid concerns about delayed immigration reform, Texas restaurateurs are trying to gauge the long-term effects of sharply higher gas prices and a slew of new or revised taxes passed by the state Legislature this spring.
The tax issues, immigration legislation and gas pump sticker shock were among the topics hashed out by approximately 27,000 foodservice operators and vendors at the 2006 Southwest Foodservice Expo here late last month.
The annual expo, sponsored by the Texas Restaurant Association, convened as business owners were struggling to assess both the impact of the state's tax revisions and the changing climate of the national economy.
John A. Zendt, general manager of the Moody Gardens restaurant in Galveston, Texas, and new chairman of the TRA, said his state's restaurateurs generally are optimistic about the second half of the year, but such issues as high gasoline costs are heightening concerns about consumer spending.
"The effect hasn't been big yet," Zendt said, "but we're closely watching how gas prices affect restaurant sales."
CiCi's Pizza franchisee Bob Westbrook, the Tyler, Texas-based chairman of the TRA's political-action committee, hosted a discussion at the expo about other legislative matters affecting operators, including the recent overhaul of state taxes that was mandated by the courts to address school funding and property tax issues.
Bob Barnes, president and chief executive of Schlotzsky's Ltd. in Austin, Texas, said the tax revisions would be under review for months. "I don't know how we came out exactly yet," he said. "People are still trying to figure out all the nuances of the legislation and what it means."
The tax changes were contained in five bills passed in a special legislative session and signed by Gov. Rick Perry.
"Everybody's a target," Barnes said. "It's hard to hide behind a tree when you've got tax legislation coming on."
Of the five measures, House Bill 3 will have the greatest impact on restaurateurs, he said. "We had a franchise tax system in place, but many people weren't paying that tax because we had partnerships that weren't paying it," Barnes explained.
The bill replaced the existing franchise tax with a modified gross-receipts tax. Retail businesses, including restaurants, will be taxed on those receipts, less either the cost of goods sold or wages and benefits, at the rate of 0.5 percent. Exemptions were extended only to sole proprietors, general partnerships and small businesses defined as those with less than $300,000 in gross receipts annually.
"Our industry as a whole came out quite well on this," Barnes told a meeting of political-action committee members during the expo. However, details of the tax changes still need clarification, he said.
"The definition of 'cost of goods' is still underdetermined," Barnes said. 'The rule writing still needs to be done, and hopefully we will be involved in writing some of the rules."
Potential problems, he said, include likely court challenges to the receipt tax's constitutionality that would stem from Texas' constitutional prohibition of an income tax. "Another area that might be challenged is the one-half of 1 percent that we pay as retailers, versus the 1 percent that a service company pays," Barnes said. "Is that constitutional?"
Glen Garey, general counsel for the TRA, said he believes court challenges will fail. "The reason is, the constitution bars a 'personal income tax,'" Garey said. "What they are taxing is the entity that protects you from liability. That's the reason they excluded general partners and sole proprietors."
Barnes said the TRA is satisfied with the tax package and won't be seeking modifications. "We don't want to go through this again," he said. "The risk is too great."
Among other issues concerning local operators are potential changes to the federal minimum wage and immigration reform, though representatives of the Texas restaurateurs have focused much of their lobbying efforts on state lawmakers in Austin.
Houston-based chain executive Chris Pappas of Pappas Restaurants and Luby's Cafeterias, said, "At the Texas level and in the Legislature, we have been a tremendously strong advocate for the industry, and we've made things happen."
The immigration reform debate remains especially important to Texas restaurateurs, and, given the long Texas-Mexico border, the state's operators are especially important to the debate, he said.
Pappas, who also is active in the National Restaurant Association, said the disparate U.S. Senate and House versions of immigration reform bills are likely to be debated all summer. Predicting that the congressional process will be "stalled out until after the election in November," Pappas said that what happens in Washington "affects everything that exists in our country today, both short term and long term in regard to immigration."
"It's a tremendously complex issue," Pappas said. |
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