Senate passes new business tax

The Senate passed House Bill 3, which imposes a new tax on the gross receipts of all businesses earning more than $300,000 per year, on Tuesday, May 2, without a single change from the version of the bill that left the House last week. That means the centerpiece of Gov. Rick Perry’s plan to avoid a constitutional showdown over the state’s method of public school finance is headed straight to his desk for signature, bypassing the conference committee process altogether.

HB 3 would place a 1-percent tax on gross receipts minus cost of goods or employee compensation for businesses earning more than $300,000 per year, including physician practices. Physicians would be able to deduct from their taxable income the full amount of all revenue from Medicaid, CHIP, Medicare, worker’s compensation, the County Indigent Health Care Program and military insurance programs plus the cost of any uncompensated charity care they provide.

During one general legislative session and four called special sessions to deal with school finance, TAFP has argued consistently that unlike virtually any other business, physician practices do not have the option of passing the cost of a new tax on to their customers because physicians’ rate of pay is determined largely by either government programs or private third-party payers. Representatives of TAFP have told lawmakers that since Texas physicians provide $1 billion of uncompensated charity care each year, they already pay a significant “hidden” tax.

Those arguments have not fallen on deaf ears. Although legislators proved unwilling to let any businesses out of the tax, the inclusion of deductions for Medicaid, CHIP, Medicare, charity care and more shows that the Legislature and the governor did not ignore physicians’ concerns.

The business tax will not go into until Feb. of 2008, providing TAFP an opportunity to address potential tax implications to physician practices during the 80 th legislative session beginning in January of 2007. TAFP is also working with legislative leadership to increase Medicaid and CHIP reimbursement rates for those participating in the program to help ameliorate new tax burdens.