Points worth noting

Franchise tax: legal though flawed

Just because the Texas Supreme Court has upheld the constitutionality of the state franchise tax -- again -- doesn't mean the Legislature can now say, "Move on, nothing to see here."

The tax remains a complex amalgamation that underperforms as an important revenue-raiser for the state.

Among the interim charges for the House Ways and Means Committee is to "evaluate the state's tax structure and determine its impact on the competitiveness of the Texas business climate," including whether the franchise tax should continue to exist in a current or revised form or be replaced with a different business tax. (bit.ly/nslfPW)

Also known as the margins tax, the assessment is levied on corporations, partnerships and other businesses for the privilege of doing business in Texas.

The Legislature expanded the scope of the tax in 2006 as part of an effort to lower property taxes but increase income to help pay for public schools. That hasn't worked out so well.

Nestle USA, which makes and sells a lot more than chocolate, challenged the tax as unconstitutionally discriminatory because the company gets taxed at the higher manufacturer's rate even though the products it profits from in Texas are made outside the state. Manufacturers get taxed at 1 percent of the revenue attributed to their Texas business; retailers and wholesalers pay half that rate. There are exemptions and deductions associated with each rate.

Nestle paid almost $8.7 million due for 2012, under protest.

On Friday, the Supreme Court rejected the company's claims by a 7-2 vote.

"Taxes do not discriminate when the differing rate stems 'solely from differences between the nature of their businesses, not from the location of their activities.' That is the case here," Justice Nathan Hecht wrote for the majority.

Justice Don Willett wrote a short dissent, joined by Justice Debra Lehrmann, saying the court didn't have jurisdiction over Nestle's suit, even though the 2006 revisions gave the court exclusive power to decide constitutional challenges to the law.

A legally rational tax still can be seriously defective, and this one needs lawmakers' attention -- again.

Funding Austin med school

Would you raise your property tax rate by 5 cents -- to build a medical school?

Austinites are being asked to vote Nov. 6 to increase the Travis County hospital district tax rate from 7.89 cents per $100 of assessed value to 12.9 cents to help build an Austin medical school for the University of Texas and fund other initiatives, including a new teaching hospital, specialty cancer-care services, community health clinics and training for healthcare professionals.

The tax hike is expected to raise $54 million, with $35 million of it earmarked to underwrite care that the school's physicians-in-training will provide to poor patients, the Austin American-Statesman reported. (bit.ly/Tfu44h)

But should UT pay for the medical school -- or rely on local property taxes, a novel mechanism in Texas for this kind of project?

The UT System board of regents has committed $25 million a year for med school operations and $5 million annually for eight years to buy equipment, the Statesman reported, and the nonprofit Seton Healthcare Family has pledged $250 million toward the new teaching hospital. But UT estimates the 12-year cost of the medical school at $4.1 billion.

Medicaid could kick in, too: The $54 million in property tax money would bring in $76 million in federal matching funds.

Public dollars are public dollars, regardless of the source, but sometimes it takes creativity to pull them together.

The Bexar County hospital district pays UT San Antonio's medical school faculty and residents for treating indigent patients, for instance, and El Paso channels electric utility fees to a medical foundation that will help Texas Tech use bonds for a nursing school building.

The Austin vote is worth watching to see whether it adds a method to pay for medical training.

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