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Texas Supreme Court Upholds Business Margins Tax

In a highly anticipated opinion, the Texas Supreme Court upheld the business margins tax that taxed limited partnerships. The tax payers primarly challenged the classification of the tax. Opponents of the law in Allcat Claims Service, L.P. vs. Texas Comptroller of Public Accounts, and Greg Abbott, Texas Attorney General, argued the franchise tax on limited partnerships constituted an unconstitutional personal income tax. Allcat also argued the state comptroller’s application of the tax violated the state constitution’s mandate that taxes be equal and uniform.

The Texas Supreme Court held the Texas Legislature acted properly in giving the court original jurisdiction on constitutional challenges to this type of tax. It further held the tax did not violate the constitutional prohibition on personal income taxes without voter approval because Texas sees limited partnerships as a separate entity. The court declined to decide whether this challenge was appropriate to the comptroller’s tax calculation.

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