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* Correction appended.

For tens of thousands of lawyers, doctors and engineers, a new Texas law is going to mean more money in their pockets.

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Fourteen years after the Legislature first tacked on a $200 annual licensing fee for some occupations, lawmakers passed a law this year repealing the so-called professionals tax. Over the years, as the state's business tax structure had changed, the fee had morphed into a form of double taxation, critics argued.

“This is an example of legislative and agency effort to eliminate an unfair burden on our licensees and pass the savings on to them,” said Susan Stanford, spokeswoman for the Texas Department of Licensing and Regulation.

The repeal is expected to impact more than 600,000 professionals, more than a third of whom are securities dealers and brokers, according to data from the state comptroller and various occupational boards.

The fee dates to 1991, when Texas lawmakers were in a desperate search for cash. The state was facing a $4.6 billion budget shortfall, as well as a court order to overhaul its school finance system that was expected to cost more that $1 billion.

“In short, state government is like a speeding train heading for a wreck," then-Comptroller John Sharp said at the time, according to the Bond Buyer.

Eventually, state leaders tightened their belts, raised taxes, created the state lottery and tacked a $200 annual license fee to 11 professions, including doctors, lawyers, accountants, architects and real estate brokers. In 2003, lawmakers expanded the fee to landscape architects, interior designers, land surveyors, and property tax consultants.

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Those having to pay the new fee were in professions that were not subject to business franchise taxes at the time, according to state Rep. Drew Darby, a San Angelo Republican and the author of House Bill 7, a  budget transparency bill which includes the repeal of the professionals tax.

“When that tax was abolished in 2006 in favor of the margins tax, the fee should have gone away but it didn’t,” Darby said.

More than a dozen professional groups whose members have paid the annual fee for years lobbied lawmakers this session to repeal it, arguing that the fee was unfair and amounted to a double tax.

“It’s time to eliminate this hidden occupation tax that selectively targets our professional service industries,” read a May 7 letter sent to Senate Finance Chairwoman Jane Nelson, R-Flower Mound, and signed by 18 professional groups including the Texas Association of Realtors, the Texas Medical Association and the American Council of Engineering Companies of Texas. “Most licensed professionals are small businesses. By eliminating the $200 annual tax, you will allow these businesses to invest their dollars back into the local economy instead of padding government coffers.” (Nelson is the senate sponsor of House Bill 7.)

Of each $200 collected, $50 was deposited in the Foundation School Program, the mechanism through which most state education funding is allocated. 

For real estate brokers, another $50 was directed to the Texas A&M Real Estate Center. To make up for the lost funding, the Legislature increased the state’s annual broker license fee from $20 to $70.

As lawmakers entered the session with a multi-billion dollar surplus, there was little opposition to repealing the fee and forgoing the expected $125 million in annual revenue.  

Correction: An earlier version of this story incorrectly described Sen. Jane Nelson as a co-author of House Bill 7. She was the Senate sponsor of the bill. 

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Disclosure: Texas A&M University, the Texas Association of Realtors, the American Council of Engineering Companies of Texas and the Texas Medical Association are corporate sponsors of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.

 

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