Funding a New Direction

Raising Revenue for Reforming K-12 Public Education in Texas

A Message From Hank

In September when I entered the race for governor of Texas, I unveiled a bold, common-sense reform package for k-12 education in Texas. At that time, I announced that I would unveil a funding plan for those reforms later in the year. I did this because I wanted to insure that the ideas and policies—not the minutiae associated with the funding—was the key story.

Now that Texans have had the opportunity to assess my policy proposal, I am announcing what I believe to be the best plan to fund my package of k-12 education reforms.

Whether this plan becomes reality ultimately depends upon Texas voters. Each of you will have the opportunity to go to the polls and approve the necessary constitutional amendments to make part of this plan work.

In order to fund improvements to public education in Texas, bold new ideas are needed. With Texas facing a record budget shortfall in the next biennium, I believe this plan is the most appropriate.

Sincerely,

Hank Gilbert

New Revenue Is Needed To Fund Improvements In K-12 Public Education In Texas.

Hank proposes three separate revenue streams to generate new funding to support primary and secondary education initiatives:

• A “Big Box” Tax. Hank proposes a gross receipts tax on retail stores that have more than $20 million in sales annually and a tax exemption deal from local entities.

• Internet Sales Tax Fairness. Hank proposes legislation mandating that Internet retailers operating “affiliate programs” in Texas and making more than $10,000 in annual sales through in-state affiliates charge Texas sales tax to Texas residents.

• Operation Of Racinos and Destination Resort Casinos in Texas. Hank proposes allowing existing Texas racetracks to be licensed to operate full casinos, and that the state grant a small number of permits for destination resort casinos.

The “Big Box” Tax.

Hank proposes a gross receipts tax on retail stores that have more than $20 million in sales annually.

Although “big box” retailers such as Wal-Mart, Target, and Sam’s Club bring benefits to Texans (such as convenience and good product selection), they also take a tremendous toll on local small businesses and the overall Texas economy. For example, the employees of big-box retailers are often paid low wages and provided healthcare that is too expensive for low-income families to afford. In fact, Wal-Mart, Dillards, Home Depot and Sears ranked among the top 20 employers in Texas in terms of the number of children of employees served by the state’s Children’s Health Insurance Program[1].

In addition, these out-of-state corporations often are exempt from local property taxes, directly removing critical revenue that could go to local public schools.

Under Hank’s plan, a retail gross receipts tax would be imposed on sellers from a single taxable establishment in Texas with gross receipts from the retail sales of consumer goods exceeding $20 million per calendar year.

Establishments generating over $20 million in sales up to $30 million would be taxed at one percent. Those generating between $30 million and $40 million would be taxed at a rate of one and a half percent. “Big Box” retail establishments generating over $40 million would be taxed at two percent.

Electricity, farm machinery, gasoline, and motor vehicles, would be excluded from calculations.

PROJECTING REVENUE: While projected revenue from such a gross receipts tax is difficult to calculate without significant study, one can easily see the potential fiscal impact such a revenue stream would have on the state budget.

As of October, 2009, Texas had 444 Wal-Mart stores and Sam’s Club retailers of varying type[2]. If we assumed that each of these stores generated $20,000,000 in gross receipts annually[3], that totals $8.88 billion dollars in annual taxable gross receipts. One percent of this total is $88.8 million in new tax revenue for Texas.

Internet Sales Tax Fairness.

Hank proposes legislation mandating that Internet retailers operating “affiliate programs” in Texas and making more than $10,000 in annual sales through in-state affiliates charge Texas sales tax to Texas residents.

Under Hank’s plan, Internet retailers such as Amazon.com and Overstock.com operating “affiliate programs” within Texas (whereby affiliates post advertisements on their websites and receive a commission from sales) would be required to charge Texas residents Texas sales tax if the retailer made over $10,000 in annual sales from Texas in a calendar year. Under Hank’s proposal, individual entrepreneurs such as those who sell items on E-Bay would be exempt from these taxes.

PROJECTING REVENUE: New York state, which enacted its so-called “Amazon tax” in 2008, estimated the state would see as much as $60 million in new revenue from the tax[4].

How much tax revenue is generated from such a tax in Texas would depend upon the current tax rate as well the annual sales in the state by the retailer. The New York model is an appropriate barometer because New York, Texas, and California are the nation’s most populous states.

Operation Of Racinos and Destination Resort Casinos in Texas.

Hank proposes allowing existing Texas racetracks to be licensed to operate full casinos, and that the state grant a small number of permits for destination resort casinos.

Under Hank’s plan, the state’s 13 existing racetracks would be allowed to be licensed to operate full casinos (“racinos”) in conjunction with their racing operations. Under Hank’s plan, instead of allowing the casinos to be licensed only to operate Video Lottery Terminals, the tracks would be allowed to operate full casinos including table games such as roulette and card games such as poker.

In addition to allowing casino gambling at the state’s 13 existing racetracks, under Hank’s plan, three Native American tribes in Texas—the Kickapoo (Eagle Pass), Alabama-Coushatta (Livingston) and Tiguas (El Paso) would be allowed to operate full casinos.

Hank’s plan also includes allowing licenses for up to three destination-style resort casinos in Texas. Under Hank’s plan, the legislature would determine the locations in which destination-style resort casinos could be built (such as the Gulf Coast, the Dallas/Fort Worth Metroplex, or the Rio Grande Valley).

PROJECTING REVENUE: This plan will bring well in excess of $1 billion in annual revenue to the state. With just VLTs at existing racetracks and on reservations, with a tax rate of 30 percent, it is projected the state would receive $1 billion in annual revenue from the casinos themselves as well as from secondary sources associated with the full economic impact of the casinos[5]. Allowing full gambling operations as Hank proposes would likely generate significantly more revenue than this.

In 2007 alone, Texas leaked nearly $2.4 billion dollars in revenue to other states with casino gambling. $1.016 billion went across our eastern border into Louisiana while another $478 million went north to Oklahoma. With VLTs alone at racetracks, it was projected that Texas would recapture $1.830 billion in leakage to other states and generate $1.531 billion in new revenue[6].

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[1] CHIP Enrollment by Parent’s Employer, Texas Health & Human Services Commission [LINK]

[2] Wal-Mart Stores. [SOURCE]

[3] $20 million in annual sales for a single location would equal roughly $55,000 in sales per day.

[4] New York Sun [LINK]

[5] The Economic and Tax Revenue Impact of Texas Racino Gambling,  Texans for Economic Development. February, 2009.

[6] ibid