(The Center Square) – Despite Texas’ strong economy, small business owners are struggling with high inflationary costs and high property taxes, a National Federation of Independent Business survey found.
The findings come from NFIB’s 11th “Small Business Problems and Priorities” survey published every four years since 1982.
The survey lists 75 issues, or problems, for a sample of 40,000 of its members to rank as their top concerns. NFIB produces surveys nationwide and by state.
The list identifies two primary types of problems: those created by government, like taxation and regulation, and those associated with business operations.
“Tax-related issues continue to be problematic for small business owners,” the report states. “Two of the top 10 problems cited are tax-related.”
“For the last four years, small business owners have struggled with historically high inflation, tax pressures at all levels of government, and uncertainty of what’s going to happen next,” Holly Wade, NFIB Research Center Executive Director, said. “This survey helps the public understand the issues affecting the small business sector. Small businesses employ nearly half of the private sector workforce, and this publication makes clear where lawmakers should focus their attention to strengthen Main Street and every community in which they operate. Despite the headwinds and economic challenges, small business owners are working hard to create new jobs and grow their businesses, but the threat of rising costs, taxes, and uncertainty gives Main Street pause.”
Of the 75 issues, Texas small business owners said the 10 most burdensome are the cost of health insurance, “uncertainty over economic conditions,” property taxes, federal taxes on business income, finding qualified employees, the cost of supplies and inventories, the cost of fuel and electricity costs, the cost and availability of liability insurance and uncertainty over government actions.
Notably, Texas small business owners’ responses to at least 30 issues, rating them as less of concern than others in the rest of the country, is because of Texas’ business tax and regulatory friendly environment, the report states. Texas has no state corporate income tax and no state individual income tax.
“Unchanged since 1986, the ‘Cost of Health Insurance’ remains the number one chronic issue for small business owners” in Texas and nationwide, NFIB said. It was identified as “critical” for 41% of respondents, up 10 points from 2020.
Costs for supplies and inventory jumped to the second top concern for Texas small businesses, up from 12th in 2020, representing “a direct result of historic inflation over the last two years,” NFIB said. Twenty percent identified it as a “critical problem,” up from 9% who did in 2020.
Property taxes, including real, inventory or personal property, ranked as the third top concern to Texas small business owners. The state legislature addressed the issue in the last legislative session, but NFIB says more can be done.
“This data makes it clear for lawmakers: Texas small businesses are overwhelmed with increasing costs across the board but are particularly concerned about the inventory tax,” NFIB State Director Jeff Burdett said. “The small business economy is resilient, particularly here in Texas due to our common sense, pro-growth policies. But more must be done to reduce the inventory tax burden.”
An analysis published by The Texas Taxpayers and Research Association last year found that small businesses in Texas pay a disproportionate share of taxes relative to economic output, making their effective tax rate 5.4%, higher than the national average.
The report cites a December 2022 Ernst & Young analysis that found that Texas businesses pay the 14th highest amount of taxes, more than what businesses pay in the high-tax states of Illinois and California and 34 other states. They also pay roughly half of all sales taxes and about three-fifths of all property taxes collected in Texas, according to the report.
According to the Tax Foundation’s 2024 State Business Tax Climate Index, Texas has the 13th best business tax environment in the country.
While Texas remains a top ranking state for business, it has some of the highest property taxes in the country.
Last year, Gov. Greg Abbott signed into law several bills allocating billions of dollars toward property tax relief. They included reducing several burdens for small businesses, including reducing the franchise tax. Voters last November also approved constitutional amendments to permanently ban a wealth tax and implement property tax reform measures.
Abbott has already directed the state legislature to address reducing property taxes again in the next legislative session, which begins in January.
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