Senator Eliot Shapleigh - El Paso, Texas

 AUSTIN – Texas' new business tax is coming up short of expectations.

The state comptroller's office said Wednesday that nearly $4.7 billion has been collected in the first year of the tax, about $1.2 billion less than projected.

But state officials said solid revenues from other sources – primarily the state sales and cigarette taxes – should help offset the shortfall.

A final figure for the business tax is not available because some returns are still coming in, but the number is not expected to change much.

Lt. Gov. David Dewhurst and other state leaders have been cautiously optimistic about the revenue picture that will greet the Legislature when it convenes in January.

"We're going to be in pretty good shape, but we have to be careful," Mr. Dewhurst said, citing not only the lower revenue from the business tax but also costs from Hurricane Ike that could total more than $2 billion.

The Republican said the key reason the state is not facing a budget crisis was the decision of the Legislature last year to keep about $7.5 billion in reserve to pay for school property tax cuts and other expenses.

Although Mr. Dewhurst said Senate leaders want to consider new tax incentives to encourage businesses to provide health insurance– which could further reduce revenues from the business tax – the prospect of other breaks for businesses appears to be dimming. Leading business groups want relief for small businesses that have been hit hard by the tax.

All businesses except sole proprietorships were supposed to file tax returns this year, and more than a half-million did, according to the state comptroller. Only 133,000 were required to pay because of exemptions for businesses with gross receipts of less than $300,000 a year or a total tax of less than $1,000.

The new business tax was approved by the Legislature in 2006 under a massive tax swap law passed in the wake of a school finance ruling by the Texas Supreme Court.

State lawmakers responded by cutting school property taxes by one-third. To replace most of the revenue, they approved the new business tax and increased the state cigarette tax.

Experts said several factors drove the dropoff in business tax revenues, such as allowing some partnerships to reorganize last year and pay taxes for only the second half of 2007. But the tax should generate more revenue in future years as the new tax code becomes settled.