Senator Eliot Shapleigh - El Paso, Texas

AUSTIN -- Jimmie Daw paid the state about $10,000 in taxes last year for his pest-control business in El Paso.

After Gov. Rick Perry put his signature on a new law Tuesday, Daw and more than 40,000 other Texas business owners won't have to write another big tax check like that for at least the next two years.

"To me, that's a lot of money," said Daw, owner of Daw Pest Control. "I pay enough taxes as it is."

The bill Perry signed changes a business tax that lawmakers created in 2006 to provide more money for public schools. The measure increases a state exemption so that small businesses that generate less than $1 million in revenue annually would not have to pay the tax. Previously, only businesses with revenues of less than $300,000 annually were exempt.

"There aren't many states that could extend a tax cut to small businesses in these tough economic times. I am proud that Texas has," Perry said in a statement. He signed the bill at a ceremony in Houston.

The idea behind the business tax was to close loopholes in the system and generate more state revenue to replace money Texas would lose from cutting school property taxes. Business owners were told that lower property tax bills would offset some of the increased business taxes.

But many received tax bills that were thousands more than they had paid before. Worse, few saw the property tax reductions lawmakers promised.

Even though school property tax rates shrank, home values continued to grow, propping up property tax rates.

"Where? Tell me, where are those lower property taxes?" Daw asked.

Because of the increased exemption, he said, he would probably escape paying the state business tax next year. He said he hoped to put the money he saved on taxes into building an addition to his office.

Henry Benning, owner of the El Paso construction firm Henry Benning Associates, said the new exemption would not help his company, which saw a 200 percent increase in the amount of business tax the state charged.

Lawmakers, he said, went too far in revamping the previous tax, and now the system is unfair.

Benning said he would like lawmakers to revisit the business tax when they reconvene in 2011 to make the tax more like it was before, a lower rate tied to the federal income tax.

"I'm very frustrated over the way they've done this," Benning said.

Lawmakers will probably take another look at the business tax in 2011, because the exemption Perry approved Tuesday is scheduled to expire in January 2012 unless it is renewed.

State Sen. Eliot Shapleigh, D-El Paso, who supported the bill Perry signed, said the whole tax system might need an overhaul in two years. He expects the state to face a multibillion-dollar budget deficit.

"Texas' entire tax system does not nearly fund essential services," Shapleigh said.