AUSTIN – Hundreds of thousands of Texas businesses, fresh from paying their federal income taxes earlier this month, are now busy calculating what they owe the state under its new business tax – and many don't like what the numbers show.

The new tax – approved by the Legislature in a special session in 2006 as part of a massive tax overhaul package – debuts this spring with businesses large and small expected to navigate their way through the complex requirements and file their returns by June 16.

Among the disenchanted taxpayers is Dallas businessman Andy Ellard, owner of a machine shop with 28 employees. Mr. Ellard said the size of his tax bill doesn't match up with the pledges of state lawmakers. "We were promised a number of things, and none of them happened," said Mr. Ellard. He estimated that he would pay about $8,900 under the new business franchise tax, more than double the $4,200 he paid last year.

"There are going to be some mad business owners [on June 16], and I think you're going to see some people get voted out of office because of this," he said.

Even with the $1,700 he saved in property taxes – a result of the tax overhaul law – his net state tax increase is still about $3,000.

"We were told there would be no increase if we paid the [old] franchise tax last year," he said, referring to the promise of lawmakers not to penalize businesses who were paying the franchise tax while many others skirted the tax. "I haven't talked to a single businessman who isn't looking at a tax increase."

Legislative prediction

Legislative leaders did in fact predict that the new tax would have its biggest impact on businesses that were not paying the franchise tax because of loopholes in the law. Other businesses like Mr. Ellard's Manda Machine Co. would probably break even or pay slightly more, they said.

That was because the higher tax on businesses was supposed to be offset by reductions in school property taxes. The Legislature cut school property taxes – which make up about 60 percent of the average property tax bill – by one-third. To replace that revenue, lawmakers increased taxes for businesses through the revised franchise tax and for smokers through a $1-a-pack cigarette tax increase. "Businesses are just waking up to this," said Will Newton of the National Federation of Independent Business, which has become one of the biggest critics of the new tax. "Texas used to be good for business, but this new tax is making us one of the most anti-business states in the country."

To top it off, Mr. Newton said, "It's the most confusing, complicated system of taxation ever devised. Just the cost of compliance [preparing tax returns] has been devastating for some of our members."

Other business groups, including those that represent larger companies, have been supportive of the new system even though it was not their first choice of how to tax businesses. Bill Hammond, president of the Texas Association of Business, said the Legislature probably did the best it could given the limited options it had, including a long-standing constitutional ban on a business income tax in Texas – an option preferred by TAB and others.

"Anyone who didn't pay the tax before has to pay this year, and that's a lot of businesses," he said. "They're not happy and that's certainly understandable. But the old franchise tax was inherently unfair because so few businesses paid it."

Dale Craymer, chief economist for the Texas Taxpayers and Research Association, argued that businesses are "far better off" with the new system than they would have been had the Legislature done nothing.

"If you compare the taxes they're paying today versus what they paid two years ago, it may not be lower and in many cases it will be higher," he said. But if the tax system had not been revamped two years ago, property taxes would have soared and overall business taxes would be much higher.

Appraisals increase

Mr. Craymer acknowledged that the property tax relief has not been as great as anticipated, partly because of higher property appraisals and also because school boards have been inching their tax rates back up – which is allowed by law.

In all, the new tax is expected to generate about $6 billion a year, or nearly $12 billion over the next two years. The old franchise tax produced less than half that amount.

Both Mr. Craymer and Mr. Hammond said there is no evidence yet that the new tax has slowed down the influx of new businesses into Texas.

But Mr. Newton of the national federation countered that it is only a matter of time.

"This tax is going to cost jobs in the long run," he said. "If you want to make sure the Texas economy tanks, just enact a tax that hits small businesses hard."

A spokeswoman for Gov. Rick Perry, who signed the new business tax into law, rejected the notion that it is hurting the state's business climate.

"Gov. Perry is intent on ensuring a fair business climate," said Krista Piferrer of the governor's office, citing the equitable treatment of businesses in the tax and their property tax reductions.

Pete Snider, president of Alco Glass Inc. in Mesquite, said his company illustrates the problems with the new tax.

If the old franchise tax were still in place, he said, his business would have paid nothing because profits last year were marginal and just below the threshold for taxation. Under the new law, he will have to pay about $6,000. And as far as property tax cuts, he added, increased appraisal values will wipe out the savings his company would have seen in property tax reductions.

"The way I see it, it's like kicking a guy when he's down," Mr. Snider said, referring to the slowing economy in Texas.

To help businesses cope with the new tax, state Comptroller Susan Combs last week extended the deadline for filing taxes from May 15 to June 16.

"We want to make sure businesses and tax practitioners have adequate time to make sure they're complying with the revised franchise tax," Ms. Combs said.