The Senate version of a Texas-sized tax overhaul ran into formidable opposition Friday, as Gov. Rick Perry and powerful business lobby groups moved to counter key provisions.

At issue: wording that would make sweeping changes to corporate franchise taxes and a provision that gives voters a say in property tax changes.

Sources familiar with both sides of the negotiations between Senate leaders and Perry confirmed Friday that the governor's office is working against the plan, which will be debated Sunday.

The sources did not want to be named because of the sensitive nature of discussions.

But late Friday, Senate leaders said their intention was to move ahead to approve the Senate plan.

"I want a fair school finance plan that lowers local property taxes, closes unfair business loopholes, creates a level playing field and improves our education," Lt. Gov. David Dewhurst said. "We have the votes on Sunday to pass (the) local school property reduction plan."

Part of the governor's opposition to the Senate plan was that it includes provisions that were not part of an agreement Perry thought he had with Dewhurst on the outline for a plan that could pass both the Senate and House during the special legislative session.

"Gov. Perry has expressed to Lt. Gov. Dewhurst and senators the same concerns over his proposal to tax the incomes of partnerships that he expressed to Speaker (Tom) Craddick over his payroll tax," said Perry spokeswoman Kathy Walt said. "That stems from his belief that the House won't approve it, and that's the reason that the governor proposed what he did earlier . . . in hopes of reaching a middle ground on this issue."

The special session was called after deadlocked negotiations between House and Senate leaders derailed a compromise in May.

Despite their differences over the details, by late Friday, Perry was reportedly ready to urge senators not to block debate on the bill Sunday Once debate begins, though, Perry's camp still hopes the language he doesn't like will be stripped out. "We want a bill. We can work out differences in conference committee," said one person involved in the Senate side of negotiations who asked not to be named because of the sensitive nature of the talks.

Both the Senate plan and the House-passed tax legislation, House Bill 3, would raise sales and business taxes to pay for cuts in school property taxes and rework the way the state pays for public education.

Lawmakers are under pressure to approve a school finance system. The Texas Supreme Court is poised to rule soon on whether the state's current system is unconstitutional, as a state district judge in Austin ruled last fall. Perry and legislative leaders are working to come up with their own fix before the high court rules.

The House version of H.B.3 passed by a single vote this week. Perry, who has been pressing hard for an agreement, has been pushing lawmakers to stick by his plan. Perry — like the House — wants to require more businesses to pay the franchise tax but his plan does not include either the public referendum or the revised business-tax structure called for in the Senate plan.

The Senate version requires voters to approve some of the tax cuts in exchange for an expanded corporate franchise tax.

Friday's mostly behind-the-scenes developments ensured that political tensions could run high when the Senate takes up debate on the tax bill Sunday afternoon and raised the prospect that one or both provisions could be missing from the legislation finally adopted.

Even so, Dewhurst and Senate Finance Committee Chairman Steve Ogden, R-Bryan, stood firm on Friday on their plans for the voter referendum and reformed franchise taxes. And they were clear they will not increase the sales tax by more than a half cent. The House-passed version calls for a full-cent increase.

"I don't see a need to move the sales tax (increase) past a half cent," Dewhurst said. "We don't need to have one of the highest sales tax rates in the country."

Dewhurst said the business groups oppose the measure because "some businesses don't want to pay their fair share," a sentiment he has repeated for months in arguing for the broad-based, low-rate approach to business taxes in previous Senate plans.

"I've always been pro-business and the only people who oppose this want consumers to shoulder business' fair share of taxes," Dewhurst said.

At an earlier news conference, he named the Texas Association of Business and the Texas Oil and Gas Association as opposing the Senate plan.

"The House bill shifts taxes from business to consumers. I guess they probably would support that," Dewhurst said.

Bill Hammond, president of the Texas Association of Business, did not return a phone call for comment Friday. Various oil and gas lobbyists, who earlier opposed the previous Senate plans, also could not be reached Friday afternoon.

Ogden said he thinks the referendum is appropriate "to ask Texans how they want to pay" for additional funding for schools. The referendum give voters a say in changes to Texas' corporate tax structure. Senators hope that would allow them to sidestep legal challenges that would come by extending the franchise tax to partnerships. Critics have argued such a move would be the same as imposing an income, which tax banned by the Texas Constitution.

Despite the differences between the Senate plan and the House-passed version of the tax bill, Dewhurst insisted that the two chambers are closer to an agreement than they were a few weeks ago. "What the House passed out was much closer to the Senate position than in May," he said.

Ogden offered: "If the House wants to negotiate, we'll reach an agreement."

In related actions Friday, the Senate unanimously approved a new budget for the Texas Education Agency, including funding for public schools, to replace the budget vetoed in June by Perry.

The bill includes $30 million to open a pharmacy school in Kingsville, $45 million for a medical school in El Paso and a mechanism to pay for tuition revenue bonds at state colleges and universities after a measure that would have established the bond program died in the final days of the regular legislative session.

Dueling school tax plans

Comparisons of House legislation that has cleared that chamber and Senate legislation scheduled for debate Sunday.

Sales tax

House: Raises state sales tax from 6.25 percent to 7.25 percent, expands it to car repairs, bottled water and computer programming.

Senate: Raises sales tax to 6.75 percent; expands it to some computer repairs; grants sales tax rebates to low-income Texans who use Lone Star Cards to buy food.

'Sin taxes'

House: Raises cigarette taxes $1 per pack.

Senate: Raises cigarette taxes $1 per pack over several years; raises some alcohol taxes paid by businesses.

Business taxes

House: Forces about 10,000more companies to pay franchise tax.

Senate: Forces about 10,000 more companies to pay corporate franchise tax. With voter approval, also lowers tax rate but requires that it cover at least 10 percent of a company's payroll.

School property taxes(for maintenance and operations)

House: Cuts maximum rate from $1.50 per $100 in assessed value to $1.23 this fall and $1.12 next year.

Senate: Cuts maximum rate to $1.30 this fall. With voter approval, drops to $1.11 next year.

What it means to you
How the tax proposals would affect the cost of various items

Widescreen plasma TV(List price of $2,999.99)

Now: $3,187.49(includes 6.25% state sales tax)

Proposed: $3,202.49 under Senate plan (with 6.75% state sales tax); $3,217.49 under House plan (with 7.25% state sales tax)

Pack of cigarettes

Now: $4 (includes 41-cent tax)

Proposed: $5 (with $1.41 tax)

School property tax bill* (For home assessed at $200,000)

Now: $2,775

Proposed: $2,053.50 under Senate plan; $2,072 under House plan

*In districts that tax at maximum rate for maintenance and operations

Tax breaks for a few
The House plan will result in lower tax bills for only the highest-earning 20 percent of Texans, according an analysis by the Legislative Budget Board. No similar analysis has been done for the Senate proposal.

Family income range Change in total tax bill
Up to $13,415 4.36%
$13,415 to $22,833 3.74%
$22,833 to $31,735 3.84%
$31,735 to $41,463 3.65%
$41,463 to $51,750 3.42%
$51,750 to $64,325 2.98%
$64,325 to $79,271 2.11%
$79,271 to $100,593 1.32%
$100,593 to $140,853 -0.44%
More than $140,853 -2.38%