The Texas franchise tax on businesses that was expected to compensate for a court-ordered reduction in local property taxes will bring in $3.6 billion in fiscal 2010, far less than the $4.3 billion that had been expected.

The tax brings in the second-largest portion of state revenue, behind the sales tax.

It is part of the 2006 tax package developed by lawmakers after the Texas Supreme Court said the financing system for public schools was unconstitutional.

The state comptroller’s office said tax collections will continue through August, but noted that historically some 95% of the tax comes in during May.

If that trend continues, the final collections are expected to be some $500 million less than anticipated under the current two-year state budget.

The franchise tax was expected to generate $12 billion in the fiscal 2008-2009 budget cycle, but collections actually totaled $8.7 billion over that period. So far, collections in fiscal 2010 are some 10% less than in fiscal 2009.

In 2009, lawmakers raised the threshold for companies liable to the tax to $1 million a year in total revenue from the original $300,000 per year.

Sales tax collections in fiscal 2010 are expected to be $1.5 billion less than expected in the fiscal year that ends July 1.

There is no personal income tax in Texas.

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