Higher taxes for law firms organized as limited liability partnerships will remain in place, after the Texas Supreme Court on Nov. 28 refused to strike down as unconstitutional a state franchise tax on business partnerships. But two tax lawyers — including one whose client lost that high-court challenge — say they’re hopeful the court’s reasoning could enable reforms to the franchise tax.
The court decided 7-2 in In Re Allcat Claims Service LP and John Weakly that the franchise tax doesn’t violate the Texas Constitution’s provision that voters must approve any statewide income tax on natural persons.Because partnerships are legal entities separate from their individual partners, the majority ruled the franchise tax on a partnership’s income does not constitute an income tax on each partner.
