By:  Smith, Dalton                                     H.B. No. 302
       73R1234 CBH-D
                                 A BILL TO BE ENTITLED
    1-1                                AN ACT
    1-2  relating to application of the franchise tax to S corporations.
    1-3        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-4        SECTION 1.  Section 171.001(b)(2), Tax Code, is amended to
    1-5  read as follows:
    1-6              (2)  "Corporation" includes<:>
    1-7                    <(A)>  a limited liability company, as defined
    1-8  under the Texas Limited Liability Company Act<;> and
    1-9                    <(B)>  a state or federal savings and loan
   1-10  association, but does not include an S corporation, as that term is
   1-11  defined in Section 1361, Internal Revenue Code.
   1-12        SECTION 2.  Sections 171.110(b) and (d), Tax Code, are
   1-13  amended to read as follows:
   1-14        (b)  A corporation is not required to add the compensation of
   1-15  officers or directors as required by Subsection (a)(1) if the
   1-16  corporation <is:>
   1-17              <(1)  a corporation that> has not more than 35
   1-18  shareholders<; or>
   1-19              <(2)  an S corporation, as that term is defined by
   1-20  Section 1361, Internal Revenue Code>.
   1-21        (d)  A corporation's reportable federal taxable income is the
   1-22  corporation's federal taxable income after Schedule C special
   1-23  deductions and before net operating loss deductions as computed
   1-24  under the Internal Revenue Code<, except that an S corporation's
    2-1  reportable federal taxable income is the amount of the income
    2-2  reportable to the Internal Revenue Service as taxable to the
    2-3  corporation's shareholders>.
    2-4        SECTION 3.  Section 171.113(a), Tax Code, is amended to read
    2-5  as follows:
    2-6        (a)  This section applies only to:
    2-7              (1)  a corporation organized as a close corporation
    2-8  under Part 12, Texas Business Corporation Act, that has not more
    2-9  than 35 shareholders; and
   2-10              (2)  a foreign corporation organized under the close
   2-11  corporation law of another state that has not more than 35
   2-12  shareholders<; and>
   2-13              <(3)  an S corporation as that term is defined by
   2-14  Section 1361, Internal Revenue Code of 1986 (26 U.S.C. Section
   2-15  1361)>.
   2-16        SECTION 4.  This Act takes effect January 1, 1994, and
   2-17  applies to a privilege period beginning on or after that date.  The
   2-18  change in law made by this Act does not affect the obligation for
   2-19  or the payment, computation, and collection of the franchise tax
   2-20  for a period not covered by this section.
   2-21        SECTION 5.  The importance of this legislation and the
   2-22  crowded condition of the calendars in both houses create an
   2-23  emergency   and   an   imperative   public   necessity   that   the
   2-24  constitutional rule requiring bills to be read on three several
   2-25  days in each house be suspended, and this rule is hereby suspended.