By:  Horn                                             H.B. No. 1288
       73R2109 CBH-D
                                 A BILL TO BE ENTITLED
    1-1                                AN ACT
    1-2  relating to excluding compensation of officers or directors in
    1-3  computing franchise tax liability.
    1-5        SECTION 1.  Section 171.110, Tax Code, is amended to read as
    1-6  follows:
    1-8  (a)  The net taxable earned surplus of a corporation is computed
    1-9  by:
   1-10              (1)  determining the corporation's reportable federal
   1-11  taxable income and<,> subtracting from that amount any amount
   1-12  included in reportable federal taxable income under Section 78 or
   1-13  Sections 951-964, Internal Revenue Code, and dividends received
   1-14  from a subsidiary, associate, or affiliated corporation that does
   1-15  not transact a substantial portion of its business or regularly
   1-16  maintain a substantial portion of its assets in the United States<,
   1-17  and adding to that amount any compensation of officers or
   1-18  directors, or if a bank, any compensation of directors and
   1-19  executive officers, to the extent excluded in determining federal
   1-20  taxable income to determine the corporation's taxable earned
   1-21  surplus>;
   1-22              (2)  apportioning the corporation's taxable earned
   1-23  surplus to this state as provided by Section 171.106(b) or (c), as
   1-24  applicable, to determine the corporation's apportioned taxable
    2-1  earned surplus; and
    2-2              (3)  subtracting from that amount any allowable
    2-3  deductions and any business loss that is carried forward to the tax
    2-4  reporting period and deductible under Subsection (c) <(e)>.
    2-5        (b)  <A corporation is not required to add the compensation
    2-6  of officers or directors as required by Subsection (a)(1) if the
    2-7  corporation is:>
    2-8              <(1)  a corporation that has not more than 35
    2-9  shareholders; or>
   2-10              <(2)  an S corporation, as that term is defined by
   2-11  Section 1361, Internal Revenue Code.>
   2-12        <(c)  Subsection (b) does not apply to a subsidiary
   2-13  corporation unless it applies to the subsidiary's parent
   2-14  corporation.>
   2-15        <(d)>  A corporation's reportable federal taxable income is
   2-16  the  corporation's federal taxable income after Schedule C special
   2-17  deductions and before net operating loss deductions as computed
   2-18  under the Internal Revenue Code, except that an S corporation's
   2-19  reportable federal taxable income is the amount of the income
   2-20  reportable to the Internal Revenue Service as taxable to the
   2-21  corporation's shareholders.
   2-22        (c) <(e)>  For purposes of this section, a business loss is
   2-23  any negative amount after apportionment.  The business loss shall
   2-24  be carried forward to the year succeeding the loss year as a
   2-25  deduction to net taxable earned surplus, then successively to the
   2-26  succeeding four taxable years after the loss year or until the loss
   2-27  is exhausted, whichever occurs first, but for not more than five
    3-1  taxable years after the loss year.  Notwithstanding the preceding
    3-2  sentence, a business loss from a tax year that ends before
    3-3  January 1, 1991, may not be used to reduce net taxable earned
    3-4  surplus.
    3-5        (d) <(f)>  A corporation may use either the "first in-first
    3-6  out" or "last in-first out" method of accounting to compute its net
    3-7  taxable earned surplus, but only to the extent that the corporation
    3-8  used that method on its most recent federal income tax report
    3-9  originally due on or before the date on which the corporation's
   3-10  franchise tax report is originally due.
   3-11        <(g)  For purposes of this section, an approved Employee
   3-12  Stock Ownership Plan controlling a minority interest and voted
   3-13  through a single trustee shall be considered one shareholder.>
   3-14        SECTION 2.  This Act takes effect January 1, 1994, and
   3-15  applies to a privilege period beginning on or after that date.  The
   3-16  change in law made by this Act does not affect the obligation for
   3-17  or the payment, computation, and collection of the franchise tax
   3-18  for a period not covered by this section.
   3-19        SECTION 3.  The importance of this legislation and the
   3-20  crowded condition of the calendars in both houses create an
   3-21  emergency   and   an   imperative   public   necessity   that   the
   3-22  constitutional rule requiring bills to be read on three several
   3-23  days in each house be suspended, and this rule is hereby suspended.