By Oliveira H.B. No. 1893
Substitute the following for H.B. No. 1893:
By Oliveira C.S.H.B. No. 1893
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to the application and administration of the franchise
1-3 tax.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 171.001(b), Tax Code, is amended to read
1-6 as follows:
1-7 (b) In this chapter:
1-8 (1) "Banking corporation" means each state, national,
1-9 domestic, or foreign bank, and each bank organized under Section
1-10 25(a), Federal Reserve Act (12 U.S.C. Secs. 611-631) (edge
1-11 corporations), but does not include a bank holding company as that
1-12 term is defined by Section 2, Bank Holding Company Act of 1956 (12
1-13 U.S.C. Sec. 1841).
1-14 (2) "Corporation" includes:
1-15 (A) a limited liability company, as defined
1-16 under the Texas Limited Liability Company Act; and
1-17 (B) a state or federal savings and loan
1-18 association.
1-19 (3) "Charter" includes a limited liability company's
1-20 certificate of organization.
1-21 (4) "Internal Revenue Code" means the Internal Revenue
1-22 Code of 1986, as amended and in effect for the federal taxable year
1-23 beginning on or after January 1, 1992 <1990>, and before January 1,
2-1 1993 <1991>, and any regulations adopted under that code applicable
2-2 to that period.
2-3 (5) "Officer" and "director" include a limited
2-4 liability company's directors and managers.
2-5 (6) "Savings and loan association" includes a state or
2-6 federal savings bank.
2-7 (7) "Shareholder" includes a limited liability
2-8 company's member.
2-9 SECTION 2. Section 171.052, Tax Code, is amended to read as
2-10 follows:
2-11 Sec. 171.152. CERTAIN CORPORATIONS.
2-12 A corporation that is an insurance company; surety, guaranty,
2-13 or fidelity company now required to pay an annual tax measured by
2-14 their gross receipts, or is organized under Chapter 12 or 16 of the
2-15 Insurance Code is exempted from the franchise tax.
2-16 SECTION 3. Section 171.061, Tax Code, is amended to read as
2-17 follows:
2-18 Sec. 171.061. EXEMPTION--NONPROFIT CORPORATION ORGANIZED FOR
2-19 EDUCATIONAL PURPOSES
2-20 A nonprofit corporation organized solely for educational
2-21 purposes, <including a corporation organized solely to provide a
2-22 student loan fund or student scholarships,> is exempted from the
2-23 franchise tax.
2-24 SECTION 4. Section 171.082, Tax Code, is amended to read as
2-25 follows:
3-1 Sec. 171.082. EXEMPTION--CERTAIN HOMEOWNER'S ASSOCIATIONS
3-2 A nonprofit corporation is exempted from the franchise tax
3-3 if:
3-4 (1) the corporation is organized and operated
3-5 primarily to obtain, manage, construct, and maintain the property
3-6 in or of a residential condominium or residential real estate
3-7 development; and
3-8 (2) voting control of the corporation is vested in the
3-9 owners of individual lots, residences, or residential units, and
3-10 not in the developer or any one individual, partnership,
3-11 corporation, trust or other entity.
3-12 SECTION 5. Section 171.087, Tax Code, is added to read as
3-13 follows:
3-14 Sec. 171.087. EXEMPTION--NONPROFIT CORPORATIONS ORGANIZED
3-15 SOLELY TO PROVIDE STUDENT LOAN FUND OR STUDENT SCHOLARSHIPS
3-16 A nonprofit corporation organized solely to provide a student
3-17 loan fund or student scholarships is exempted from the franchise
3-18 tax.
3-19 SECTION 6. Section 171.1032(a), Tax Code, is amended to
3-20 read as follows:
3-21 (a) Except for the gross receipts of a corporation that are
3-22 subject to the provisions of Section 171.1062, in <In> apportioning
3-23 taxable earned surplus, the gross receipts of a corporation from
3-24 its business done in this state is the sum of the corporation's
3-25 receipts from:
4-1 (1) each sale of tangible personal property if the
4-2 property is delivered or shipped to a buyer in this state
4-3 regardless of the FOB point or another condition of the sale, and
4-4 each sale of tangible personal property shipped from this state to
4-5 a purchaser in another state in which the seller is not subject to
4-6 taxation;
4-7 (2) each service performed in this state;
4-8 (3) each rental of property situated in this state;
4-9 (4) each royalty for the use of a patent or copyright
4-10 in this state; and
4-11 (5) other business done in this state.
4-12 SECTION 7. Section 171.1051(a), Tax Code, is amended to read
4-13 as follows:
4-14 (a) Except for the gross receipts of a corporation that are
4-15 subject to the provisions of Section 171.1062, in <In> apportioning
4-16 taxable earned surplus, the gross receipts of a corporation from
4-17 its entire business is the sum of the corporation's receipts from:
4-18 (1) each sale of the corporation's tangible personal
4-19 property;
4-20 (2) each service, rental, or royalty; and
4-21 (3) other business.
4-22 SECTION 8. Section 171.106(c), Tax Code, is amended to read
4-23 as follows:
4-24 (c) A corporation's taxable capital or earned surplus that
4-25 is derived, directly or indirectly, from the sale of management,
5-1 distribution, or administration services to or on behalf of a
5-2 regulated investment company, including a corporation that includes
5-3 trustees or sponsors of employee benefit plans that have accounts
5-4 in a regulated investment company, is apportioned to this state to
5-5 determine the amount of the tax imposed under Section 171.002 by
5-6 multiplying the corporation's total taxable capital or earned
5-7 surplus from the sale of services to or on behalf of a regulated
5-8 investment company by a fraction, the numerator of which is the
5-9 average of the sum of shares owned at the beginning of the year and
5-10 the sum of shares owned at the end of the year by the investment
5-11 company shareholders who are commercially domiciled in this state
5-12 or domiciled in this state, if an individual, and the denominator
5-13 of which is the average of the sum of shares owned at the beginning
5-14 of the year and the sum of shares owned at the end of the year by
5-15 all investment company shareholders.
5-16 SECTION 9. Section 171.1062, Tax Code, is added to read as
5-17 follows:
5-18 Sec. 171.1062. ALLOCATION OF CERTAIN TAXABLE EARNED SURPLUS
5-19 TO THIS STATE
5-20 Any item of income included in a corporation's taxable earned
5-21 surplus, except that portion derived from dividends and interest,
5-22 which no state other than this state or country other than this
5-23 country can tax because the activities generating such item of
5-24 income do not have sufficient unitary connection with the
5-25 corporation's other activities conducted within such state or
6-1 country under the United States Constitution, will be allocated to
6-2 this state if the corporation's commercial domicile is in this
6-3 state. Any income allocated to this state under this section will
6-4 be net of any related expenses. Any portion of a corporation's
6-5 taxable earned surplus allocated to this state under this section
6-6 will not be apportioned under Section 171.110(a)(2) of this
6-7 chapter.
6-8 SECTION 10. Section 171.109(m), Tax Code, is amended to add
6-9 Subsection (m) to read as follows:
6-10 (m) A corporation may not use the push-down method of
6-11 accounting in computing or reporting its surplus.
6-12 SECTION 11. Section 171.110 Tax Code, is amended by amending
6-13 Subsection (a) and adding Subsections (h), and (i) to read as
6-14 follows:
6-15 (a) The net taxable earned surplus of a corporation is
6-16 computed by:
6-17 (1) determining the corporation's reportable federal
6-18 taxable income, subtracting from that amount any amount included in
6-19 reportable federal taxable income under Section 78 or Sections
6-20 951-964, Internal Revenue Code, and dividends received from a
6-21 subsidiary, associate, or affiliated corporation that does not
6-22 transact a substantial portion of its business or regularly
6-23 maintain a substantial portion of its assets in the United States,
6-24 and adding to that amount any compensation of officers or
6-25 directors, or if a bank, any compensation of directors and
7-1 executive officers, to the extent excluded in determining federal
7-2 taxable income to determine the corporation's taxable earned
7-3 surplus;
7-4 (2) apportioning the corporation's taxable earned
7-5 surplus to this state as provided by Section 171.106(b) or (c), as
7-6 applicable, to determine the corporation's apportioned taxable
7-7 earned surplus; <and>
7-8 (3) adding the corporation's taxable earned surplus
7-9 allocated to this state as provided by Section 171.1062; and
7-10 (4) <(3)> subtracting from that amount any allowable
7-11 deductions and any business loss that is carried forward to the tax
7-12 reporting period and deductible under Subsection (e).
7-13 (h) For purposes of this chapter, no deduction shall be
7-14 allowed for expenses otherwise allowable as deductions if such
7-15 expenses relate to income exempt or excluded from taxation under
7-16 this chapter.
7-17 (i) Except as provided in subsection (g) of this section,
7-18 each partner in a partnership shall be considered one shareholder
7-19 and each beneficiary of a trust shall be considered one
7-20 shareholder, if the shares are held in the name of a partnership or
7-21 of a trust.
7-22 SECTION 12. Section 171.151, Tax Code, is amended to read as
7-23 follows:
7-24 Sec. 171.151. PRIVILEGE PERIOD COVERED BY TAX.
7-25 The franchise tax shall be paid for each of the following:
8-1 (1) an initial period beginning on the date that the
8-2 corporation files its charter or is granted a certificate of
8-3 authority or the date that a foreign corporation begins doing
8-4 business in this state, whichever is earlier, and ending on the day
8-5 before the first anniversary of that date;
8-6 (2) a second period beginning on the first anniversary
8-7 of the date that the corporation files its charter or is granted
8-8 its certificate of authority or the date that a foreign corporation
8-9 begins doing business in this state, whichever is earlier, and
8-10 ending on December 31 following that date, unless the date of the
8-11 first anniversary is December 31, in which event the second period
8-12 begins and ends on that December 31; and
8-13 (3) after the initial and second periods have expired,
8-14 a regular annual period beginning each year on January 1 and ending
8-15 the following December 31.
8-16 SECTION 13. Section 171.204, Tax Code, is amended to read as
8-17 follows:
8-18 Sec. 171.204. INFORMATION REPORT
8-19 To determine eligibility for the exemption provided by
8-20 Section 171.2022, or to determine the amount of the franchise tax
8-21 or the correctness of a franchise tax report, the comptroller may
8-22 require <an officer of> a corporation that may be subject to the
8-23 tax imposed under this chapter to file an information report with
8-24 the comptroller stating the amount of the corporation's taxable
8-25 capital and earned surplus, or any other information the
9-1 comptroller may request.
9-2 SECTION 14. Subchapter H, Chapter 171, Tax Code is amended
9-3 by adding Section 171.364 to read as follows:
9-4 Sec. 171.364. TRANSACTIONS ENTERED INTO TO EVADE TAX
9-5 If the principal purpose of any transaction or series of
9-6 transactions entered into by a corporation is determined by the
9-7 comptroller to be entered into to evade the imposition of the tax
9-8 under this Title, the comptroller may take the following actions:
9-9 (a) In the case of a transaction or a series of
9-10 transactions between a corporation and one or more businesses
9-11 (whether or not incorporated, and whether or not affiliated), owned
9-12 or controlled directly or indirectly by the same interests, the
9-13 comptroller may distribute, apportion, or allocate gross income,
9-14 deductions, credits or allowances between or among the corporation
9-15 and such businesses if it is determined that such allocation is
9-16 necessary in order to
9-17 (1) prevent evasion of taxes, or
9-18 (2) clearly reflect the income of any of such
9-19 corporation.
9-20 (b) In the case of certain reorganization transactions
9-21 in which the principal purpose of the transaction or series of
9-22 transactions is the evasion of tax, the comptroller may disregard
9-23 the transaction or take such other action as may be necessary to
9-24 prevent the evasion of tax.
9-25 SECTION 15. This Act takes effect for franchise tax reports
10-1 originally due on or after January 1, 1994.
10-2 SECTION 16. The importance of this legislation and the
10-3 crowded condition of the calendars in both houses create an
10-4 emergency and an imperative public necessity that the
10-5 constitutional rule requiring bills to be read on three several
10-6 days in each house be suspended, and this rule is hereby suspended.