By:  Montford                                          S.B. No. 897
                                 A BILL TO BE ENTITLED
                                        AN ACT
    1-1  relating to the application and administration of the franchise
    1-2  tax.
    1-3        BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
    1-4        SECTION 1.  Section 171.101(d), Tax Code, is amended to read
    1-5  as follows:
    1-6        (d)  For purposes of this chapter, no deduction shall be
    1-7  allowed for expenses otherwise allowable as deductions if such
    1-8  expenses relate to income exempt or excluded from taxation under
    1-9  this chapter.
   1-10        SECTION 2.  Section 171.1032, Tax Code, is amended to read as
   1-11  follows:
   1-12        Sec. 171.1032.  Determination of Gross Receipts From Business
   1-13  Done in this State for Taxable Earned Surplus.  (a)  In
   1-14  apportioning taxable earned surplus, the gross receipts of a
   1-15  corporation from its business done in this state is the sum of the
   1-16  corporation's receipts from:
   1-17              (1)  each sale of tangible personal property if the
   1-18  property is delivered or shipped to a buyer in this state
   1-19  regardless of the FOB point or another condition of the sale, and
   1-20  each sale of tangible personal property shipped from this state to
   1-21  a purchaser in another state in which the seller is not subject to
   1-22  taxation;
   1-23              (2)  each service performed in this state;
    2-1              (3)  each rental of property situated in this state;
    2-2              (4)  each royalty for the use of a patent or copyright
    2-3  in this state; and
    2-4              (5)  other business done in this state.
    2-5        (b)  A corporation shall exclude <deduct> from its gross
    2-6  receipts computed under Subsection (a): <any amount to the extent
    2-7  included under Subsection (a) because of the application of Section
    2-8  78 or Sections 951-964, Internal Revenue Code; and>
    2-9              (1)  dividends received from a subsidiary, associate,
   2-10  or affiliated corporation that does not transact a substantial
   2-11  portion of its business or regularly maintain a substantial portion
   2-12  of its assets in the United States; and
   2-13              (2)  any other gross receipts from sources outside the
   2-14  United States, as computed in determining foreign source income
   2-15  reported or reportable on Internal Revenue Service Form 1118,
   2-16  Schedule A.
   2-17        SECTION 3.  Section 171.105, Tax Code, is amended to read as
   2-18  follows:
   2-19        Sec. 171.105.  Determination of Gross Receipts From Entire
   2-20  Business for Taxable Capital.  <(a)>  In apportioning taxable
   2-21  capital, the gross receipts of a corporation from its entire
   2-22  business is the sum of the corporation's receipts from:
   2-23              (1)  each sale of the corporation's tangible personal
   2-24  property;
   2-25              (2)  each service, rental, or royalty; and
    3-1              (3)  other business.
    3-2        <(b)  If a corporation sells an investment or capital asset,
    3-3  the corporation's gross receipts from its entire business for
    3-4  taxable capital include only the net gain from the sale.>
    3-5        SECTION 4.  Section 171.1051, Tax Code, is amended to read as
    3-6  follows:
    3-7        Sec. 171.1051.  Determination of Gross Receipts From Entire
    3-8  Business for Taxable Earned Surplus.  (a)  In apportioning taxable
    3-9  earned surplus, the gross receipts of a corporation from its entire
   3-10  business is the sum of the corporation's receipts from:
   3-11              (1)  each sale of the corporation's tangible personal
   3-12  property;
   3-13              (2)  each service, rental, or royalty; and
   3-14              (3)  other business.
   3-15        <(b)  If a corporation sells an investment or capital asset,
   3-16  the corporation's gross receipts from its entire business for
   3-17  taxable earned surplus includes only the net gain from the sale.>
   3-18        (b) <(c)>  A corporation shall exclude <deduct> from its
   3-19  gross receipts computed under Subsection (a): <any amount to the
   3-20  extent included under Subsection (a) because of the application of
   3-21  Section 78 or Sections 951-964, Internal Revenue Code; and>
   3-22              (1)  dividends received from a subsidiary, associate,
   3-23  or affiliated corporation that does not transact a substantial
   3-24  portion of its business or regularly maintain a substantial portion
   3-25  of its assets in the United States; and
    4-1              (2)  any other gross receipts or revenues from sources
    4-2  outside the United States, as computed in determining foreign
    4-3  source income reported or reportable on Internal Revenue Service
    4-4  Form 1118, Schedule A.  To the extent such receipts result from
    4-5  export sales of property manufactured in the United States that are
    4-6  subject to Section 863(b) of the Internal Revenue Code, such
    4-7  receipts shall be reduced by 50%.  If such receipts from export
    4-8  sales of products manufactured in the United States (i) qualify as
    4-9  sales from qualified export property, pursuant to the foreign sales
   4-10  corporation provisions of Sections 921-927 of the Internal Revenue
   4-11  Code and (ii) are subject to the specific provisions of Section
   4-12  927(e)(1) of the Internal Revenue Code, such receipts shall be
   4-13  reduced by 75% rather than 50%.
   4-14        SECTION 5.  Section 171.110(a), Tax Code, is amended and
   4-15  Section 171.110(h), Tax Code is added by to read as follows:
   4-16        (a)  The net taxable earned surplus of a corporation is
   4-17  computed by:
   4-18              (1)  determining the corporation's reportable federal
   4-19  taxable income; and
   4-20                    (A)  excluding <subtracting> from that amount any
   4-21  net foreign source taxable income or loss as reported or reportable
   4-22  on Internal Revenue Service Form 1118, Column 121; <any amount
   4-23  included in reportable federal taxable income under Section 78 or
   4-24  Sections 951-964, Internal Revenue Code, and dividends received
   4-25  from a subsidiary, associate, or affiliated corporation that does
    5-1  not transact a substantial portion of its business or regularly
    5-2  maintain a substantial portion of its assets in the United States>;
    5-3                    (B)  in the event that the Internal Revenue Code
    5-4  requires any deduction allowable in computing federal taxable
    5-5  income to be reduced because a credit is claimed for federal income
    5-6  tax purposes for the period upon which the tax is based for which
    5-7  no similar credit is provided under this chapter and for which such
    5-8  deduction is not restored by any other part of this paragraph, then
    5-9  the amount of the deduction lost because the credit was claimed may
   5-10  be used in computing federal taxable income for the purpose of
   5-11  determining taxable earned surplus and, similarly, if the income
   5-12  reported to the Internal Revenue Service is increased because a
   5-13  credit is claimed for federal income tax purposes for which no
   5-14  similar credit is allowed under this chapter and for which no
   5-15  adjustment for such increase in income is allowed under any other
   5-16  part of this section, then the amount of the increase shall be
   5-17  reversed in computing federal taxable income for the purpose of
   5-18  determining taxable earned surplus;
   5-19                    (C)  and adding to that amount any compensation
   5-20  of officers or directors, or if a bank, any compensation of
   5-21  directors and executive officers, to the extent excluded in
   5-22  determining federal taxable income to determine the corporation's
   5-23  taxable earned surplus;
   5-24              (2)  apportioning the corporation's taxable earned as
   5-25  applicable, to determine the corporation's apportioned taxable
    6-1  earned surplus; and
    6-2              (3)  subtracting from the corporation's apportioned
    6-3  taxable earned surplus <that amount> any allowable deductions and
    6-4  any business loss that is carried forward to the tax reporting
    6-5  period and deductible under Subsection (e).
    6-6        (h)  For purposes of this chapter, no deduction shall be
    6-7  allowed for expenses otherwise allowable as deductions if such
    6-8  expenses relate to income exempt or excluded from taxation under
    6-9  this chapter.
   6-10        SECTION 6.  Section 171.152(c), Tax Code, is amended to read
   6-11  as follows:
   6-12        (c)  Payment of the tax covering the regular annual period is
   6-13  due May 15 of each year after the beginning of the regular annual
   6-14  period.  <However, if the first anniversary of the date that the
   6-15  domestic corporation files its charter or the foreign corporation
   6-16  begins doing business in Texas or is granted its certificate of
   6-17  authority, whichever occurs first, is after October 3 and before
   6-18  January 1, the payment of the tax covering the first regular annual
   6-19  period is due on the same date as the tax covering the initial
   6-20  period.>
   6-21        SECTION 7.  Section 171.153(a) and (c), Tax Code, are amended
   6-22  to read as follows:
   6-23        (a)  The tax covering the initial period is reported on the
   6-24  initial report and is based on the business done by the corporation
   6-25  during the period beginning on the day the corporation files its
    7-1  charter or is granted a certificate of authority or the date that a
    7-2  foreign corporation begins doing business in this state, whichever
    7-3  is earlier, and:
    7-4              (1)  ending on the last accounting period ending date
    7-5  that is at least six months after the beginning date and at least
    7-6  60 days before the original due date of the initial report; or
    7-7              (2)  if there is no such period ending date in
    7-8  Subdivision (1) of this subsection, then ending on the day that is
    7-9  the last day of a calendar month and that is nearest to the end of
   7-10  the corporation's first year of business; or
   7-11              (3)  ending on the day after the merger occurs, for the
   7-12  survivor of a merger if
   7-13                    (A)  the merger occurs after the day on which the
   7-14  tax is based in Subdivision (1) or Subdivision (2), whichever is
   7-15  applicable, of Subsection (a) and before January 1 of the year an
   7-16  initial report is due by the survivor; and
   7-17                    (B)  the survivor is reporting for any part of
   7-18  the privilege period for which the non-survivor was not required to
   7-19  report.  <which occurs after the date on which the tax is based in
   7-20  Subdivision (1) or Subdivision (2), whichever is applicable, of
   7-21  Subsection (a) and before January 1 of the year an initial report
   7-22  is due by the survivor.>
   7-23        (c)  The tax covering the regular annual period is based on
   7-24  the business done by the corporation during its last accounting
   7-25  period that ends in the year before the year in which the tax is
    8-1  due; unless a corporation is the survivor of a merger which occurs
    8-2  between the end of its last accounting period in the year before
    8-3  the report year and January 1 of the report year, and the survivor
    8-4  is reporting for any part of a privilege period for which a
    8-5  non-survivor was not required to report, in which case the tax will
    8-6  be based on the financial condition of the surviving corporation
    8-7  for the 12-month period ending on the day after the merger.
    8-8  <However, if the first anniversary of the date that the corporation
    8-9  files its charter, is granted its certificate of authority, or
   8-10  begins doing business in this state is after October 3 and before
   8-11  January 1, the tax covering the first regular annual period is
   8-12  based on the same business on which the tax covering the initial
   8-13  period is based and is reported on the initial report.>
   8-14        SECTION 8.  Section 171.1532(b), Tax Code, is amended to read
   8-15  as follows:
   8-16        (b)  The tax covering the regular annual period <other than a
   8-17  regular annual period included in the initial report> is based on
   8-18  the business done by the corporation during the period beginning
   8-19  with the day after the date upon which the initial report is based,
   8-20  as required by Subsection (a) of this section, and ending with its
   8-21  last accounting period ending in the year before the report is
   8-22  originally due.
   8-23        SECTION 9.  Subchapter E, Chapter 171, Tax Code is amended by
   8-24  adding Section 171.212 to read as follows:
   8-25        Sec. 171.212.  REPORT OF CHANGES TO FEDERAL INCOME TAX
    9-1  RETURN.
    9-2        (a)  If any item of a corporation's net taxable earned
    9-3  surplus as computed under Section 171.110, is changed by the
    9-4  corporation or is changed by the Internal Revenue Service or other
    9-5  competent authority, the corporation shall notify the comptroller.
    9-6  Changes required to be reported to the comptroller include but are
    9-7  not limited to, any changes to the corporation's reportable federal
    9-8  taxable income, any allowable deductions or business losses, or the
    9-9  amount of compensation of officers or directors or any other item
   9-10  of income, loss, deduction or credit.
   9-11        (b)  The corporation must report such changes and pay any tax
   9-12  due within 120 days after a final determination is made as to such
   9-13  changes.
   9-14        (c)  For purposes of this section, the following shall be
   9-15  deemed to be a final determination:
   9-16              (1)  Payment of any additional federal income tax, not
   9-17  the subject of any other final determination described in (2), (3),
   9-18  (4), or (5) of this Subsection.  The payment of additional federal
   9-19  income tax shall not constitute a final determination to the extent
   9-20  that the corporation has either filed a claim for refund for some
   9-21  or all of the amounts paid or has filed a Petition for
   9-22  Redetermination with respect to some of the items adjusted.  In
   9-23  such instances, Subdivisions (3), (4), or (5) of this Subsection
   9-24  shall determine when the final determination has occurred.
   9-25              (2)  The signing of a Federal Form 870 or other
   10-1  Internal Revenue Service form consenting to the deficiencies and/or
   10-2  accepting any over assessments shown on the form.  The signing of a
   10-3  Federal Form 870 or other Internal Revenue Service form shall not
   10-4  constitute a final determination to the extent that the corporation
   10-5  has filed a refund claim for some or all of the deficiency or
   10-6  assessment shown on the form within one year of signing the
   10-7  appropriate federal form.  However, where the signature of an
   10-8  authorized representative of the Internal Revenue Service is also
   10-9  required, the final determination shall occur when the corporation
  10-10  receives notice of the signing by the Internal Revenue Service.
  10-11              (3)  The expiration of the 90 day time period or other
  10-12  period allowed by the Internal Revenue Service within which a
  10-13  corporation may file a petition for redetermination with the U.S.
  10-14  Tax Court with respect to the statutory notice of deficiency issued
  10-15  by the Internal Revenue Service, if a petition is not filed with
  10-16  the court within such time.
  10-17              (4)  A closing agreement entered into with the Internal
  10-18  Revenue Service under Section 7121 of the Internal Revenue Code.
  10-19  The final determination shall occur when the corporation receives
  10-20  notice of the signing of the closing agreement by the Commissioner
  10-21  of Internal Revenue.
  10-22              (5)  A decision by the U.S. Tax Court, U.S. District
  10-23  Court, U.S. Court of Appeals, U.S. Court of Claims, or the U.S.
  10-24  Supreme Court which has become final, or the date the court
  10-25  approves a voluntary agreement stipulating final disposition of the
   11-1  case.
   11-2              (6)  The allowance of a tentative carryback adjustment
   11-3  in accordance with Section 6411 of the Internal Revenue Code based
   11-4  on a net operating loss carryback.
   11-5        (d)  All such changes shall be reported to the comptroller.
   11-6  In addition a copy of the Summary of The Federal Agent's Report
   11-7  (commonly referred to as an "RAR"), a copy of any closing statement
   11-8  entered into with the Internal Revenue Service under Section 7121
   11-9  of the Internal Revenue Code, or a copy of a final court decision,
  11-10  as appropriate, shall be submitted to the comptroller in support of
  11-11  the report of change.
  11-12        (e)  If a corporation files an amended federal income tax
  11-13  return, an amended franchise tax report reflecting the same changes
  11-14  sheet shall be filed with the comptroller.  The amended tax report
  11-15  and accompanying spread sheets for this state shall be filed by the
  11-16  later of 120 days from the date a final determination, as defined
  11-17  in Subdivision (c) of this Section has been reached or 120 days
  11-18  after the expiration of the period in which the Internal Revenue
  11-19  Service may assess any tax due resulting from the filing of the
  11-20  amended return.
  11-21        (f)  In any case where notification of federal change or an
  11-22  amended income tax return is given as required in this Section, a
  11-23  notice of deficiency may be issued at any time within 2 years after
  11-24  the date such notification is given, provided, however, that the
  11-25  amount of any proposed assessment set forth in such notice of
   12-1  deficiency shall be limited to the amount of any deficiency
   12-2  resulting from recalculation of the corporation's tax liability for
   12-3  the taxable year after giving effect to the item or items reflected
   12-4  in the reported change or amended return plus applicable interest
   12-5  and penalties.  If a corporation fails to give notice as required a
   12-6  notice of deficiency may be issued at any time, but only with
   12-7  respect to the item or items required in the notice.  However, if
   12-8  proper notice is given, except that it occurs after the 120 day
   12-9  period required, a notice of deficiency may not be issued after 2
  12-10  years from the date of the late notification and then only with
  12-11  respect to the item or items required in the notice.  However, the
  12-12  limitations contained in this Subsection shall not be construed to
  12-13  reduce the statute of limitations that would otherwise be
  12-14  applicable to the assessment of a tax deficiency or restrict the
  12-15  items that would otherwise be subject to assessment within the
  12-16  statute of limitations.
  12-17        (g)  A corporation may file a claim for refund not later than
  12-18  2 years after the date of notification required by this Section.
  12-19  The recoverable amount of a claim filed is limited to any
  12-20  overpayment resulting from the changes to its federal income tax
  12-21  return required to be reported under this Section plus applicable
  12-22  interest.
  12-23        SECTION 10.  This Act takes effect for reports originally due
  12-24  on or after January 1, 1994.
  12-25        SECTION 11.  The importance of this legislation and the
   13-1  crowded condition of the calendars in both houses create an
   13-2  emergency and an imperative public necessity that the
   13-3  constitutional rule requiring bills to be read on three several
   13-4  days in each house be suspended, and this rule is hereby suspended.