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.