By: Montford S.B. No. 898
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 171.001(b), Tax Code, is amended to read
1-5 as follows:
1-6 (b) In this chapter:
1-7 (1) "Banking corporation" means each state, national,
1-8 domestic, or foreign bank, and each bank organized under Section
1-9 25(a), Federal Reserve Act (12 U.S.C. Secs. 611-631 (edge
1-10 corporations), but does not include a bank holding company as that
1-11 term is defined by Section 2, Bank Holding Company Act of 1956 (12
1-12 U.S.C. Sec. 1841).
1-13 (2) "Corporation" includes:
1-14 (A) a limited liability company, as defined
1-15 under the Texas Limited Liability Company Act; and
1-16 (B) a state or federal savings and loan
1-17 association.
1-18 (3) "Charter" includes a limited liability company's
1-19 certificate of organization.
1-20 (4) "Internal Revenue Code" means the Internal Revenue
1-21 Code of 1986, as amended and in effect for the federal tax year
1-22 beginning on or after January 1, 1992 <1990>, and before January 1,
1-23 1993 <1991>, and any regulations adopted under that code applicable
2-1 to that period.
2-2 (5) "Officer" and "director" include a limited
2-3 liability company's directors and managers.
2-4 (6) "Savings and loan association" includes a state or
2-5 federal savings bank.
2-6 (7) "Shareholder" includes a limited liability
2-7 company's member.
2-8 SECTION 2. Section 171.061, Tax Code, is amended to read as
2-9 follows:
2-10 Sec. 171.061. Exemption--Nonprofit Corporation Organized for
2-11 Educational Purposes. A nonprofit corporation organized solely for
2-12 educational purposes, <including a corporation organized solely to
2-13 provide a student loan fund or student scholarships,> is exempted
2-14 from the franchise tax.
2-15 SECTION 3. Section 171.082, Tax Code, is amended to read as
2-16 follows:
2-17 Sec. 171.082. Exemption--Certain Homeowner's Associations.
2-18 A nonprofit corporation is exempted from the franchise tax if:
2-19 (1) the corporation is organized and operated
2-20 primarily to obtain, manage, construct, and maintain the property
2-21 in or of a residential condominium or residential real estate
2-22 development; and
2-23 (2) voting control of the corporation is vested in the
2-24 owners of individual lots, residences, or residential units, and
2-25 not in the developer or any one individual, partnership,
3-1 corporation, trust or other entity.
3-2 SECTION 4. Section 171.087, Tax Code, is added to read as
3-3 follows:
3-4 Sec. 171.087. EXEMPTION--NONPROFIT CORPORATIONS ORGANIZED
3-5 SOLELY TO PROVIDE STUDENT LOAN FUND OR STUDENT SCHOLARSHIPS. A
3-6 nonprofit corporation organized solely to provide a student loan
3-7 fund or student scholarships is exempted from the franchise tax.
3-8 SECTION 5. Sections 171.101(a) and (d), Tax Code, are
3-9 amended to read as follows:
3-10 (a) Except as provided by Subsections (b) and (c), the net
3-11 taxable capital of a corporation is computed by:
3-12 (1) adding the corporation's stated capital as defined
3-13 by Article 1.02, Texas Business Corporation Act, and the
3-14 corporation's surplus, to determine the corporation's taxable
3-15 capital;
3-16 (2) apportioning the corporation's taxable capital to
3-17 this state as provided by Section 171.106(a) or (c), as applicable,
3-18 to determine the corporation's apportioned taxable capital; <and>
3-19 (3) adding the corporation's taxable capital allocated
3-20 to this state as provided in Section 171.1061; and
3-21 (4) <(3)> subtracting from the amount computed under
3-22 Subdivision (2) any other allowable deductions to determine the
3-23 corporation's net taxable capital.
3-24 (d) For purposes of this chapter, no deduction shall be
3-25 allowed for expenses otherwise allowable as deductions is such
4-1 expenses relate to income exempt or excluded from taxation under
4-2 this chapter.
4-3 SECTION 6. Section 171.103, Tax Code, is amended to read as
4-4 follows:
4-5 Except for the gross receipts of a corporation that are
4-6 subject to the provisions of Section 171.1061, in <In> apportioning
4-7 taxable capital, the gross receipts of a corporation from its
4-8 business done in this state is the sum of the corporation's
4-9 receipts from:
4-10 (1) each sale of tangible personal property if the
4-11 property is delivered or shipped to a buyer in this state
4-12 regardless of the FOB point or another condition of the sale, and
4-13 each sale of tangible personal property shipped from this state to
4-14 a purchaser in another state in which the seller is not subject to
4-15 taxation;
4-16 (2) each service performed in this state;
4-17 (3) each rental of property situated in this state;
4-18 (4) each royalty for the use of a patent or copyright
4-19 in this state; and
4-20 (5) other business done in this state.
4-21 SECTION 7. Section 171.1032(a), Tax Code, is amended to read
4-22 as follows:
4-23 (a) Except for the gross receipts of a corporation that are
4-24 subject to the provisions of Section 171.1062, in <In> apportioning
4-25 taxable earned surplus, the gross receipts of a corporation from
5-1 its business done in this state is the sum of the corporation's
5-2 receipts from:
5-3 (1) each sale of tangible personal property if the
5-4 property is delivered or shipped to a buyer in this state
5-5 regardless of the FOB point or another condition of the sale, and
5-6 each sale of tangible personal property shipped from this state to
5-7 a purchaser in another state in which the seller is not subject to
5-8 taxation;
5-9 (2) each service performed in this state;
5-10 (3) each rental of property situated in this state;
5-11 (4) each royalty for the use of a patent or copyright
5-12 in this state; and
5-13 (5) other business done in this state.
5-14 SECTION 8. Section 171.105(a), Tax Code, is amended to read
5-15 as follows:
5-16 (a) Except for the gross receipts of a corporation that are
5-17 subject to the provisions of Section 171.1061, in <In> apportioning
5-18 taxable capital, the gross receipts of a corporation from its
5-19 entire business is the sum of the corporation's receipts from:
5-20 (1) each sale of the corporation's tangible personal
5-21 property;
5-22 (2) each service, rental, or royalty; and
5-23 (3) other business.
5-24 SECTION 9. Section 171.1051(a), Tax Code, is amended to read
5-25 as follows:
6-1 (a) Except for the gross receipts of a corporation that are
6-2 subject to the provisions of Section 171.1062, in <In> apportioning
6-3 taxable earned surplus, the gross receipts of a corporation from
6-4 its entire business is the sum of the corporation's receipts from:
6-5 (1) each sale of the corporation's tangible personal
6-6 property;
6-7 (2) each service, rental, or royalty; and
6-8 (3) other business.
6-9 SECTION 10. Section 171.106(c), Tax Code, is amended to read
6-10 as follows:
6-11 (c) A corporation's taxable capital or earned surplus that
6-12 is derived, directly or indirectly, from the sale of management,
6-13 distribution, or administration services to or on behalf of a
6-14 regulated investment company, including a corporation that includes
6-15 trustees or sponsors of employee benefit plans that have accounts
6-16 in a regulated investment company, is apportioned to this state to
6-17 determine the amount of the tax imposed under Section 171.002 by
6-18 multiplying the corporation's total taxable capital or earned
6-19 surplus from the sale of services to or on behalf of a regulated
6-20 investment company by a fraction, the numerator of which is the
6-21 average of the sum of shares owned at the beginning of the year and
6-22 the sum of shares owned at the end of the year by the investment
6-23 company shareholders who are commercially domiciled in this state
6-24 or domiciled in this state, if an individual, and the denominator
6-25 of which is the average of the sum of shares owned at the beginning
7-1 of the year and the sum of shares owned at the end of the year by
7-2 all investment company shareholders.
7-3 SECTION 11. Section 171.1061, Tax Code, is added to read as
7-4 follows:
7-5 Sec. 171.1061. ALLOCATION OF CERTAIN TAXABLE CAPITAL TO THIS
7-6 STATE. Any portion of a corporation's taxable capital not subject
7-7 to tax by a state or country other than this state because it does
7-8 not have sufficient unitary connection with such other state or
7-9 country in accordance with federal law, will be allocated to and
7-10 taxed by this state if the corporation's commercial domicile is in
7-11 this state.
7-12 SECTION 12. Section 171.1062, Tax Code, is added to read as
7-13 follows:
7-14 Sec. 171.1062. ALLOCATION OF CERTAIN TAXABLE EARNED SURPLUS
7-15 TO THIS STATE. Any portion of a corporation's taxable earned
7-16 surplus not subject to tax by a state or country other than this
7-17 state because it does not have sufficient unitary connection with
7-18 such other state or country in accordance with federal law, will be
7-19 allocated to and taxed by this state if the corporation's
7-20 commercial domicile is in this state.
7-21 SECTION 13. Section 171.109(m), Tax Code, is amended to add
7-22 Subsection (m) to read as follows:
7-23 (m) A corporation may not use the push-down method of
7-24 accounting in computing or reporting its surplus.
7-25 SECTION 14. Section 171.110 Tax Code, is amended by amending
8-1 Subsection (a) and adding Subsections (h), and (i) to read as
8-2 follows:
8-3 (a) The net taxable earned surplus of a corporation is
8-4 computed by:
8-5 (1) determining the corporation's reportable federal
8-6 taxable income, subtracting from that amount any amount included in
8-7 reportable federal taxable income under Section 78 or Sections
8-8 951-964, Internal Revenue Code, and dividends received from a
8-9 subsidiary, associate, or affiliated corporation that does not
8-10 transact a substantial portion of its business or regularly
8-11 maintain a substantial portion of its assets in the United States,
8-12 and adding to that amount any compensation of officers or
8-13 directors, or if a bank, any compensation of directors and
8-14 executive officers, to the extent excluded in determining federal
8-15 taxable income to determine the corporation's taxable earned
8-16 surplus;
8-17 (2) apportioning the corporation's taxable earned
8-18 surplus to this state as provided by Section 171.106(b) or (c), as
8-19 applicable, to determine the corporation's apportioned taxable
8-20 earned surplus; <and>
8-21 (3) adding the corporation's taxable earned surplus
8-22 allocated to this state as provided by Section 171.1062; and
8-23 (4) <(3)> subtracting from that amount any allowable
8-24 deductions and any business loss that is carried forward to the tax
8-25 reporting period and deductible under Subsection (e).
9-1 (h) For purposes of this chapter, no deduction shall be
9-2 allowed for expenses otherwise allowable as deductions if such
9-3 expenses relate to income exempt or excluded from taxation under
9-4 this chapter.
9-5 (i) Except as provided in subsection (g) of this section,
9-6 each partner in a partnership shall be considered one shareholder
9-7 and each beneficiary of a trust shall be considered one
9-8 shareholder, if the shares are held in the name of a partnership or
9-9 of a trust.
9-10 SECTION 15. Section 171.151, Tax Code, is amended to read as
9-11 follows:
9-12 Sec. 171.151. Privilege Period Covered by Tax. The
9-13 franchise tax shall be paid for each of the following:
9-14 (1) an initial period beginning on the date that the
9-15 corporation files its charter or is granted a certificate of
9-16 authority or the date that a foreign corporation begins doing
9-17 business in this state, whichever is earlier, and ending on the day
9-18 before the first anniversary of that date;
9-19 (2) a second period beginning on the first anniversary
9-20 of the date that the corporation files its charter or is granted
9-21 its certificate of authority or the date that a foreign corporation
9-22 begins doing business in this state, whichever is earlier, and
9-23 ending on December 31 following that date, unless the date of the
9-24 first anniversary is December 31, in which event the second period
9-25 begins and ends on that December 31; and
10-1 (3) after the initial and second periods have expired,
10-2 a regular annual period beginning each year on January 1 and ending
10-3 the following December 31.
10-4 SECTION 16. Section 171.204, Tax Code, is amended to read as
10-5 follows:
10-6 Sec. 171.204. Information Report. To determine eligibility
10-7 for the exemption provided by Section 171.2022, or to determine the
10-8 amount of the franchise tax or the correctness of a franchise tax
10-9 report, the comptroller may require <an officer of> a corporation
10-10 that may be subject to the tax imposed under this chapter to file
10-11 an information report with the comptroller stating the amount of
10-12 the corporation's taxable capital and earned surplus, or any other
10-13 information the comptroller may request.
10-14 SECTION 17. Subchapter H, Chapter 171, Tax Code is amended
10-15 by adding Section 171.364 to read as follows:
10-16 Sec. 171.364. TRANSACTIONS ENTERED INTO TO AVOID OR EVADE
10-17 TAX. If the principal purpose of any transaction or series of
10-18 transactions entered into by a corporation is determined by the
10-19 comptroller to be entered into to avoid or evade the imposition of
10-20 the tax under this Title, the comptroller may take the following
10-21 actions:
10-22 (a) In the case of a transaction or a series of transactions
10-23 between a corporation and one or more businesses (whether or not
10-24 incorporated, and whether or not affiliated), owned or controlled
10-25 directly or indirectly by the same interests, the comptroller may
11-1 distribute, apportion, or allocate gross income, deductions,
11-2 credits or allowances between or among the corporation and such
11-3 businesses if it is determined that such allocation is necessary in
11-4 order to
11-5 (1) prevent evasion of taxes, or
11-6 (2) clearly reflect the income of any of such
11-7 corporation.
11-8 (b) In the case of certain reorganization transactions in
11-9 which the principal purpose of the transaction or series of
11-10 transactions is the avoidance or evasion of tax, the comptroller
11-11 may disregard the transaction or take such other action as may be
11-12 necessary to prevent the avoidance or evasion of tax.
11-13 SECTION 18. This Act takes effect for franchise tax reports
11-14 originally due on or after January 1, 1994.
11-15 SECTION 19. The importance of this legislation and the
11-16 crowded condition of the calendars in both houses create an
11-17 emergency and an imperative public necessity that the
11-18 constitutional rule requiring bills to be read on three several
11-19 days in each house be suspended, and this rule is hereby suspended.