BILL ANALYSIS
S.B. 644
By: Montford (Holzheauser)
May 8, 1995
Committee Report (Amended)
BACKGROUND
Each year the comptroller of public accounts evaluates tax
collection and enforcement procedures of the state. Several
revisions were made in the franchise tax law in 1991, including
changes to the privilege period covered by the tax, the due date
for filing and paying the tax, and the addition of an earned
surplus component to the tax. Many questions related to these
revisions were addressed by legislation in the 1993 session, but
some questions still remain that need addressing.
PURPOSE
The bill proposes to make the following changes to the franchise
tax laws:
Merger credits are applicable to the taxable capital portion
only.
Business loss carryovers must be computed after
apportionment and allocation.
The "parallel accounting treatment" required for earned
surplus is also applicable to the computation of taxable
capital.
Dividends declared but not paid within one year are not
deductible in computing taxable capital.
Simplify language describing the date on which a corporation
begins to do business in Texas.
Update the link between the franchise tax and the Internal
Revenue Code to the current year.
Require the franchise tax public information report be sent
to officers and directors, and provide a method to correct
errors.
Provide a penalty for accountants or agents who knowingly
submit false information on any of their client's documents
RULEMAKING AUTHORITY
It is the committee's opinion that this bill does not expressly
grant any additional rulemaking authority to a state officer,
department, agency, or institution.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Section 171.001 (Tax Imposed), Subsection (b),
Tax Code, by amending Subdivisions (2)-(7) and adding
Subdivision (8) to define "beginning date" in the
general provisions, and to update the subsection to the
most current version of the Internal Revenue Code.
SECTION 2. Amends Section 171.0021 (Temporary Credit for Sales Tax
Paid on Property Used in Manufacturing), Subsection (c),
Tax Code, by deleting references to "privilege periods"
and substituting "reports" for corporations claiming
temporary credit for sales tax paid on property used in
manufacturing.
SECTION 3. Amends Section 171.061 (Exemption--Nonprofit Corporation
Organized for Educational Purposes), Tax Code, by
deleting that part of the exemption that refers to "a
corporation organized solely to provide a student loan
fund or student scholarships" (This issue is addressed
in SECTION 10 of the bill).
SECTION 4. Amends Sections 171.063 (Exception--Nonprofit
Corporations Exempt From Federal Income Tax),
Subsections (a) and (g), Tax Code.
(a) Sets forth corporations that are exempt from the
franchise tax, including a nonprofit organization
exempted from the federal income tax under Sections
501(c)(3)-(8), (10), or (19), Internal Revenue Code,
among others. Also makes nonsubstantive changes.
(g) Provides that if a corporation's federal tax
exemption is withdrawn by the Internal Revenue Service
(IRS), the corporation's exemption ends on the effective
date of the withdrawal of the IRS. Provides that the
effective date of the withdrawal is considered the
corporation's beginning date for purposes of determining
the corporation's privilege periods and all other
purposes of this chapter.
SECTION 5. Amends Section 171.064 (Exemption--Nonprofit Corporation
Organized for Conservation Purposes), Tax Code, by
changing qualifying areas of conservation from
collective to singular (i.e., changing "and" to "or").
SECTION 6. Amends Section 171.069 (Exemption--Marketing
Associations), Tax Code, by changing the citation from
Texas Civil Statutes to the Agriculture Code.
SECTION 7. Amends Section 171.071 (Exemption--Farmer's Cooperative
Society), Tax Code, by changing the citation from Texas
Civil Statutes to the Agriculture Code.
SECTION 8. Amends Section 171.076 (Exemption--Cooperative Credit
Association), Tax Code, by changing the citation from
Texas Civil Statutes to the Agriculture Code.
SECTION 9. Amends Section 171.082 (Exemption--Certain Homeowners'
Associations), Tax Code, to specify that a non profit
corporation is exempt from franchise tax if the
corporation is organized to obtain, manage, construct,
and maintain either a condominium or residential real
estate development, the condominium must be residential
and control of the corporation is not held by certain
individuals and/or entities; also defines residential.
SECTION 10. Amends Subchapter B, Chapter 171, Tax Code, by
adding Section 171.087 EXEMPTION--NONPROFIT
CORPORATION ORGANIZED FOR STUDENT LOAN FUNDS OR
STUDENT SCHOLARSHIP PURPOSES.
Provides a franchise tax exemption for nonprofit
corporations that are solely organized for student loan
funds or student scholarship purposes.
SECTION 11. Amends Section 171.109 (Surplus), Subsection (f),
Tax Code, to specify when a corporation must
include or exclude from taxable capital and gross
receipts dividends either declared or received.
SECTION 12. Amends Section 171.110 (Determination of Net
Taxable Earned Surplus), Subsection (e), Tax Code,
to provide that a business loss is any negative
amount after apportionment and allocation.
SECTION 13. Amends Section 171.112 (Gross Receipts for Taxable
Capital), Tax Code, by adding Subsection (h),
requiring a corporation to use the same accounting
methods to apportion its taxable capital as was
used to compute taxable capital.
SECTION 14. Amends Section 171.151 (Privilege Period Covered by
Tax), Tax Code, by replacing a description of a
corporation's beginning date with the phrase
"beginning date."
SECTION 15. Amends Section 171.152 (Date on Which Payment is
Due), Subsection (c), Tax Code, by replacing a
description of a corporation's beginning date with
the phrase "beginning date."
SECTION 16. Amends Section 171.153 (Business on Which Tax on
Net Taxable Capital is Based), Subsections (a) and
(c), Tax Code, by replacing a description of a
corporation's beginning date with the phrase
"beginning date."
SECTION 17. Amends Section 171.1531 (Credit for Survivor of
Merger), Subsections (b) and (c), Tax Code, by
deleting reference to "refund", and adding language
to clarify that the merger credit is applicable to
net taxable capital only.
SECTION 18. Amends Section 171.1532 (Business on Which Tax on
Net Taxable Earned Surplus is Based), Tax Code, by
replacing a description of a corporation's
beginning date with the phrase "beginning date,"
and by clarifying what constitutes a regular annual
period.
SECTION 19. Amends Section 171.203 (Public Information Report),
Tax Code, by amending Subsection (a) and adding
Subsections (d) and (e), as follows:
(a) Requires a corporation on which the franchise tax
is imposed to file a report with the comptroller
containing, among other information, the name, title,
and mailing address of each person who is an officer or
director of the corporation on the date the report is
filed and the expiration date of each person's term as
officer or director, if any.
(d) Requires the corporation to send a copy of the
report to each person named in the report who is not
currently employed by the corporation. Requires an
officer or director of the corporation to sign the
report under a certification that all information in the
report is correct, and a copy of the report has been
mailed to each person identified in this subsection on
the date the return is filed.
(e) Authorizes a person whose name is included in a
report but is not an officer or director of the
corporation on the date the report is filed, to file
with the comptroller a sworn statement disclaiming the
person's status as shown on the report. Requires the
comptroller to maintain a record of statements filed
under this subsection and to make that information
available on request using the same procedures used for
other requests for public information.
SECTION 20. Amends Section 171.363 (Wilful and Fraudulent
Acts), Subsection (b), Tax Code, to provide that a
person commits an offense if the person is an
accountant or an agent for or an officer or
employee of a corporation and the person knowingly
provides false information on any report, return,
or other document filed by the corporation.
SECTION 21. Repeals Section 171.202 (Annual Report), Subsection
(g), Tax Code.
SECTION 22. Effective date: January 1, 1996, and applies to a
report originally due on or after that date.
SECTION 23. Emergency clause.
EXPLANATION OF AMENDMENTS
COMMITTEE AMENDMENT #1 changes SECTION 19 to read, "The corporation
shall send a copy of the report to each person named in the report
under Subsection (a)(3) who is not currently employed by the
corporation or a related corporation."
SUMMARY OF COMMITTEE ACTION
Pursuant to an announcement on the House floor, the committee met
in a formal meeting on April 27, 1995. The chair laid out S.B.
644. The committee considered committee amendment #1 by
Representative Holzheauser. Without objection, committee amendment
#1 was adopted. By a record vote of 8 ayes, 0 nays, 0 present not
voting and 3 absent, the committee voted to report S.B. 644 to the
House with amendment with the recommendation that it do pass.