74R9505 E
By Craddick H.B. No. 2627
Substitute the following for H.B. No. 2627:
By Craddick C.S.H.B. No. 2627
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to administration and collection of the franchise tax.
1-3 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-4 SECTION 1. Section 171.001(b)(1), Tax Code, is amended to
1-5 read as follows:
1-6 (1) "Banking corporation" means each state, national,
1-7 domestic, or foreign bank, including a limited banking association
1-8 organized under Subchapter C, Chapter III, The Texas Banking Code
1-9 (Article 342-360 et seq., Vernon's Texas Civil Statutes), and each
1-10 bank organized under Section 25(a), Federal Reserve Act (12 U.S.C.
1-11 Secs. 611-631) (edge corporations), but does not include a bank
1-12 holding company as that term is defined by Section 2, Bank Holding
1-13 Company Act of 1956 (12 U.S.C. Sec. 1841). The term includes a
1-14 bank organized under the laws of a foreign country, the
1-15 Commonwealth of Puerto Rico, or a territory or possession of the
1-16 United States whose effectively connected income, as defined by the
1-17 Internal Revenue Code, is taxable in this state.
1-18 SECTION 2. Section 171.101(a), Tax Code, is amended to read
1-19 as follows:
1-20 (a) Except as provided by Subsections (b) and (c), the net
1-21 taxable capital of a corporation is computed by:
1-22 (1) adding the corporation's stated capital, as
1-23 defined by Article 1.02, Texas Business Corporation Act, and the
1-24 corporation's surplus, to determine the corporation's taxable
2-1 capital;
2-2 (2) apportioning the corporation's taxable capital to
2-3 this state as provided by Section 171.106(a) or (c), as applicable,
2-4 or if a banking corporation, as provided by Section 171.1065, to
2-5 determine the corporation's apportioned taxable capital; and
2-6 (3) subtracting from the amount computed under
2-7 Subdivision (2) any other allowable deductions to determine the
2-8 corporation's net taxable capital.
2-9 SECTION 3. Section 171.103, Tax Code, is amended to read as
2-10 follows:
2-11 Sec. 171.103. Determination of Gross Receipts From Business
2-12 Done in this State for Taxable Capital. Except as specifically
2-13 provided by Sections 171.1033-171.1037 for a banking corporation or
2-14 by Section 171.1031 for a savings and loan association, in <In>
2-15 apportioning taxable capital, the gross receipts of a corporation
2-16 from its business done in this state is the sum of the
2-17 corporation's receipts from:
2-18 (1) each sale of tangible personal property if the
2-19 property is delivered or shipped to a buyer in this state
2-20 regardless of the FOB point or another condition of the sale, and
2-21 each sale of tangible personal property shipped from this state to
2-22 a purchaser in another state in which the seller is not subject to
2-23 taxation;
2-24 (2) each service performed in this state;
2-25 (3) each rental of property situated in this state;
2-26 (4) each royalty for the use of a patent or copyright
2-27 in this state; and
3-1 (5) other business done in this state.
3-2 SECTION 4. Section 171.1031, Tax Code, is amended to read as
3-3 follows:
3-4 Sec. 171.1031. APPORTIONMENT OF TAXABLE CAPITAL AND TAXABLE
3-5 EARNED SURPLUS OF <BANKING CORPORATION AND> SAVINGS AND LOAN
3-6 ASSOCIATION. (a) Interest and dividends received by a <banking
3-7 corporation or a> savings and loan association are gross receipts
3-8 of the <banking corporation or> savings and loan association from
3-9 its business done in this state if the <banking corporation or>
3-10 savings and loan association has its commercial domicile in this
3-11 state.
3-12 (b) This section does not apply to any corporation other
3-13 than a <banking corporation and a> savings and loan association.
3-14 <(c) To the extent that this subsection does not conflict
3-15 with Article 8, Chapter 9, The Texas Banking Code of 1943 (Article
3-16 342-908, Vernon's Texas Civil Statutes), the Banking Department of
3-17 Texas is required to revoke the charter of any banking corporation
3-18 certified by the Comptroller as being delinquent in the payment of
3-19 its franchise tax.>
3-20 SECTION 5. Section 171.1032(a), Tax Code, is amended to read
3-21 as follows:
3-22 (a) Except as specifically provided by Sections
3-23 171.1033-171.1037 for a banking corporation and Section 171.1031
3-24 for a savings and loan association, and except for the gross
3-25 receipts of a corporation that are subject to the provisions of
3-26 Section 171.1061, in apportioning taxable earned surplus, the gross
3-27 receipts of a corporation from its business done in this state is
4-1 the sum of the corporation's receipts from:
4-2 (1) each sale of tangible personal property if the
4-3 property is delivered or shipped to a buyer in this state
4-4 regardless of the FOB point or another condition of the sale, and
4-5 each sale of tangible personal property shipped from this state to
4-6 a purchaser in another state in which the seller is not subject to
4-7 any tax on, or measured by, net income, without regard to whether
4-8 the tax is imposed;
4-9 (2) each service performed in this state;
4-10 (3) each rental of property situated in this state;
4-11 (4) each royalty for the use of a patent or copyright
4-12 in this state; and
4-13 (5) other business done in this state.
4-14 SECTION 6. Subchapter C, Chapter 171, Tax Code, is amended
4-15 by adding Sections 171.1033-171.1037 to read as follows:
4-16 Sec. 171.1033. DETERMINATION OF GROSS RECEIPTS, PROPERTY,
4-17 AND PAYROLL FACTORS FOR APPORTIONMENT OF TAXABLE CAPITAL AND
4-18 TAXABLE EARNED SURPLUS OF BANKING CORPORATION. A banking
4-19 corporation shall determine the gross receipts factor, property
4-20 factor, and payroll factor for purposes of apportioning the
4-21 corporation's taxable capital and taxable earned surplus as
4-22 provided by Sections 171.1034-171.1037.
4-23 Sec. 171.1034. GROSS RECEIPTS FACTOR: BANKING CORPORATION.
4-24 The gross receipts factor for a banking corporation is a fraction,
4-25 the numerator of which is the gross receipts of the banking
4-26 corporation from its business done in this state and the
4-27 denominator of which is the gross receipts of the banking
5-1 corporation in and outside this state. The denominator of the
5-2 gross receipts factor is determined using the same method used to
5-3 determine the numerator of the gross receipts factor. The gross
5-4 receipts factor includes only the receipts that are included in the
5-5 banking corporation's taxable capital or taxable earned surplus for
5-6 the period on which the tax is based. All receipts that would be
5-7 assigned under this section to a state in which the taxpayer is not
5-8 taxable are included in the numerator if the taxpayer's commercial
5-9 domicile is in this state. All receipts of a banking corporation
5-10 not specifically described by Subdivisions (1)-(12) are apportioned
5-11 as business done in this state under the rules prescribed by
5-12 Section 171.103 for taxable capital and under the rules prescribed
5-13 by Section 171.1032 for taxable earned surplus. The numerator of
5-14 the gross receipts factor includes all receipts, interest, fees, or
5-15 penalties in the nature of interest, net gains, but not less than
5-16 zero, charges, fees, and other receipts of the banking corporation
5-17 from:
5-18 (1) the lease or rental of real property located in
5-19 this state and owned by the taxpayer or the sublease of real
5-20 property located in this state and for which the taxpayer is the
5-21 sublessor;
5-22 (2) the lease or rental of tangible personal property,
5-23 other than transportation property, that is owned by the taxpayer
5-24 and located in this state when it is first placed in service by the
5-25 lessee;
5-26 (3) the lease or rental of transportation property
5-27 owned by the taxpayer to the extent the property is used in this
6-1 state, subject to the following:
6-2 (A) the extent to which an aircraft is deemed to
6-3 be used in this state and the amount of receipts to be included in
6-4 the numerator of the receipts factor is determined by multiplying
6-5 all the receipts from the lease or rental of the aircraft by a
6-6 fraction, the numerator of which is the number of landings of the
6-7 aircraft in this state and the denominator of which is the number
6-8 of landings of the aircraft in and outside this state;
6-9 (B) if the extent of the use of any
6-10 transportation property in this state cannot be determined, the
6-11 property is deemed to be used wholly in the state in which the
6-12 property has its principal base of operations; and
6-13 (C) a motor vehicle is deemed to be used wholly
6-14 in the state in which it is registered;
6-15 (4) a loan secured by real property located in this
6-16 state, subject to the following:
6-17 (A) if the real property securing the loan is
6-18 located both in this state and one or more other states, the gross
6-19 receipts from the loan are included as business done in this state
6-20 if more than 50 percent of the fair market value of the real
6-21 property is located in this state;
6-22 (B) if more than 50 percent of the fair market
6-23 value of the real property is not located in any one state, the
6-24 gross receipts are included as business done in this state if the
6-25 borrower is located in this state; and
6-26 (C) the determination of whether the real
6-27 property securing a loan is located in this state is made at the
7-1 time the original loan agreement is made and any subsequent
7-2 substitutions of collateral are disregarded;
7-3 (5) a loan not secured by real property if the
7-4 borrower is located in this state;
7-5 (6) net gains from the sale of loans, including income
7-6 recorded under the coupon stripping rule of Section 1286, Internal
7-7 Revenue Code, subject to the following:
7-8 (A) if the amount of the net gains, but not less
7-9 than zero, is from the sale of loans secured by real property, the
7-10 amount of the net gains included as business done in this state is
7-11 determined by multiplying the net gains by a fraction, the
7-12 numerator of which is the amount included as business done in this
7-13 state under Subdivision (4) and the denominator of which is the
7-14 taxpayer's total amount of interest and fees or penalties in the
7-15 nature of interest from all loans secured by real property; and
7-16 (B) if the amount of the net gains, but not less
7-17 than zero, is from the sale of loans not secured by real property,
7-18 the amount of the net gains included as business done in this state
7-19 is determined by multiplying the net gains by a fraction, the
7-20 numerator of which is the amount included as business done in this
7-21 state under Subdivision (5) and the denominator of which is the
7-22 taxpayer's total amount of interest and fees or penalties in the
7-23 nature of interest from all loans not secured by real property;
7-24 (7) a credit card receivable and a credit card fee,
7-25 such as an annual fee, charged to a card holder, if the billing
7-26 address of the card holder is in this state;
7-27 (8) a credit card issuer's reimbursement fee and any
8-1 net gain, but not less than zero, from the sale of a credit card
8-2 receivable, provided that the amount of credit card issuer's
8-3 reimbursement fees or net gains from the sale of credit card
8-4 receivables included as business done in this state is determined
8-5 by multiplying the credit card issuer's reimbursement fees or net
8-6 gains from the sale of credit card receivables, respectively, by a
8-7 fraction, the numerator of which is the amount included as business
8-8 done in this state from credit card receivables and credit card
8-9 fees under Subdivision (7) and the denominator of which is the
8-10 taxpayer's total amount of interest, and fees or penalties in the
8-11 nature of interest, from all credit card receivables and all credit
8-12 card fees charged to card holders;
8-13 (9) a merchant discount, if the commercial domicile of
8-14 the merchant is in this state;
8-15 (10) a loan servicing fee, subject to the following:
8-16 (A) if loan servicing fees are derived from
8-17 loans secured by real property, the amount of the loan servicing
8-18 fees included as business done in this state is determined by
8-19 multiplying the loan servicing fees by a fraction, the numerator of
8-20 which is the amount included as business done in this state under
8-21 Subdivision (4) and the denominator of which is the taxpayer's
8-22 total amount of interest, and fees or penalties in the nature of
8-23 interest, from all loans secured by real property;
8-24 (B) if the loan servicing fees are derived from
8-25 loans not secured by real property, the amount of the loan
8-26 servicing fees included as business done in this state is
8-27 determined by multiplying the loan servicing fees by a fraction,
9-1 the numerator of which is the amount included as business done in
9-2 this state under Subdivision (5) and the denominator of which is
9-3 the taxpayer's total amount of interest, and fees or penalties in
9-4 the nature of interest, from all loans not secured by real
9-5 property; and
9-6 (C) if the loan servicing fees are derived from
9-7 servicing either the secured or unsecured loans of another, the
9-8 numerator of the receipts factor includes those fees if the
9-9 borrower is located in this state;
9-10 (11) any other fee or charge for a service not
9-11 otherwise apportioned under this subsection, if the service is
9-12 performed in this state, provided that if the service is performed
9-13 both in and outside of this state, the receipts factor includes
9-14 receipts from services not otherwise apportioned under this section
9-15 if the greater proportion of the income-producing activity is
9-16 performed in this state determined according to the cost of
9-17 performance; and
9-18 (12) any interest, dividends, net gains, but not less
9-19 than zero, and other income from investment assets and activities
9-20 and from trading assets and activities that are attributable to
9-21 this state, subject to the following:
9-22 (A) investment assets and activities and trading
9-23 assets and activities included in the receipts factor include
9-24 investment securities, trading account assets, federal funds,
9-25 securities purchased and sold under agreements to resell or
9-26 repurchase, options, futures contracts, forward contracts, notional
9-27 principal contracts such as swaps, equities, and foreign currency
10-1 transactions;
10-2 (B) with respect to the investment and trading
10-3 assets and activities involving federal funds sold and securities
10-4 purchased under resale agreements, the receipts factor includes the
10-5 amount by which interest from federal funds sold and securities
10-6 purchased under resale agreements exceeds interest expense on
10-7 federal funds purchased and securities sold under repurchase
10-8 agreements;
10-9 (C) with respect to the trading assets and
10-10 activities involving interest, dividends, gains, and other income
10-11 from trading assets and activities, the receipts factor includes
10-12 the amount by which interest, dividends, gains, and other income
10-13 from trading assets and activities, including assets and activities
10-14 in the matched book, in the arbitrage book, and foreign currency
10-15 transactions, exceed amounts paid in lieu of interest, amounts paid
10-16 in lieu of dividends, and losses from those assets and activities;
10-17 (D) the amount of interest, dividends, net
10-18 gains, but not less than zero, and other income from investment
10-19 assets and activities in the investment account to be attributed to
10-20 this state as business done in this state and included in the
10-21 numerator is determined by multiplying all that income from those
10-22 assets and activities by a fraction, the numerator of which is the
10-23 average value of those assets that are properly assigned to a
10-24 regular place of business of the taxpayer in this state and the
10-25 denominator of which is the average value of all those assets;
10-26 (E) the amount of interest from federal funds
10-27 sold and purchased and from securities purchased under resale
11-1 agreements and securities sold under repurchase agreements to be
11-2 attributed to this state as business done in this state and
11-3 included in the numerator is determined by multiplying the amount
11-4 described by Paragraph (B) from those funds and securities by a
11-5 fraction, the numerator of which is the average value of the
11-6 federal funds sold and securities purchased under agreements to
11-7 resell that are properly assigned to a regular place of business of
11-8 the taxpayer in this state and the denominator of which is the
11-9 average value of all those funds and securities;
11-10 (F) the amount of interest, dividends, gains,
11-11 and other income from trading assets and activities, including
11-12 assets and activities in the matched book, in the arbitrage book,
11-13 and foreign currency transactions, but excluding amounts described
11-14 by Paragraphs (D) and (E), to be attributed to this state as
11-15 business done in this state and included in the numerator is
11-16 determined by multiplying the amount described by Paragraph (C) by
11-17 a fraction, the numerator of which is the average value of those
11-18 trading assets that are properly assigned to a regular place of
11-19 business of the taxpayer in this state and the denominator of which
11-20 is the average value of all those assets;
11-21 (G) for purposes of this subdivision, average
11-22 value is determined using the rules for determining the average
11-23 value of tangible personal property prescribed by Subsection
11-24 (c)(3); and
11-25 (H) in lieu of using the method prescribed by
11-26 Paragraphs (D) through (G), the taxpayer may elect, or the
11-27 comptroller may require in order to represent fairly the business
12-1 activity of the taxpayer in this state, the use of the following
12-2 method:
12-3 (i) the amount of interest, dividends, net
12-4 gains, but not less than zero, and other income from investment
12-5 assets and activities in the investment account to be attributed to
12-6 this state and included in the numerator is determined by
12-7 multiplying all that income from those assets and activities by a
12-8 fraction, the numerator of which is the gross income from those
12-9 assets and activities that are properly assigned to a regular place
12-10 of business of the taxpayer in this state and the denominator of
12-11 which is the gross income from all those assets and activities;
12-12 (ii) the amount of interest from federal
12-13 funds sold and purchased and from securities purchased under resale
12-14 agreements and securities sold under repurchase agreements
12-15 attributable to this state and included in the numerator is
12-16 determined by multiplying the amount described by Paragraph (B)
12-17 from those funds and securities by a fraction, the numerator of
12-18 which is the gross income from those funds and securities that are
12-19 properly assigned to a regular place of business of the taxpayer in
12-20 this state and the denominator of which is the gross income from
12-21 all those funds and securities; and
12-22 (iii) the amount of interest, dividends,
12-23 gains, and other income from trading assets and activities,
12-24 including assets and activities in the matched book, in the
12-25 arbitrage book, and foreign currency transactions, but excluding
12-26 amounts described by Subparagraph (i) or (ii), attributable to this
12-27 state and included in the numerator is determined by multiplying
13-1 the amount described by Paragraph (C) by a fraction, the numerator
13-2 of which is the gross income from those trading assets and
13-3 activities that are properly assigned to a regular place of
13-4 business of the taxpayer in this state and the denominator of which
13-5 is the gross income from all those assets and activities;
13-6 (I) if the taxpayer elects or is required by the
13-7 comptroller to use the method prescribed by Paragraph (H), the
13-8 taxpayer shall use this method on all subsequent returns unless the
13-9 taxpayer receives prior permission from the comptroller to use, or
13-10 the comptroller requires, a different method; and
13-11 (J) the taxpayer has the burden of proving that
13-12 an investment asset or activity or trading asset or activity was
13-13 properly assigned to a regular place of business outside of this
13-14 state by demonstrating that the day-to-day decisions regarding the
13-15 asset or activity occurred at a regular place of business outside
13-16 this state, subject to the following:
13-17 (A) if the day-to-day decisions regarding
13-18 an investment asset or activity or trading asset or activity occur
13-19 at more than one regular place of business and one of those regular
13-20 places of business is in this state, and one of those regular
13-21 places of business is outside this state, the asset or activity is
13-22 considered to be located at the regular place of business of the
13-23 taxpayer where the investment or trading policies or guidelines
13-24 with respect to the asset or activity are established; and
13-25 (B) unless the taxpayer or comptroller
13-26 demonstrates to the contrary, the investment or trading policies
13-27 and guidelines are presumed to be established at the commercial
14-1 domicile of the taxpayer.
14-2 Sec. 171.1035. PROPERTY FACTOR: BANKING CORPORATION. (a)
14-3 The property factor for a banking corporation is a fraction that
14-4 represents the percentage of the taxpayer's real property, tangible
14-5 personal property, loans, and credit card receivables apportioned
14-6 to this state. The numerator of the fraction is the average value
14-7 of real and tangible personal property rented to the taxpayer that
14-8 is located or used in this state, the average value of the
14-9 taxpayer's real and tangible personal property owned that is
14-10 located or used in this state, and the average value of the
14-11 taxpayer's loans and credit card receivables that are located in
14-12 this state, and the denominator of the fraction is the average
14-13 value of all that property located or used in and outside this
14-14 state.
14-15 (b) The property factor includes only property the income
14-16 and expenses of which are included, or would have been included if
14-17 not fully depreciated or expensed, or depreciated or expensed to a
14-18 nominal amount, in the computation of the taxpayer's taxable
14-19 capital or taxable earned surplus for the period on which the tax
14-20 is based.
14-21 (c) The value of property included in the property factor is
14-22 determined as follows:
14-23 (1) for real property and tangible personal property
14-24 owned by the taxpayer, the value is the original cost or other
14-25 basis of that property for federal income tax purposes without
14-26 regard to depletion, depreciation, or amortization;
14-27 (2) for loans, the value is the outstanding principal
15-1 balance, without regard to any reserve for bad debts, provided that
15-2 if a loan is charged off in whole or in part for federal income tax
15-3 purposes, the portion of the loan charged off is not outstanding
15-4 and a specifically allocated reserve established under regulatory
15-5 or financial accounting guidelines that is treated as charged off
15-6 for federal income tax purposes is treated as charged off for
15-7 purposes of this subsection; and
15-8 (3) for credit card receivables, the value is the
15-9 outstanding principal balance, without regard to any reserve for
15-10 bad debts, provided that if a credit card receivable is charged-off
15-11 in whole or in part for federal income tax purposes, the portion of
15-12 the receivable charged-off is not outstanding.
15-13 (d) The average value of property owned by the taxpayer is
15-14 computed for the entire tax period by adding the value of the
15-15 property on the first day of the period on which the tax is based
15-16 and the value on the last day of the period on which the tax is
15-17 based and dividing the sum by two. The comptroller may require
15-18 averaging more frequently if the averaging does not properly
15-19 reflect the average value. The taxpayer may elect to average more
15-20 frequently. If averaging more frequently is required by the
15-21 comptroller or is elected by the taxpayer, the same method of
15-22 valuation must be used consistently by the taxpayer with respect to
15-23 property in and outside this state and on all subsequent reports,
15-24 unless the taxpayer receives prior permission from the comptroller
15-25 or the comptroller requires a different method of determining
15-26 average value.
15-27 (e) The average value of real property and tangible personal
16-1 property that the taxpayer has rented from another and that is not
16-2 treated as property owned by the taxpayer for federal income tax
16-3 purposes, is determined for an annual tax period by multiplying the
16-4 gross rents payable during the period by eight. If the use of this
16-5 method results in inaccurate valuations of rented property, any
16-6 other method that properly reflects the value may be adopted by the
16-7 comptroller or by the taxpayer if the comptroller approves the
16-8 method in writing. Once approved, the other method of valuation
16-9 must be used on all subsequent reports unless the taxpayer receives
16-10 prior approval from the comptroller or the comptroller requires a
16-11 different method of valuation.
16-12 (f) The location of real property and tangible personal
16-13 property owned by or rented to the taxpayer for purposes of the
16-14 property factor is determined as follows:
16-15 (1) except as described by Subdivision (2), real
16-16 property and tangible personal property owned by or rented to the
16-17 taxpayer is considered to be located in this state if it is
16-18 physically located, situated, or used in this state; and
16-19 (2) transportation property is included in the
16-20 numerator of the property factor to the extent that the property is
16-21 used in this state, subject to the following:
16-22 (A) the extent an aircraft is deemed to be used
16-23 in this state and the amount of value that is to be included in the
16-24 numerator of this state's property factor is determined by
16-25 multiplying the average value of the aircraft by a fraction, the
16-26 numerator of which is the number of landings of the aircraft in
16-27 this state and the denominator of which is the total number of
17-1 landings of the aircraft in and outside this state;
17-2 (B) if the extent of the use of any
17-3 transportation property in this state cannot be determined, the
17-4 property is deemed to be used wholly in the state in which the
17-5 property has its principal base of operations; and
17-6 (C) a motor vehicle is deemed to be used wholly
17-7 in the state in which it is registered.
17-8 (g) The location of loans and credit card receivables for
17-9 purposes of the property factor shall be determined as follows:
17-10 (1) a loan or credit card receivable properly assigned
17-11 to a regular place of business of the taxpayer in this state is
17-12 considered to be located in this state;
17-13 (2) a loan or credit card receivable is properly
17-14 assigned to the regular place of business with which it has a
17-15 preponderance of substantive contacts, provided that a loan or
17-16 credit card receivable assigned by the taxpayer to a regular place
17-17 of business outside this state is presumed to have been properly
17-18 assigned if:
17-19 (A) the taxpayer has assigned, in the regular
17-20 course of its business, the loan or credit card receivable on its
17-21 records to a regular place of business consistent with federal or
17-22 state regulatory requirements;
17-23 (B) the assignment on its records is based on
17-24 substantive contacts of the loan or credit card receivable to the
17-25 regular place of business; and
17-26 (C) the taxpayer uses the records reflecting
17-27 assignment of loans or credit card receivables for the filing of
18-1 all state and local tax returns for which an assignment of loans or
18-2 credit card receivables to a regular place of business is required;
18-3 (3) the presumption of proper assignment of a loan or
18-4 credit card receivable provided by Subdivision (2) may be rebutted
18-5 on a showing by the comptroller, supported by a preponderance of
18-6 the evidence, that the preponderance of substantive contacts
18-7 regarding the loan or credit card receivable did not occur at the
18-8 regular place of business to which it was assigned on the
18-9 taxpayer's records, and when such presumption has been rebutted,
18-10 the loan shall then be located in this state if the taxpayer had a
18-11 regular place of business in this state at the time the loan was
18-12 made, and the taxpayer fails to show, by a preponderance of the
18-13 evidence, that the preponderance of substantive contacts regarding
18-14 such loan did not occur in this state;
18-15 (4) in the case of a loan which is assigned by the
18-16 taxpayer to a place outside this state which is not a regular place
18-17 of business, it shall be presumed, subject to rebuttal by the
18-18 taxpayer on a showing supported by the preponderance of evidence,
18-19 that the preponderance of substantive contacts regarding the loan
18-20 occurred in this state if, at the time the loan was made, the
18-21 taxpayer's commercial domicile, as defined by Section
18-22 171.1037(b)(2), was in this state; and
18-23 (5) to determine the state in which the preponderance
18-24 of substantive contacts relating to a loan have occurred, the facts
18-25 and circumstances regarding the loan at issue shall be reviewed on
18-26 a case-by-case basis, and consideration shall be given to such
18-27 activities as the solicitation, investigation, negotiation,
19-1 approval, and administration of the loan. The terms
19-2 "solicitation," "investigation," "negotiation," "approval," and
19-3 "administration" are defined as follows:
19-4 (A) "Solicitation." Solicitation is either
19-5 active or passive. Active solicitation occurs when an employee of
19-6 the taxpayer initiates the contact with the customer. Such
19-7 activity is located at the regular place of business that the
19-8 taxpayer's employee is regularly connected with or working out of,
19-9 regardless of where the services of such employee were actually
19-10 performed. Passive solicitation occurs when the customer initiates
19-11 the contact with the taxpayer. If the customer's initial contact
19-12 was not at a regular place of business of the taxpayer, the regular
19-13 place of business, if any, where the passive solicitation occurred
19-14 is determined by the facts in each case;
19-15 (B) "Investigation." Investigation is the
19-16 procedure whereby employees of the taxpayer determine the
19-17 creditworthiness of the customer as well as the degree of risk
19-18 involved in making a particular agreement. Such activity is
19-19 located at the regular place of business which the taxpayer's
19-20 employees are regularly connected with or working out of,
19-21 regardless of where the services of such employees were actually
19-22 performed;
19-23 (C) "Negotiation." Negotiation is the procedure
19-24 whereby employees of the taxpayer and its customer determine the
19-25 terms of the agreement (e.g., the amount, duration, interest rate,
19-26 frequency of repayment, currency denomination, and security
19-27 required). Such activity is located at the regular place of
20-1 business which the taxpayer's employees are regularly connected
20-2 with or working out of, regardless of where the services of such
20-3 employees were actually performed;
20-4 (D) "Approval." Approval is the procedure
20-5 whereby employees or the board of directors of the taxpayer make
20-6 the final determination whether to enter into the agreement. Such
20-7 activity is located at the regular place of business which the
20-8 taxpayer's employees are regularly connected with or working out
20-9 of, regardless of where the services of such employees are actually
20-10 performed. If the board of directors makes the final
20-11 determination, such activity is located at the commercial domicile
20-12 of the taxpayer; and
20-13 (E) "Administration." Administration is the
20-14 process of managing the account. This process includes
20-15 bookkeeping, collecting the payments, corresponding with the
20-16 customer, reporting to management regarding the status of the
20-17 agreement, and proceeding against the borrower or the security
20-18 interest if the borrower is in default. Such activity is located
20-19 at the regular place of business which oversees this activity.
20-20 Sec. 171.1036. PAYROLL FACTOR: BANKING CORPORATION. (a)
20-21 The payroll factor for a banking corporation is a fraction, the
20-22 numerator of which is the total amount paid in this state by the
20-23 taxpayer for compensation and the denominator of which is the total
20-24 amount paid by the taxpayer as compensation in and outside this
20-25 state. The payroll factor shall include only that compensation
20-26 that is included in the computation of taxable capital or taxable
20-27 earned surplus for the period on which the tax is based.
21-1 (b) The compensation paid to an employee for services or
21-2 activities connected to the production of nonbusiness income and
21-3 the compensation paid to an independent contractor or a person who
21-4 cannot be classified as an employee of the taxpayer is excluded
21-5 from both the numerator and the denominator of the factor. Income
21-6 is considered nonbusiness income if it is not includable in the
21-7 taxable earned surplus base.
21-8 (c) Compensation is paid in this state if any one of the
21-9 following tests, applied consecutively, is met:
21-10 (1) the employee's service is performed entirely in
21-11 this state;
21-12 (2) the employee's service is performed both in and
21-13 outside this state, but the service performed outside this state is
21-14 incidental to the employee's service in this state because the
21-15 service is temporary or transitory in nature or is rendered in
21-16 connection with an isolated transaction; or
21-17 (3) if the employee's services are performed both in
21-18 and outside this state, the employee's compensation is attributed
21-19 to this state:
21-20 (A) if the employee's principal base of
21-21 operations is in this state;
21-22 (B) if there is no principal base of operations
21-23 in any state in which some part of the service is performed, but
21-24 the place from which the service is directed or controlled is in
21-25 this state; or
21-26 (C) if the principal base of operations and the
21-27 place from which the service is directed or controlled is not in
22-1 any state in which some part of the service is performed, but the
22-2 employee's residence is in this state.
22-3 Sec. 171.1037. SPECIAL RULES AND DEFINITIONS FOR BANKING
22-4 CORPORATION APPORTIONMENT FACTORS. (a) For purposes of Sections
22-5 171.1033-171.1036 and this section:
22-6 (1) a borrower is located in this state if the
22-7 borrower:
22-8 (A) is engaged in a trade or business that
22-9 maintains its commercial domicile in this state; or
22-10 (B) if the borrower is not engaged in a trade or
22-11 business, has a billing address in this state;
22-12 (2) a credit card holder is located in this state if
22-13 the credit card holder's billing address is in this state;
22-14 (3) a loan is secured by real property if at least 50
22-15 percent of the aggregate value of the collateral used to secure the
22-16 loan or other obligation, as valued at fair market value at the
22-17 time the original loan or obligation was incurred, is real
22-18 property; and
22-19 (4) a taxpayer is taxable if:
22-20 (A) the taxpayer is subject in another state to:
22-21 (i) a net income tax;
22-22 (ii) a franchise tax measured by net
22-23 income;
22-24 (iii) a franchise tax for the privilege of
22-25 doing business;
22-26 (iv) a corporate stock tax, including a
22-27 bank share tax;
23-1 (v) a single business tax;
23-2 (vi) an earned surplus tax; or
23-3 (vii) another tax that is imposed on or
23-4 measured by net income; or
23-5 (B) another state has jurisdiction to subject
23-6 the taxpayer to a tax prescribed by Paragraph (A), regardless of
23-7 whether the state actually imposes the tax.
23-8 (b) In Sections 171.1033-171.1036 and this section:
23-9 (1) "Billing address" means the location indicated in
23-10 the books and records of the taxpayer on the first day of the
23-11 period on which the tax is based, or on a later date in the period
23-12 when the customer relationship began, as the address where any
23-13 notice, statement, or bill relating to a customer's account is
23-14 mailed.
23-15 (2) "Commercial domicile" means the headquarters of
23-16 the trade or business, that is, the place from which the trade or
23-17 business is principally managed and directed, or if a banking
23-18 corporation is organized under the laws of a foreign country, the
23-19 Commonwealth of Puerto Rico, or any territory or possession of the
23-20 United States or the District of Columbia, the place from which
23-21 that taxpayer's trade or business in the United States is
23-22 principally managed and directed. There is a rebuttable
23-23 presumption that the location from which the taxpayer's trade or
23-24 business is principally managed and directed is the state of the
23-25 United States or the District of Columbia to which the greatest
23-26 number of employees are regularly connected or out of which they
23-27 are working on the last day of the period on which the tax is
24-1 based, regardless of where the services of those employees are
24-2 performed.
24-3 (3) "Compensation" includes all wages, salaries,
24-4 commissions, and any other forms of remuneration paid to an
24-5 employee for personal services that are considered income under the
24-6 Internal Revenue Code. In the case of an employee not subject to
24-7 the Internal Revenue Code, for example, an employee employed in a
24-8 foreign country, the determination of whether those payments would
24-9 constitute gross income to those employees under the Internal
24-10 Revenue Code is made as though the employees were subject to the
24-11 Internal Revenue Code.
24-12 (4) "Credit card" means a credit, travel, or
24-13 entertainment card.
24-14 (5) "Credit card issuer's reimbursement fee" means the
24-15 fee a taxpayer receives from a merchant's bank because one of the
24-16 persons to whom the taxpayer has issued a credit card has charged
24-17 merchandise or services to the credit card.
24-18 (6) "Employee" means, with respect to a particular
24-19 taxpayer, an individual who, under the usual common law rules
24-20 applicable in determining the employer-employee relationship, has
24-21 the status of an employee of that taxpayer.
24-22 (7) "Gross rents" means the actual sum of money or
24-23 other consideration payable for the use or possession of property.
24-24 The term includes:
24-25 (A) any amount payable for the use or possession
24-26 of real property or tangible property whether designated as a fixed
24-27 sum of money or as a percentage of receipts, profits, or otherwise;
25-1 (B) any amount payable as additional rent or in
25-2 lieu of rent, such as interest, taxes, insurance, repairs, or any
25-3 other amount required to be paid by the terms of a lease or other
25-4 arrangement;
25-5 (C) a proportionate part of the cost of any
25-6 improvement to real property made by or on behalf of the taxpayer
25-7 that reverts to the owner or lessor on termination of a lease or
25-8 other arrangement, determined by computing the amount of
25-9 amortization or depreciation allowed in computing the taxable
25-10 capital or taxable earned surplus base for the period on which the
25-11 tax is based; except that if a building is erected on leased land
25-12 by or on behalf of the taxpayer, the value of the land is
25-13 determined by multiplying the gross rent by eight and the value of
25-14 the building is determined in the same manner as if owned by the
25-15 taxpayer; and
25-16 (D) the term does not include:
25-17 (i) reasonable amounts payable as separate
25-18 charges for water and electric service furnished by the lessor;
25-19 (ii) reasonable amounts payable as service
25-20 charges for janitorial services furnished by the lessor;
25-21 (iii) reasonable amounts payable for
25-22 storage, provided the amounts are payable for space not designated
25-23 and not under the control of the taxpayer; and
25-24 (iv) that portion of any rental payment
25-25 that is applicable to the space subleased from the taxpayer and not
25-26 used by it.
25-27 (8) "Loan" means any extension of credit resulting
26-1 from direct negotiations between the taxpayer and its customer, or
26-2 the purchase, in whole or in part, of the extension of credit from
26-3 another, or both. The term includes participations, syndications,
26-4 and leases treated as loans for federal income tax purposes, but
26-5 does not include:
26-6 (A) property treated as a loan under Section
26-7 595, Internal Revenue Code;
26-8 (B) futures or forward contracts, options, and
26-9 notional principal contracts, such as swaps;
26-10 (C) credit card receivables, including purchased
26-11 credit card relationships;
26-12 (D) non-interest-bearing balances due from other
26-13 depository institutions;
26-14 (E) cash items in the process of collection;
26-15 (F) federal funds sold;
26-16 (G) securities purchased under agreements to
26-17 resell;
26-18 (H) assets held in a trading account;
26-19 (I) securities;
26-20 (J) interests in a real estate mortgage
26-21 investment conduit (REMIC) or other mortgage-backed or asset-backed
26-22 security; and
26-23 (K) other similar items.
26-24 (9) "Merchant discount" means the fee or negotiated
26-25 discount charged to a merchant by the taxpayer for the privilege of
26-26 participating in a program in which a credit card is accepted in
26-27 payment for merchandise or services sold to the card holder. The
27-1 fee is computed net of any card holder charge-backs, but is not
27-2 reduced by an interchange transaction fee or by a credit card
27-3 issuer's reimbursement fee paid to another for charges made by its
27-4 card holders.
27-5 (10) "Participation" means an extension of credit in
27-6 which an undivided ownership interest is held on a pro rata basis
27-7 in a single loan or pool of loans and related collateral. In a
27-8 loan participation, the credit originator initially makes the loan
27-9 and then subsequently resells all or a portion of it to other
27-10 lenders. The participation may or may not be known to the
27-11 borrower.
27-12 (11) "Person" means an individual, estate, trust,
27-13 partnership, corporation, and any other business entity.
27-14 (12) "Principal base of operations" means:
27-15 (A) with respect to transportation property, the
27-16 place of more or less permanent nature from which the property is
27-17 regularly directed or controlled; and
27-18 (B) with respect to an employee, the place of
27-19 more or less permanent nature from which the employee regularly
27-20 starts the employee's work and to which the employee customarily
27-21 returns to:
27-22 (i) receive instructions from the
27-23 employee's employer or communications from the employee's customers
27-24 or other persons; or
27-25 (ii) perform any other functions necessary
27-26 to the exercise of the employee's trade or profession at some other
27-27 point or points.
28-1 (13) "Real property owned" and "tangible personal
28-2 property owned" mean real and tangible personal property,
28-3 respectively:
28-4 (A) on which the taxpayer may claim depreciation
28-5 for federal income tax purposes; or
28-6 (B) to which the taxpayer holds legal title and
28-7 on which no other person may claim depreciation for federal income
28-8 tax purposes or could claim depreciation if subject to federal
28-9 income tax. Real and tangible personal property does not include
28-10 coin, currency, or property acquired in lieu of or under a
28-11 foreclosure.
28-12 (14) "Regular place of business" means an office at
28-13 which the taxpayer carries on the taxpayer's business in a regular
28-14 and systematic manner and that is continuously maintained,
28-15 occupied, and used by employees of the taxpayer.
28-16 (15) "State" means:
28-17 (A) a state of the United States;
28-18 (B) the District of Columbia;
28-19 (C) the Commonwealth of Puerto Rico;
28-20 (D) a territory or possession of the United
28-21 States; or
28-22 (E) a foreign country.
28-23 (16) "Syndication" means an extension of credit funded
28-24 by at least two persons in which each person's risk is limited to a
28-25 specified percentage of the total extension of credit or to a
28-26 specified dollar amount.
28-27 (17) "Transportation property" means a vehicle or
29-1 vessel capable of moving under its own power, such as an aircraft,
29-2 train, water vessel, or motor vehicle, as well as any equipment or
29-3 a container attached to that property, such as rolling stock, a
29-4 barge, a trailer, or the like.
29-5 SECTION 7. Subchapter C, Chapter 171, Tax Code, is amended
29-6 by adding Section 171.1065 to read as follows:
29-7 Sec. 171.1065. APPORTIONMENT OF TAXABLE CAPITAL AND TAXABLE
29-8 EARNED SURPLUS OF BANKING CORPORATIONS. (a) Except as provided by
29-9 Sections 171.106(c) and 171.1061, the taxable capital and taxable
29-10 earned surplus of a banking corporation are apportioned to this
29-11 state by multiplying the taxable capital and taxable earned
29-12 surplus, respectively, of the banking corporation by the
29-13 apportionment percentage. The apportionment percentage is
29-14 determined by adding the following three factors and dividing the
29-15 sum by three:
29-16 (1) the gross receipts factor computed as prescribed
29-17 by Section 171.1034;
29-18 (2) the property factor computed as prescribed by
29-19 Section 171.1035; and
29-20 (3) the payroll factor computed as prescribed by
29-21 Section 171.1036.
29-22 (b) If one of the factors is missing, the two remaining
29-23 factors are added and the sum is divided by two. If two of the
29-24 factors are missing, the remaining factor is the apportionment
29-25 percentage. A factor is missing if both its numerator and
29-26 denominator are zero, but it is not missing solely because its
29-27 numerator is zero.
30-1 (c) Each factor is computed according to the method of
30-2 accounting required to be used by the taxpayer in determining
30-3 taxable capital or earned surplus for the period on which the tax
30-4 is based.
30-5 (d) If the apportionment percentage does not fairly
30-6 represent the extent of the taxpayer's business activity in this
30-7 state, the taxpayer may petition for or the comptroller may
30-8 require, in respect to all or any part of the taxpayer's business
30-9 activity, if reasonable:
30-10 (1) separate accounting;
30-11 (2) the exclusion of any one or more of the factors;
30-12 (3) the inclusion of one or more additional factors
30-13 that will fairly represent the taxpayer's business activity in this
30-14 state; or
30-15 (4) the employment of any other method to effectuate
30-16 an equitable apportionment of the taxpayer's income.
30-17 SECTION 8. Section 171.110, Tax Code, is amended by amending
30-18 Subsection (a) and adding Subsection (h) to read as follows:
30-19 (a) The net taxable earned surplus of a corporation is
30-20 computed by:
30-21 (1) determining the corporation's reportable federal
30-22 taxable income, subtracting from that amount any amount included in
30-23 reportable federal taxable income under Section 78 or Sections
30-24 951-964, Internal Revenue Code, and dividends received from a
30-25 subsidiary, associate, or affiliated corporation that does not
30-26 transact a substantial portion of its business or regularly
30-27 maintain a substantial portion of its assets in the United States,
31-1 and adding to that amount any compensation of officers or
31-2 directors, or if a bank, any compensation of directors and
31-3 executive officers, to the extent excluded in determining federal
31-4 taxable income to determine the corporation's taxable earned
31-5 surplus;
31-6 (2) apportioning the corporation's taxable earned
31-7 surplus to this state as provided by Section 171.106(b) or (c), as
31-8 applicable, or if a banking corporation, as provided by Section
31-9 171.1065, to determine the corporation's apportioned taxable earned
31-10 surplus;
31-11 (3) adding the corporation's taxable earned surplus
31-12 allocated to this state as provided by Section 171.1061; and
31-13 (4) subtracting from that amount any allowable
31-14 deductions and any business loss that is carried forward to the tax
31-15 reporting period and deductible under Subsection (e).
31-16 (h) Dividends and interest received from federal obligations
31-17 are not included in earned surplus or gross receipts for purposes
31-18 of computing net taxable earned surplus. In this subsection:
31-19 (1) "Federal obligations" means:
31-20 (A) stocks and other direct obligations of, and
31-21 obligations unconditionally guaranteed by, the United States
31-22 government and a United States government agency; and
31-23 (B) direct obligations of a United States
31-24 government-sponsored agency.
31-25 (2) "Obligation" means a bond, debenture, security,
31-26 mortgage-backed security, pass-through certificate, or other
31-27 evidence of indebtedness of the issuing entity. The term does not
32-1 include a:
32-2 (A) deposit;
32-3 (B) repurchase agreement;
32-4 (C) loan;
32-5 (D) lease;
32-6 (E) participation in a loan or pool of loans;
32-7 (F) loan collateralized by an obligation of an
32-8 agency of the United States; or
32-9 (G) loan guaranteed by an agency of the United
32-10 States government.
32-11 (3) "United States government" means a department or
32-12 ministry of the federal government, including the 12 federal
32-13 reserve banks. The term does not include a state or local
32-14 government or a commercial enterprise owned in whole or in part by
32-15 the United States government.
32-16 (4) "United States government agency" means an
32-17 instrumentality of the United States government whose obligations
32-18 are fully and explicitly guaranteed as to the timely payment of
32-19 principal and interest by the full faith and credit of the United
32-20 States government. These agencies include the Government National
32-21 Mortgage Association (GNMA), the Veterans Administration (VA), the
32-22 Federal Housing Administration (FHA), the Farmers Home
32-23 Administration (FmHA), the Export-Import Bank (Exim Bank), the
32-24 Overseas Private Investment Corporation (OPIC), the Commodity
32-25 Credit Corporation (CCC), and the Small Business Administration
32-26 (SBA).
32-27 (5) "United States government-sponsored agency" means
33-1 an agency originally established or chartered by the United States
33-2 government to serve public purposes specified by the United States
33-3 Congress but whose obligations are not explicitly guaranteed by the
33-4 full faith and credit of the United States government. These
33-5 agencies include the Federal Home Loan Mortgage Corporation
33-6 (FHLMC), the Federal National Mortgage Association (FNMA), the Farm
33-7 Credit System, the Federal Home Loan Bank System, and the Student
33-8 Loan Marketing Association (SLMA).
33-9 SECTION 9. Section 171.316, Tax Code, is amended to read as
33-10 follows:
33-11 Sec. 171.316. BANKING CORPORATIONS. (a) To the extent that
33-12 this subsection is not preempted by federal law, the Texas
33-13 Department of Banking is required to appoint a conservator under
33-14 Subchapter B, Chapter 6, Texas Banking Act, to pay the franchise
33-15 tax of any banking corporation certified by the comptroller as
33-16 being delinquent in the payment of its franchise tax.
33-17 (b) Except as provided by Subsection (a), this <This>
33-18 subchapter does not apply to a banking corporation.
33-19 SECTION 10. This Act takes effect January 1, 1996, and
33-20 applies to a report originally due on or after that date.
33-21 SECTION 11. The importance of this legislation and the
33-22 crowded condition of the calendars in both houses create an
33-23 emergency and an imperative public necessity that the
33-24 constitutional rule requiring bills to be read on three several
33-25 days in each house be suspended, and this rule is hereby suspended.