By Craddick H.B. No. 2627
74R3657 CBH-F
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 171.101(a), Tax Code, is amended to read
1-5 as follows:
1-6 (a) Except as provided by Subsections (b) and (c), the net
1-7 taxable capital of a corporation is computed by:
1-8 (1) adding the corporation's stated capital, as
1-9 defined by Article 1.02, Texas Business Corporation Act, and the
1-10 corporation's surplus, to determine the corporation's taxable
1-11 capital;
1-12 (2) apportioning the corporation's taxable capital to
1-13 this state as provided by Section 171.106(a) or (c), as applicable,
1-14 or if a banking corporation, as provided by Section 171.1065, to
1-15 determine the corporation's apportioned taxable capital; and
1-16 (3) subtracting from the amount computed under
1-17 Subdivision (2) any other allowable deductions to determine the
1-18 corporation's net taxable capital.
1-19 SECTION 2. Section 171.103, Tax Code, is amended to read as
1-20 follows:
1-21 Sec. 171.103. Determination of Gross Receipts From Business
1-22 Done in this State for Taxable Capital. Except as specifically
1-23 provided by Section 171.1033 for a banking corporation or by
1-24 Section 171.1031 for a savings and loan association, in <In>
2-1 apportioning taxable capital, the gross receipts of a corporation
2-2 from its business done in this state is the sum of the
2-3 corporation's receipts from:
2-4 (1) each sale of tangible personal property if the
2-5 property is delivered or shipped to a buyer in this state
2-6 regardless of the FOB point or another condition of the sale, and
2-7 each sale of tangible personal property shipped from this state to
2-8 a purchaser in another state in which the seller is not subject to
2-9 taxation;
2-10 (2) each service performed in this state;
2-11 (3) each rental of property situated in this state;
2-12 (4) each royalty for the use of a patent or copyright
2-13 in this state; and
2-14 (5) other business done in this state.
2-15 SECTION 3. Section 171.1031, Tax Code, is amended to read as
2-16 follows:
2-17 Sec. 171.1031. APPORTIONMENT OF TAXABLE CAPITAL AND TAXABLE
2-18 EARNED SURPLUS OF <BANKING CORPORATION AND> SAVINGS AND LOAN
2-19 ASSOCIATION. (a) Interest and dividends received by a <banking
2-20 corporation or a> savings and loan association are gross receipts
2-21 of the <banking corporation or> savings and loan association from
2-22 its business done in this state if the <banking corporation or>
2-23 savings and loan association has its commercial domicile in this
2-24 state.
2-25 (b) This section does not apply to any corporation other
2-26 than a <banking corporation and a> savings and loan association.
2-27 <(c) To the extent that this subsection does not conflict
3-1 with Article 8, Chapter 9, The Texas Banking Code of 1943 (Article
3-2 342-908, Vernon's Texas Civil Statutes), the Banking Department of
3-3 Texas is required to revoke the charter of any banking corporation
3-4 certified by the Comptroller as being delinquent in the payment of
3-5 its franchise tax.>
3-6 SECTION 4. Section 171.1032(a), Tax Code, is amended to read
3-7 as follows:
3-8 (a) Except as specifically provided by Section 171.1033 for
3-9 a banking corporation and Section 171.1031 for a savings and loan
3-10 association, and except for the gross receipts of a corporation
3-11 that are subject to the provisions of Section 171.1061, in
3-12 apportioning taxable earned surplus, the gross receipts of a
3-13 corporation from its business done in this state is the sum of the
3-14 corporation's receipts from:
3-15 (1) each sale of tangible personal property if the
3-16 property is delivered or shipped to a buyer in this state
3-17 regardless of the FOB point or another condition of the sale, and
3-18 each sale of tangible personal property shipped from this state to
3-19 a purchaser in another state in which the seller is not subject to
3-20 any tax on, or measured by, net income, without regard to whether
3-21 the tax is imposed;
3-22 (2) each service performed in this state;
3-23 (3) each rental of property situated in this state;
3-24 (4) each royalty for the use of a patent or copyright
3-25 in this state; and
3-26 (5) other business done in this state.
3-27 SECTION 5. Subchapter C, Chapter 171, Tax Code, is amended
4-1 by adding Section 171.1033 to read as follows:
4-2 Sec. 171.1033. DETERMINATION OF GROSS RECEIPTS, PROPERTY,
4-3 AND PAYROLL FACTORS FOR APPORTIONMENT OF TAXABLE CAPITAL AND
4-4 TAXABLE EARNED SURPLUS OF BANKING CORPORATION. (a) A banking
4-5 corporation shall determine the gross receipts factor, property
4-6 factor, and payroll factor for purposes of apportioning taxable
4-7 capital and taxable earned surplus in accordance with this section.
4-8 (b) The gross receipts factor is a fraction, the numerator
4-9 of which is the gross receipts of the banking corporation from its
4-10 business done in this state during the period on which the tax is
4-11 based and the denominator of which is the gross receipts of the
4-12 banking corporation within and without this state during the period
4-13 on which the tax is based. The denominator of the gross receipts
4-14 factor is determined using the same method used to determine the
4-15 numerator of the gross receipts factor. The gross receipts factor
4-16 includes only those receipts described by this subsection that are
4-17 included in the corporation's apportionable income base for the
4-18 period on which the tax is based. All receipts that would be
4-19 assigned under this subsection to a state in which the taxpayer is
4-20 not taxable is included in the numerator if the taxpayer's domicile
4-21 is in this state. All receipts of a banking corporation not
4-22 specifically described by Subdivisions (1)-(11) are apportioned as
4-23 business done in this state under the rules prescribed by Section
4-24 171.103 for taxable capital and under the rules prescribed by
4-25 Section 171.1032 for taxable earned surplus. The numerator of the
4-26 gross receipts factor includes all interest and fees or penalties
4-27 in the nature of interest and all net gains (but not less than
5-1 zero), charges, fees, or other receipts of the banking corporation
5-2 from:
5-3 (1) the lease or rental of real property owned by the
5-4 taxpayer, or from the sublease of real property, if the property is
5-5 located in this state;
5-6 (2) the lease or rental of transportation property
5-7 owned by the taxpayer to the extent the property is used in this
5-8 state;
5-9 (3) loans secured by real property if at least 50
5-10 percent of the fair market value of the real property securing the
5-11 loan is located in this state, provided that if a loan is secured
5-12 by real property of which at least 50 percent is not located in any
5-13 one state, the gross receipts from the loan are included in the
5-14 numerator if the borrower is located in this state;
5-15 (4) loans not secured by real property if the borrower
5-16 is engaged in a trade or business in this state and maintains its
5-17 commercial domicile in this state or if the borrower is located in
5-18 this state;
5-19 (5) net gains, including income recorded under the
5-20 coupon stripping rule of Section 1286, Internal Revenue Code, from
5-21 the sale of all loans, including syndication loans, provided that:
5-22 (A) if the amount of the net gains (but not less
5-23 than zero) are from the sale of loans secured by real property, the
5-24 amount of the net gains included as business done in this state is
5-25 determined by multiplying the net gains by a fraction, the
5-26 numerator of which is the amount included as business done in this
5-27 state under Subdivision (3) and the denominator of which is the
6-1 taxpayer's total amount of interest and fees or penalties in the
6-2 nature of interest from loans secured by real property; and
6-3 (B) if the amount of the net gains (but not less
6-4 than zero) are from the sale of loans not secured by real property,
6-5 the amount of the net gains included as business done in this state
6-6 is determined by multiplying the net gains by a fraction, the
6-7 numerator of which is the amount included as business done in this
6-8 state under Subdivision (4) and the denominator of which is the
6-9 taxpayer's total amount of interest and fees or penalties in the
6-10 nature of interest from loans not secured by real property;
6-11 (6) credit card receivables and credit card fees
6-12 charged to card holders, such as annual fees, if the billing
6-13 address of the card holder is in this state;
6-14 (7) credit card issuer's reimbursement fees and any
6-15 net gains (but not less than zero) from the sale of credit card
6-16 receivables, provided that the amount of credit card issuer's
6-17 reimbursement fees or net gains from the sale of credit card
6-18 receivables included as business done in this state is determined
6-19 by multiplying the credit card issuer's reimbursement fees or net
6-20 gains from the sale of credit card receivables, respectively, by a
6-21 fraction, the numerator of which is the amount included as business
6-22 done in this state from credit card receivables and credit card
6-23 fees under Subdivision (6) and the denominator of which is the
6-24 taxpayer's total amount of gross receipts from credit card
6-25 receivables and credit card fees charged to card holders;
6-26 (8) merchant discounts, if the commercial domicile of
6-27 the merchant is in this state;
7-1 (9) loan servicing fees, provided that:
7-2 (A) if the loan servicing fees are derived from
7-3 loans secured by real property, the amount of the loan servicing
7-4 fees included as business done in this state is determined by
7-5 multiplying the loan servicing fees by a fraction, the numerator of
7-6 which is the amount included as business done in this state under
7-7 Subdivision (3) and the denominator of which is the taxpayer's
7-8 total amount of gross receipts from loans secured by real property;
7-9 and
7-10 (B) if the loan servicing fees are derived from
7-11 loans not secured by real property, the amount of the loan
7-12 servicing fees included as business done in this state is
7-13 determined by multiplying the loan servicing fees by a fraction,
7-14 the numerator of which is the amount included as business done in
7-15 this state under Subdivision (4) and the denominator of which is
7-16 the taxpayer's total amount of gross receipts from loans not
7-17 secured by real property;
7-18 (10) all other fees or charges for services not
7-19 otherwise apportioned under this subsection, if the service is
7-20 performed in this state; and
7-21 (11) interest, dividends, gains (but not less than
7-22 zero), and other income from investment assets and activities and
7-23 from trading activities, including investment securities, trading
7-24 account assets, federal funds, securities purchased or sold under
7-25 agreements to resell or repurchase, options, futures contracts,
7-26 forward contracts, notional principal contracts such as swaps,
7-27 equities, and foreign currency transactions, provided that:
8-1 (A) if the income is from investment assets and
8-2 activities, the amount of the income included as business done in
8-3 this state is determined by multiplying all the income by a
8-4 fraction, the numerator of which is the average value of such
8-5 assets that are properly assigned to a regular place of business of
8-6 the taxpayer within this state and the denominator of which is the
8-7 average value of all such assets; and
8-8 (B) if the income is from federal funds sold and
8-9 purchased and from securities purchased under a resale agreement
8-10 and securities sold under a repurchase agreement or from trading
8-11 assets and activities, the amount of the income included as
8-12 business done in this state is determined by multiplying all the
8-13 income by a fraction, the numerator of which is the average value
8-14 of the respective assets that are properly booked for tax purposes
8-15 at a regular place of business of the taxpayer in this state and
8-16 the denominator of which is the average value of all such assets.
8-17 (c)(1) The property factor is a fraction that represents the
8-18 percentage of the taxpayer's real property, tangible personal
8-19 property, loans, and credit card receivables apportioned to this
8-20 state during the period on which the tax is based. The numerator
8-21 of the fraction is the average value of such property located in
8-22 this state, and the denominator of the fraction is the average
8-23 value of all such property located both within and without this
8-24 state. The numerator of the property factor includes:
8-25 (A) real property owned or rented to the
8-26 taxpayer, if the property is physically located or situated in this
8-27 state;
9-1 (B) movable tangible property, such as rolling
9-2 stock, water vessels, or mobile equipment, to the extent that the
9-3 property is used in this state;
9-4 (C) loans and all credit card receivables that
9-5 are:
9-6 (i) properly booked for tax purposes at a
9-7 regular place of business of the taxpayer in this state;
9-8 (ii) if the taxpayer is organized under
9-9 the laws of the United States or of any state, properly booked for
9-10 tax purposes at a place that is not a regular place of business of
9-11 the taxpayer if the taxpayer's commercial domicile is in this
9-12 state; or
9-13 (iii) if a taxpayer is organized under the
9-14 laws of a foreign country, properly booked for tax purposes at a
9-15 place that is not a regular place of business of the taxpayer if
9-16 the taxpayer has declared this state to be its home state under the
9-17 International Banking Act of 1978 (12 U.S.C. Section 3101 et seq.),
9-18 provided that if that declaration has not been made or is not
9-19 required, the loan is presumed to be located at the place in the
9-20 United States where the taxpayer has the most employees on the last
9-21 day of the period on which the tax is based; and
9-22 (iv) any other loan that is demonstrated
9-23 to have a preponderance of substantive contact with this state
9-24 under rules established by the comptroller taking into
9-25 consideration actions such as solicitation, investigation,
9-26 negotiation, approval, and administration of the loan in this
9-27 state.
10-1 (2) The average value of property owned by the
10-2 taxpayer is determined for purposes of the property factor on an
10-3 annual basis by adding the value of the property on the first day
10-4 of the taxable year and the value on the last day of the taxable
10-5 year and dividing the sum by two. The average value of real
10-6 property and tangible personal property that the taxpayer has
10-7 leased from another and that is not treated as owned by the
10-8 taxpayer for federal income tax purposes is determined on an annual
10-9 basis by multiplying the gross rents payable during the taxable
10-10 year by eight. The value of the property is determined as follows:
10-11 (A) real property and tangible personal property
10-12 owned by the taxpayer is valued at the cost or other basis of the
10-13 property for federal income tax purposes without regard to
10-14 depletion, depreciation, or amortization;
10-15 (B) loans are valued at their outstanding
10-16 principal balances without regard to any reserve for bad debts,
10-17 provided that if a loan is charged off in whole or in part for
10-18 federal income tax purposes, the portion of the loan charged off is
10-19 not considered part of the outstanding balance and any specifically
10-20 allocated reserve established under regulatory or financial
10-21 accounting guidelines that is treated as charged off for federal
10-22 income tax purposes is treated as charged off for purposes of this
10-23 subsection; and
10-24 (C) credit card receivables are valued at their
10-25 outstanding principal balance without regard to any reserve for bad
10-26 debts, provided that if a credit card receivable is charged off in
10-27 whole or in part for federal income tax purposes, the portion of
11-1 the receivable charged off is not considered part of the
11-2 outstanding balance.
11-3 (d) The payroll factor is a fraction, the numerator of which
11-4 is the total amount paid in this state by the taxpayer for
11-5 compensation during the period on which the tax is based and the
11-6 denominator of which is the total amount paid by the taxpayer as
11-7 compensation within and without this state during the period on
11-8 which the tax is based. The compensation paid to an employee for
11-9 services or activities connected to the production of nonbusiness
11-10 income and the compensation paid to an independent contractor or a
11-11 person who cannot be classified as an employee of the taxpayer is
11-12 excluded from both the numerator and the denominator of the factor.
11-13 Income is considered nonbusiness income if it is not includable in
11-14 the apportionable income base. Compensation is paid in this state
11-15 if any one of the following tests, applied consecutively, is met:
11-16 (1) the employee's service is performed entirely
11-17 within this state;
11-18 (2) the employee's service is performed both within
11-19 and without this state, but the service performed without this
11-20 state is incidental to the employee's service within this state
11-21 because the service is temporary or transitory in nature or is
11-22 rendered in connection with an isolated transaction;
11-23 (3) if the employee's services are performed both
11-24 within and without this state, the employee's compensation is
11-25 attributed to this state:
11-26 (A) if the employee's principal base of
11-27 operations is within this state;
12-1 (B) if there is no principal base of operations
12-2 in any state in which some part of the service is performed, but
12-3 the place from which the service is directed or controlled is in
12-4 this state; or
12-5 (C) if the principal base of operations and the
12-6 place from which the service is directed or controlled is not in
12-7 any state in which some part of the service is performed, but the
12-8 employee's residence is in this state.
12-9 (e) This section does not apply to a corporation other than
12-10 a banking corporation.
12-11 (f) For purposes of this section:
12-12 (1) a borrower is located in this state if the
12-13 borrower:
12-14 (A) is engaged in a trade or business that
12-15 maintains its commercial domicile in this state; or
12-16 (B) if the borrower is not engaged in a trade or
12-17 business, has a billing address in this state;
12-18 (2) a credit card holder is located in this state if
12-19 the credit card holder's billing address is in this state;
12-20 (3) a loan is secured by real property if at least 50
12-21 percent of the aggregate value of the collateral used to secure the
12-22 loan or other obligation, as valued at fair market value at the
12-23 time the original loan or obligation was incurred, is real
12-24 property; and
12-25 (4) a taxpayer is taxable if:
12-26 (A) the taxpayer is subject in another state to:
12-27 (i) a net income tax;
13-1 (ii) a franchise tax measured by net
13-2 income;
13-3 (iii) a franchise tax for the privilege of
13-4 doing business;
13-5 (iv) a corporate stock tax, including a
13-6 bank share tax;
13-7 (v) a single business tax;
13-8 (vi) an earned surplus tax; or
13-9 (vii) another tax that is imposed on or
13-10 measured by net income; or
13-11 (B) another state has jurisdiction to subject
13-12 the taxpayer to a tax prescribed by Paragraph (A), regardless of
13-13 whether the state actually imposes the tax.
13-14 (g) In this section:
13-15 (1) "Billing address" means the location indicated in
13-16 the books and records of the taxpayer as the address where any
13-17 notice, statement, or bill relating to a customer's account is
13-18 mailed.
13-19 (2) "Commercial domicile" means the headquarters of
13-20 the trade or business, that is, the place from which the trade or
13-21 business is principally managed and directed, or if a banking
13-22 corporation is organized under the laws of a foreign country, the
13-23 Commonwealth of Puerto Rico, or any territory or possession of the
13-24 United States or the District of Columbia, the place from which
13-25 that taxpayer's trade or business in the United States is
13-26 principally managed and directed. There is a rebuttable
13-27 presumption that the location from which the taxpayer's trade or
14-1 business is principally managed and directed is the state of the
14-2 United States or the District of Columbia to which the greatest
14-3 number of employees are regularly connected or out of which they
14-4 are working on the last day of the taxable period, regardless of
14-5 where the services of those employees are performed.
14-6 (3) "Compensation" includes all wages, salaries,
14-7 commissions, and any other forms of remuneration paid to an
14-8 employee for personal services that are considered income under the
14-9 Internal Revenue Code.
14-10 (4) "Credit card" means a credit, travel, or
14-11 entertainment card.
14-12 (5) "Credit card issuer's reimbursement fee" means the
14-13 receipts a taxpayer receives from a merchant's bank because one of
14-14 the persons to whom the taxpayer has issued a credit card has
14-15 charged merchandise or services to the credit card.
14-16 (6) "Employee" means, with respect to a particular
14-17 taxpayer, an individual who, under the common law rules applicable
14-18 in determining the employer-employee relationship, has the status
14-19 of an employee of that taxpayer.
14-20 (7) "Gross rents" means the actual sum of money or
14-21 other consideration payable, directly or indirectly, by or on
14-22 behalf of the taxpayer for the use or possession of the property.
14-23 The term:
14-24 (A) includes any amount payable for the use or
14-25 possession of real property or tangible property whether designated
14-26 as a fixed sum of money or as a percentage of receipts, as profits,
14-27 or otherwise;
15-1 (B) includes any amount payable as additional
15-2 rent or in lieu of rent, such as interest, taxes, insurance,
15-3 repairs, or any other amount required to be paid by the terms of a
15-4 lease or other arrangement;
15-5 (C) includes a proportionate part of the cost of
15-6 any improvement to real property made by or on behalf of the
15-7 taxpayer that reverts to the owner or lessor on termination of a
15-8 lease or other arrangement, determined by computing the amount of
15-9 amortization or depreciation allowed in computing the taxable
15-10 income base for the taxable year; except that if a building is
15-11 erected on leased land by or on behalf of the taxpayer, the value
15-12 of the land is determined by multiplying the gross rent by eight
15-13 and the value of the building is determined in the same manner as
15-14 if owned by the taxpayer; and
15-15 (D) does not include:
15-16 (i) reasonable amounts payable as separate
15-17 charges for water and electric service provided by the lessor;
15-18 (ii) reasonable amounts payable as service
15-19 charges for janitorial services provided by the lessor;
15-20 (iii) reasonable amounts payable for
15-21 storage, provided the amounts are payable for space not designated
15-22 and not under the control of the taxpayer; and
15-23 (iv) that portion of any rental payment
15-24 that is applicable to the space subleased from the taxpayer and not
15-25 used by it.
15-26 (8) "Loan" means any extension of credit resulting
15-27 from direct negotiations between the taxpayer and its customer, or
16-1 the purchase, in whole or in part, of the extension of credit from
16-2 another, or both. The term includes participations, syndications,
16-3 and leases treated as loans for federal income tax purposes, but
16-4 does not include:
16-5 (A) property treated as a loan under
16-6 Section 595, Internal Revenue Code;
16-7 (B) futures or forward contracts, options, and
16-8 notional principal contracts, such as swaps;
16-9 (C) credit card receivables, including purchased
16-10 credit card relationships;
16-11 (D) non-interest-bearing balances due from other
16-12 depository institutions;
16-13 (E) cash items in the process of collection;
16-14 (F) federal funds sold;
16-15 (G) securities purchased under agreements to
16-16 resell;
16-17 (H) assets held in a trading account;
16-18 (I) securities;
16-19 (J) interests in a real estate mortgage
16-20 investment conduit (REMIC) or other mortgage-backed or asset-backed
16-21 security; and
16-22 (K) other similar items.
16-23 (9) "Merchant discount" means the fee or negotiated
16-24 discount charged to a merchant by the taxpayer for the privilege of
16-25 participating in a program in which a credit card is accepted in
16-26 payment for merchandise or services sold to the card holder. The
16-27 fee is computed net of any card holder charge-backs, but is not
17-1 reduced by an interchange transaction fee or by a credit card
17-2 issuer's reimbursement fee paid to another for charges made by its
17-3 card holders.
17-4 (10) "Principal base of operations" means:
17-5 (A) with respect to transportation property, the
17-6 place of more or less permanent nature from which the property is
17-7 directed or controlled;
17-8 (B) with respect to an employee, the place of
17-9 more or less permanent nature from which the employee regularly
17-10 starts the employee's work and to which the employee customarily
17-11 returns to:
17-12 (i) receive instructions from the
17-13 employee's employer or communications from the employee's customers
17-14 or other persons; or
17-15 (ii) perform any other functions necessary
17-16 to the exercise of the employee's trade or profession at some other
17-17 point or points.
17-18 (11) "Real property owned" and "tangible personal
17-19 property owned" mean real and tangible personal property,
17-20 respectively:
17-21 (A) on which the taxpayer may claim depreciation
17-22 for federal income tax purposes; or
17-23 (B) to which the taxpayer holds legal title and
17-24 on which no other person may claim depreciation for federal income
17-25 tax purposes or could claim depreciation if subject to federal
17-26 income tax. Real and tangible personal property includes land,
17-27 stocks in goods, and real and tangible personal property rented to
18-1 the taxpayer. Real and tangible personal property does not include
18-2 coin, currency, or property acquired in lieu of or pursuant to a
18-3 foreclosure.
18-4 (12) "Regular place of business" means an office at
18-5 which the taxpayer carries on the taxpayer's business in a regular
18-6 and systematic manner and that is continuously maintained,
18-7 occupied, and used by employees of the taxpayer.
18-8 (13) "State" means:
18-9 (A) a state of the United States;
18-10 (B) the District of Columbia;
18-11 (C) the Commonwealth of Puerto Rico;
18-12 (D) a territory or possession of the United
18-13 States; or
18-14 (E) a foreign country.
18-15 (14) "Syndication" means an extension of credit funded
18-16 by at least two persons in which each person's risk is limited to a
18-17 specified percentage of the total extension of credit or to a
18-18 specified dollar amount.
18-19 (15) "Transportation property" means a vehicle or
18-20 vessel that moves under its own power, such as an aircraft, train,
18-21 or water vessel, and motor vehicles and equipment or containers
18-22 attached to such a vehicle or vessel, such as rolling stock, a
18-23 barge, a trailer, or similar equipment or containers.
18-24 SECTION 6. Subchapter C, Chapter 171, Tax Code, is amended
18-25 by adding Section 171.1065 to read as follows:
18-26 Sec. 171.1065. APPORTIONMENT OF TAXABLE CAPITAL AND TAXABLE
18-27 EARNED SURPLUS OF BANKING CORPORATIONS. (a) Except as provided by
19-1 Section 171.106(c), the taxable capital and taxable earned surplus
19-2 of a banking corporation (including a banking corporation organized
19-3 under the laws of a foreign country, the Commonwealth of Puerto
19-4 Rico, or a territory or possession of the United States whose
19-5 effectively connected income as defined in the Internal Revenue
19-6 Code) whose business activity is taxable both within and without
19-7 this state is apportioned to this state by multiplying the taxable
19-8 capital and taxable earned surplus, respectively, of the banking
19-9 corporation by the apportionment percentage. The apportionment
19-10 percentage is determined by adding the following three factors and
19-11 dividing the sum by three:
19-12 (1) the gross receipts factor computed as prescribed
19-13 by Section 171.1033(b);
19-14 (2) the property factor computed as prescribed by
19-15 Section 171.1033(c); and
19-16 (3) the payroll factor computed as prescribed by
19-17 Section 171.1033(d).
19-18 (b) If one of the factors is missing, the two remaining
19-19 factors are added and the sum is divided by two. If two of the
19-20 factors are missing, the remaining factor is the apportionment
19-21 percentage. A factor is missing if both its numerator and
19-22 denominator are zero, but it is not missing solely because its
19-23 numerator is zero.
19-24 (c) Each factor is computed according to the method of
19-25 accounting (cash or accrual basis) required or allowed to be used
19-26 by the taxpayer in determining taxable capital or earned surplus
19-27 for the period on which the tax is based.
20-1 (d) If the apportionment percentage, computed on the basis
20-2 of all or any of the three factors of gross receipts, property, or
20-3 payroll, does not fairly represent the extent of the taxpayer's
20-4 business activity in this state, the taxpayer may request an
20-5 adjustment or the comptroller may adjust the apportionment
20-6 percentage in relation to any part of the taxpayer's business
20-7 activity by:
20-8 (1) using separate accounting;
20-9 (2) excluding one or more factors;
20-10 (3) including one or more other factors; or
20-11 (4) using any other method calculated to effect a fair
20-12 and equitable apportionment of the taxpayer's income.
20-13 SECTION 7. Section 171.110, Tax Code, is amended by amending
20-14 Subsection (a) and adding Subsection (h) to read as follows:
20-15 (a) The net taxable earned surplus of a corporation is
20-16 computed by:
20-17 (1) determining the corporation's reportable federal
20-18 taxable income, subtracting from that amount any amount included in
20-19 reportable federal taxable income under Section 78 or Sections
20-20 951-964, Internal Revenue Code, and dividends received from a
20-21 subsidiary, associate, or affiliated corporation that does not
20-22 transact a substantial portion of its business or regularly
20-23 maintain a substantial portion of its assets in the United States,
20-24 and adding to that amount any compensation of officers or
20-25 directors, or if a bank, any compensation of directors and
20-26 executive officers, to the extent excluded in determining federal
20-27 taxable income to determine the corporation's taxable earned
21-1 surplus;
21-2 (2) apportioning the corporation's taxable earned
21-3 surplus to this state as provided by Section 171.106(b) or (c), as
21-4 applicable, or if a banking corporation, as provided by Section
21-5 171.1065, to determine the corporation's apportioned taxable earned
21-6 surplus;
21-7 (3) adding the corporation's taxable earned surplus
21-8 allocated to this state as provided by Section 171.1061; and
21-9 (4) subtracting from that amount any allowable
21-10 deductions and any business loss that is carried forward to the tax
21-11 reporting period and deductible under Subsection (e).
21-12 (h) Dividends and interest received from federal obligations
21-13 are not included in earned surplus or gross receipts for purposes
21-14 of computing net taxable earned surplus. In this subsection:
21-15 (1) "Federal obligations" means:
21-16 (A) stocks and other direct obligations of, and
21-17 obligations unconditionally guaranteed by, the United States
21-18 government and a United States government agency; and
21-19 (B) direct obligations of a United States
21-20 government-sponsored agency.
21-21 (2) "Obligation" means a bond, debenture, security,
21-22 mortgage-backed security, pass-through certificate, or other
21-23 evidence of indebtedness of the issuing entity. The term does not
21-24 include a:
21-25 (A) deposit;
21-26 (B) repurchase agreement;
21-27 (C) loan;
22-1 (D) lease;
22-2 (E) participation in a loan or pool of loans;
22-3 (F) loan collateralized by an obligation of an
22-4 agency of the United States; or
22-5 (G) loan guaranteed by an agency of the United
22-6 States government.
22-7 (3) "United States government" means a department or
22-8 ministry of the federal government, including the 12 federal
22-9 reserve banks. The term does not include a state or local
22-10 government or a commercial enterprise owned in whole or in part by
22-11 the United States government.
22-12 (4) "United States government agency" means an
22-13 instrumentality of the United States government whose obligations
22-14 are fully and explicitly guaranteed as to the timely payment of
22-15 principal and interest by the full faith and credit of the United
22-16 States government. These agencies include the Government National
22-17 Mortgage Association (GNMA), the Veterans Administration (VA), the
22-18 Federal Housing Administration (FHA), the Farmers Home
22-19 Administration (FmHA), the Export-Import Bank (Exim Bank), the
22-20 Overseas Private Investment Corporation (OPIC), the Commodity
22-21 Credit Corporation (CCC), and the Small Business Administration
22-22 (SBA).
22-23 (5) "United States government-sponsored agency" means
22-24 an agency originally established or chartered by the United States
22-25 government to serve public purposes specified by the United States
22-26 Congress but whose obligations are not explicitly guaranteed by the
22-27 full faith and credit of the United States government. These
23-1 agencies include the Federal Home Loan Mortgage Corporation
23-2 (FHLMC), the Federal National Mortgage Association (FNMA), the Farm
23-3 Credit System, the Federal Home Loan Bank System, and the Student
23-4 Loan Marketing Association (SLMA).
23-5 SECTION 8. Section 171.316, Tax Code, is amended to read as
23-6 follows:
23-7 Sec. 171.316. BANKING CORPORATIONS. (a) Except as
23-8 prohibited by Article 8, Chapter IX, The Texas Banking Code
23-9 (Article 342-908, Vernon's Texas Civil Statutes), the Banking
23-10 Department of Texas shall revoke the charter of a banking
23-11 corporation that the comptroller certifies as being delinquent in
23-12 the payment of a tax imposed by this chapter.
23-13 (b) Except as provided by Subsection (a), this <This>
23-14 subchapter does not apply to a banking corporation.
23-15 SECTION 9. This Act takes effect January 1, 1996, and
23-16 applies to a report originally due on or after that date.
23-17 SECTION 10. The importance of this legislation and the
23-18 crowded condition of the calendars in both houses create an
23-19 emergency and an imperative public necessity that the
23-20 constitutional rule requiring bills to be read on three several
23-21 days in each house be suspended, and this rule is hereby suspended.