By: Montford S.B. No. 644
A BILL TO BE ENTITLED
AN ACT
1-1 relating to administration and collection of the franchise tax.
1-2 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-3 SECTION 1. Subsection (b), Section 171.001, Tax Code, is
1-4 amended by amending Subdivisions (2) through (7) and by adding
1-5 Subdivision (8) to read as follows:
1-6 (2) "Beginning date" means:
1-7 (A) for a corporation chartered in this state,
1-8 the date on which the corporation's charter takes effect; and
1-9 (B) for a foreign corporation, the earlier of
1-10 the date on which:
1-11 (i) the corporation's certificate of
1-12 authority takes effect; or
1-13 (ii) the corporation begins doing business
1-14 in this state.
1-15 (3) "Corporation" includes:
1-16 (A) a limited liability company, as defined
1-17 under the Texas Limited Liability Company Act; and
1-18 (B) a state or federal savings and loan
1-19 association.
1-20 (4) <(3)> "Charter" includes a limited liability
1-21 company's certificate of organization.
1-22 (5) <(4)> "Internal Revenue Code" means the Internal
1-23 Revenue Code of 1986 in effect for the federal tax year beginning
1-24 on or after January 1, 1994 <1990>, and before January 1, 1995
2-1 <1991>, and any regulations adopted under that code applicable to
2-2 that period.
2-3 (6) <(5)> "Officer" and "director" include a limited
2-4 liability company's directors and managers and a limited banking
2-5 association's directors and managers and participants if there are
2-6 no directors or managers.
2-7 (7) <(6)> "Savings and loan association" includes a
2-8 state or federal savings bank.
2-9 (8) <(7)> "Shareholder" includes a limited liability
2-10 company's member and a limited banking association's participant.
2-11 SECTION 2. Subsection (c), Section 171.0021, Tax Code, is
2-12 amended to read as follows:
2-13 (c) The corporation may claim the credit beginning with the
2-14 first report due under this chapter after January 1, 1994, and may
2-15 carry all or part of the credit forward for not more than five
2-16 consecutive reports <privilege periods> beginning with the 1994
2-17 report. A corporation may not claim <for a privilege period> a
2-18 credit in an amount that exceeds the amount of tax due for that
2-19 report <privilege period. For the purposes of this section, an
2-20 initial period and a second period are considered one privilege
2-21 period>.
2-22 SECTION 3. Section 171.061, Tax Code, is amended to read as
2-23 follows:
2-24 Sec. 171.061. EXEMPTION--NONPROFIT CORPORATION ORGANIZED FOR
2-25 EDUCATIONAL PURPOSES. A nonprofit corporation organized solely for
2-26 educational purposes<, including a corporation organized solely to
2-27 provide a student loan fund or student scholarships,> is exempted
3-1 from the franchise tax.
3-2 SECTION 4. Subsections (a) and (g), Section 171.063, Tax
3-3 Code, are amended to read as follows:
3-4 (a) The following corporations are exempt from the franchise
3-5 tax:
3-6 (1) a nonprofit corporation exempted from the federal
3-7 income tax under Section 501(c)(3), (4), (5), (6), <or> (7), (8),
3-8 (10), or (19), <of the> Internal Revenue Code <of 1954, as it
3-9 existed on January 1, 1975;> which in the case of a nonprofit
3-10 hospital means a hospital providing charity care and community
3-11 benefits as set forth in Paragraph (A), (B), (C), (D), (E), or (F):
3-12 (A) charity care and government-sponsored
3-13 indigent health care are provided at a level which is reasonable in
3-14 relation to the community needs, as determined through the
3-15 community needs assessment, the available resources of the
3-16 hospital, and the tax-exempt benefits received by the hospital;
3-17 (B) charity care and government-sponsored
3-18 indigent health care are provided in an amount equal to at least
3-19 four percent of the hospital's net patient revenue;
3-20 (C) charity care and government-sponsored
3-21 indigent health care are provided in an amount equal to at least
3-22 100 percent of the hospital's tax-exempt benefits, excluding
3-23 federal income tax; or
3-24 (D) a nonprofit hospital that has been
3-25 designated as a disproportionate share hospital under the state
3-26 Medicaid program in either of the previous two fiscal years shall
3-27 be considered to have provided a reasonable amount of charity care
4-1 and government-sponsored indigent health care and shall be deemed
4-2 in compliance with the standards in this subsection;
4-3 (E) for tax periods ending before 1996, charity
4-4 care and community benefits are provided in a combined amount equal
4-5 to at least five percent of the hospital's net patient revenue,
4-6 provided that charity care and government-sponsored indigent health
4-7 care are provided in an amount equal to at least three percent of
4-8 net patient revenue; or
4-9 (F) for tax periods ending after 1995, charity
4-10 care and community benefits are provided in a combined amount equal
4-11 to at least five percent of the hospital's net patient revenue,
4-12 provided that charity care and government-sponsored indigent health
4-13 care are provided in an amount equal to at least four percent of
4-14 net patient revenue; or
4-15 (2) a corporation exempted under Section 501(c)(2) or
4-16 (25), <of the> Internal Revenue Code <of 1986>, if the corporation
4-17 or corporations for which it holds title to property is either
4-18 exempt from or not subject to the franchise tax;
4-19 (3) a corporation exempted from federal income tax
4-20 under Section 501(c)(16), Internal Revenue Code <of 1986>; and
4-21 (4) a nonprofit corporation exempted from the federal
4-22 income tax under Section 501(c)(3), <of the> Internal Revenue Code
4-23 <of 1986>, that is a nonprofit hospital and does not receive any
4-24 payment for providing health care services to inpatients or
4-25 outpatients from any source including but not limited to the
4-26 patient or person legally obligated to support the patient,
4-27 third-party payors, Medicare, Medicaid, or any other state or local
5-1 indigent care program. Payment for providing health care services
5-2 does not include charitable donations, legacies, bequests, or
5-3 grants or payments for research.
5-4 For purposes of this subsection, the terms "charity care,"
5-5 "government-sponsored indigent health care," "net patient revenue,"
5-6 "nonprofit hospital," and "tax-exempt benefits" have the meanings
5-7 set forth in Sections 311.031 and 311.042, Health and Safety Code.
5-8 A determination of the amount of community benefits and charity
5-9 care and government-sponsored indigent health care provided by a
5-10 hospital and the hospital's compliance with the requirements of
5-11 Section 311.045, Health and Safety Code, shall be based on the most
5-12 recently completed and audited prior fiscal year of the hospital.
5-13 The providing of charity care and government-sponsored
5-14 indigent health care in accordance with Paragraph (A) of
5-15 Subdivision (1) shall be guided by the prudent business judgment of
5-16 the hospital which will ultimately determine the appropriate level
5-17 of charity care and government-sponsored indigent health care based
5-18 on the community needs, the available resources of the hospital,
5-19 the tax-exempt benefits received by the hospital, and other factors
5-20 that may be unique to the hospital. These criteria shall not be
5-21 determinative factors, but shall be guidelines contributing to the
5-22 hospital's decision along with other factors which may be unique to
5-23 the hospital. The formulas contained in Paragraphs (B), (C), (E),
5-24 and (F) of Subdivision (1) shall also not be considered
5-25 determinative of a reasonable amount of charity care and
5-26 government-sponsored indigent health care.
5-27 The requirements of this subsection shall not apply to the
6-1 extent a hospital demonstrates that reductions in the amount of
6-2 community benefits, charity care, and government-sponsored indigent
6-3 health care are necessary to maintain financial reserves at a level
6-4 required by a bond covenant, are necessary to prevent the hospital
6-5 from endangering its ability to continue operations, or if the
6-6 hospital, as a result of a natural or other disaster, is required
6-7 substantially to curtail its operations.
6-8 In any fiscal year that a hospital, through unintended
6-9 miscalculation, fails to meet any of the standards in Subdivision
6-10 (1), the hospital shall not lose its tax-exempt status without the
6-11 opportunity to cure the miscalculation in the fiscal year following
6-12 the fiscal year the failure is discovered by both meeting one of
6-13 the standards and providing an additional amount of charity care
6-14 and government-sponsored indigent health care that is equal to the
6-15 shortfall from the previous fiscal year. A hospital may apply this
6-16 provision only once every five years.
6-17 (g) If a corporation's federal tax exemption is withdrawn by
6-18 the Internal Revenue Service for failure of the corporation to
6-19 qualify or maintain its qualification for the exemption, the
6-20 corporation's exemption under this section ends on the effective
6-21 date of that <the> withdrawal by the Internal Revenue Service. The
6-22 effective date of the withdrawal is considered the corporation's
6-23 beginning date for purposes of determining the corporation's
6-24 privilege periods and for all other purposes of this chapter.
6-25 SECTION 5. Section 171.064, Tax Code, is amended to read as
6-26 follows:
6-27 Sec. 171.064. EXEMPTION--NONPROFIT CORPORATION ORGANIZED FOR
7-1 CONSERVATION PURPOSES. A nonprofit corporation organized solely to
7-2 educate the public about the protection and conservation of fish,
7-3 game, other wildlife, grasslands, or <and> forests is exempted from
7-4 the franchise tax.
7-5 SECTION 6. Section 171.069, Tax Code, is amended to read as
7-6 follows:
7-7 Sec. 171.069. EXEMPTION--MARKETING ASSOCIATIONS. A
7-8 marketing association incorporated under Chapter 52, Agriculture
7-9 Code <Article 5737 et seq., Revised Civil Statutes of Texas, 1925>,
7-10 is exempted from the franchise tax.
7-11 SECTION 7. Section 171.071, Tax Code, is amended to read as
7-12 follows:
7-13 Sec. 171.071. EXEMPTION--FARMERS' COOPERATIVE SOCIETY. A
7-14 farmers' cooperative society incorporated under Chapter 51,
7-15 Agriculture Code <Article 2514 et seq., Revised Civil Statutes of
7-16 Texas, 1925>, is exempted from the franchise tax.
7-17 SECTION 8. Section 171.076, Tax Code, is amended to read as
7-18 follows:
7-19 Sec. 171.076. EXEMPTION--COOPERATIVE CREDIT ASSOCIATION. A
7-20 cooperative credit association incorporated under Chapter 55,
7-21 Agriculture Code <Article 2508 et seq., Revised Civil Statutes of
7-22 Texas, 1925>, is exempted from the franchise tax.
7-23 SECTION 9. Section 171.082, Tax Code, is amended to read as
7-24 follows:
7-25 Sec. 171.082. EXEMPTION--CERTAIN HOMEOWNERS' ASSOCIATIONS.
7-26 (a) A nonprofit corporation is exempted from the franchise tax if:
7-27 (1) the corporation is organized and operated
8-1 primarily to obtain, manage, construct, and maintain the property
8-2 in or of a residential condominium or residential real estate
8-3 development; and
8-4 (2) <voting control of the corporation is vested in>
8-5 the owners of individual lots, residences, or residential units
8-6 control at least 51 percent of the votes of the corporation and
8-7 that voting control, however acquired, is not held by:
8-8 (A) a single individual or family; or
8-9 (B) one or more developers, declarants, banks,
8-10 investors, or other similar parties<, and not in the developer>.
8-11 (b) For purposes of this section, a condominium project is
8-12 considered residential if the project is legally restricted for use
8-13 as residences. A real estate development is considered residential
8-14 if the property is legally restricted for use as residences.
8-15 SECTION 10. Subchapter B, Chapter 171, Tax Code, is amended
8-16 by adding Section 171.087 to read as follows:
8-17 Sec. 171.087. EXEMPTION--NONPROFIT CORPORATION ORGANIZED FOR
8-18 STUDENT LOAN FUNDS OR STUDENT SCHOLARSHIP PURPOSES. A nonprofit
8-19 corporation organized solely to provide a student loan fund or
8-20 student scholarships is exempted from the franchise tax.
8-21 SECTION 11. Subsection (f), Section 171.109, Tax Code, is
8-22 amended to read as follows:
8-23 (f) A corporation declaring dividends shall exclude those
8-24 dividends from its taxable capital, and a <as of the date the
8-25 dividends are declared. A> corporation receiving dividends shall
8-26 include those dividends in its gross receipts<, to the extent not
8-27 excluded under Section 171.1032(b) or 171.1051(c),> and taxable
9-1 capital as of the earlier of:
9-2 (1) the date the dividends are declared, if the
9-3 dividends are actually paid within one year after the declaration
9-4 date; or
9-5 (2) the date the dividends are actually paid <by the
9-6 corporation declaring the dividends>.
9-7 SECTION 12. Subsection (e), Section 171.110, Tax Code, is
9-8 amended to read as follows:
9-9 (e) For purposes of this section, a business loss is any
9-10 negative amount after apportionment and allocation. The business
9-11 loss shall be carried forward to the year succeeding the loss year
9-12 as a deduction to net taxable earned surplus, then successively to
9-13 the succeeding four taxable years after the loss year or until the
9-14 loss is exhausted, whichever occurs first, but for not more than
9-15 five taxable years after the loss year. Notwithstanding the
9-16 preceding sentence, a business loss from a tax year that ends
9-17 before January 1, 1991, may not be used to reduce net taxable
9-18 earned surplus.
9-19 SECTION 13. Section 171.112, Tax Code, is amended by adding
9-20 Subsection (h) to read as follows:
9-21 (h) Except as otherwise provided by this section, a
9-22 corporation shall use the same accounting methods to apportion its
9-23 taxable capital as it used to compute its taxable capital.
9-24 SECTION 14. Section 171.151, Tax Code, is amended to read as
9-25 follows:
9-26 Sec. 171.151. PRIVILEGE PERIOD COVERED BY TAX. The
9-27 franchise tax shall be paid for each of the following:
10-1 (1) an initial period beginning on the corporation's
10-2 beginning date <that the corporation files its charter or is
10-3 granted a certificate of authority or the date that a foreign
10-4 corporation begins doing business in this state, whichever is
10-5 earlier,> and ending on the day before the first anniversary of the
10-6 beginning <that> date;
10-7 (2) a second period beginning on the first anniversary
10-8 of the beginning date <that the corporation files its charter or is
10-9 granted its certificate of authority or the date that a foreign
10-10 corporation begins doing business in this state, whichever is
10-11 earlier,> and ending on December 31 following that date; and
10-12 (3) after the initial and second periods have expired,
10-13 a regular annual period beginning each year on January 1 and ending
10-14 the following December 31.
10-15 SECTION 15. Subsection (c), Section 171.152, Tax Code, is
10-16 amended to read as follows:
10-17 (c) Payment of the tax covering the regular annual period is
10-18 due May 15, of each year after the beginning of the regular annual
10-19 period. However, if the first anniversary of the corporation's
10-20 beginning date <that the domestic corporation files its charter or
10-21 the foreign corporation begins doing business in Texas or is
10-22 granted its certificate of authority, whichever occurs first,> is
10-23 after October 3 and before January 1, the payment of the tax
10-24 covering the first regular annual period is due on the same date as
10-25 the tax covering the initial period.
10-26 SECTION 16. Subsections (a) and (c), Section 171.153, Tax
10-27 Code, are amended to read as follows:
11-1 (a) The tax covering the initial period is reported on the
11-2 initial report and is based on the business done by the corporation
11-3 during the period beginning on the corporation's beginning date
11-4 <day the corporation files its charter or is granted a certificate
11-5 of authority or the date that a foreign corporation begins doing
11-6 business in this state, whichever is earlier,> and:
11-7 (1) ending on the last accounting period ending date
11-8 that is at least six months after the beginning date and at least
11-9 60 days before the original due date of the initial report; or
11-10 (2) if there is no such period ending date in
11-11 Subdivision (1) of this subsection, then ending on the day that is
11-12 the last day of a calendar month and that is nearest to the end of
11-13 the corporation's first year of business; or
11-14 (3) ending on the day after the merger occurs, for the
11-15 survivor of a merger which occurs after the day on which the tax is
11-16 based in Subdivision (1) or Subdivision (2), whichever is
11-17 applicable, of Subsection (a) and before January 1, of the year an
11-18 initial report is due by the survivor.
11-19 (c) The tax covering the regular annual period is based on
11-20 the business done by the corporation during its last accounting
11-21 period that ends in the year before the year in which the tax is
11-22 due; unless a corporation is the survivor of a merger which occurs
11-23 between the end of its last accounting period in the year before
11-24 the report year and January 1 of the report year, in which case the
11-25 tax will be based on the financial condition of the surviving
11-26 corporation for the 12-month period ending on the day after the
11-27 merger. However, if the first anniversary of the corporation's
12-1 beginning date <that the corporation files its charter, is granted
12-2 its certificate of authority, or begins doing business in this
12-3 state> is after October 3 and before January 1, the tax covering
12-4 the first regular annual period is based on the same business on
12-5 which the tax covering the initial period is based and is reported
12-6 on the initial report.
12-7 SECTION 17. Subsections (b) and (c), Section 171.1531, Tax
12-8 Code, are amended to read as follows:
12-9 (b) The survivor of a merger is entitled to a credit against
12-10 the tax computed on its net taxable capital under Section
12-11 171.002(b)(1) <or refund> in the amount of the franchise tax
12-12 computed on net taxable capital paid by the nonsurvivors for the
12-13 credit period, provided the tax computed on net taxable capital
12-14 paid by the survivor for the credit period is based on the
12-15 survivor's financial condition after the merger. Only a survivor
12-16 that is subject to the franchise tax is entitled to the merger
12-17 credit <or refund>. The merger credit shall be allocated among
12-18 survivors based on net taxable capital reported, and as provided by
12-19 Section 171.153.
12-20 (c) The credit <or refund> will be limited to the lesser of
12-21 the amount of tax on net taxable capital paid for the credit period
12-22 by the survivor or by the nonsurvivors.
12-23 SECTION 18. Section 171.1532, Tax Code, is amended to read
12-24 as follows:
12-25 Sec. 171.1532. BUSINESS ON WHICH TAX ON NET TAXABLE EARNED
12-26 SURPLUS IS BASED. (a) The tax covering the privilege periods
12-27 included on the initial report, as required by Section 171.153, is
13-1 based on the business done by the corporation during the period
13-2 beginning on the corporation's beginning date <day the corporation
13-3 files its charter or is granted a certificate of authority or the
13-4 date that a foreign corporation begins doing business in this
13-5 state, whichever is earlier,> and:
13-6 (1) ending on the last accounting period ending date
13-7 that is at least 60 days before the original due date of the
13-8 initial report; or
13-9 (2) if there is no such period ending date in
13-10 Subdivision (1) of this subsection, then ending on the day that is
13-11 the last day of a calendar month and that is nearest to the end of
13-12 the corporation's first year of business.
13-13 (b) The tax covering the regular annual period, other than a
13-14 regular annual period included on the initial report, is based on
13-15 the business done by the corporation during the period beginning
13-16 with the day after the last date upon which net taxable earned
13-17 surplus on a previous report was <the initial report is> based<, as
13-18 required by Subsection (a) of this section,> and ending with its
13-19 last accounting period ending date for federal income tax purposes
13-20 in the year before the year in which the report is originally due.
13-21 SECTION 19. Section 171.203, Tax Code, is amended by
13-22 amending Subsection (a) and by adding Subsections (d) and (e) to
13-23 read as follows:
13-24 (a) A corporation on which the franchise tax is imposed
13-25 shall file a report with the comptroller containing:
13-26 (1) the name of each corporation in which the
13-27 corporation filing the report owns a 10 percent or greater interest
14-1 and the percentage owned by the corporation;
14-2 (2) the name of each corporation that owns a 10
14-3 percent or greater interest in the corporation filing the report;
14-4 (3) the name, title, and mailing address of each
14-5 person who is an officer or <and> director of the corporation on
14-6 the date the report is filed and the expiration date of each
14-7 person's term as an officer or director, if any;
14-8 (4) the name and address of the agent of the
14-9 corporation designated under Section 171.354 of this code; and
14-10 (5) the address of the corporation's principal office
14-11 and principal place of business.
14-12 (d) The corporation shall send a copy of the report to each
14-13 person named in the report under Subsection (a)(3) who is not
14-14 currently employed by the corporation. An officer or director of
14-15 the corporation must sign the report under a certification that:
14-16 (1) all information contained in the report is true
14-17 and correct to the best of the officer's knowledge; and
14-18 (2) a copy of the report has been mailed to each
14-19 person identified in this subsection on the date the return is
14-20 filed.
14-21 (e) If a person's name is included in a report under
14-22 Subsection (a)(3) and the person is not an officer or director of
14-23 the corporation on the date the report is filed, the person may
14-24 file with the comptroller a sworn statement disclaiming the
14-25 person's status as shown on the report. The comptroller shall
14-26 maintain a record of statements filed under this subsection and
14-27 shall make that information available on request using the same
15-1 procedures the comptroller uses for other requests for public
15-2 information.
15-3 SECTION 20. Subsection (b), Section 171.363, Tax Code, is
15-4 amended to read as follows:
15-5 (b) A person commits an offense if the person is an
15-6 accountant or an agent for or an officer or employee of a
15-7 corporation and the person knowingly enters or provides false
15-8 information on any <the> report, return, or other document filed by
15-9 <of> the corporation under this chapter.
15-10 SECTION 21. Subsection (g), Section 171.202, Tax Code, is
15-11 repealed.
15-12 SECTION 22. This Act takes effect January 1, 1996, and
15-13 applies to a report originally due on or after that date.
15-14 SECTION 23. The importance of this legislation and the
15-15 crowded condition of the calendars in both houses create an
15-16 emergency and an imperative public necessity that the
15-17 constitutional rule requiring bills to be read on three several
15-18 days in each house be suspended, and this rule is hereby suspended.