1-1 By: Montford S.B. No. 644
1-2 (In the Senate - Filed February 17, 1995; February 20, 1995,
1-3 read first time and referred to Committee on Finance;
1-4 April 3, 1995, reported adversely, with favorable Committee
1-5 Substitute by the following vote: Yeas 10, Nays 0; April 3, 1995,
1-6 sent to printer.)
1-7 COMMITTEE SUBSTITUTE FOR S.B. No. 644 By: Montford
1-8 A BILL TO BE ENTITLED
1-9 AN ACT
1-10 relating to administration and collection of the franchise tax.
1-11 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-12 SECTION 1. Subsection (b), Section 171.001, Tax Code, is
1-13 amended by amending Subdivisions (2) through (7) and by adding
1-14 Subdivision (8) to read as follows:
1-15 (2) "Beginning date" means:
1-16 (A) for a corporation chartered in this state,
1-17 the date on which the corporation's charter takes effect; and
1-18 (B) for a foreign corporation, the earlier of
1-19 the date on which:
1-20 (i) the corporation's certificate of
1-21 authority takes effect; or
1-22 (ii) the corporation begins doing business
1-23 in this state.
1-24 (3) "Corporation" includes:
1-25 (A) a limited liability company, as defined
1-26 under the Texas Limited Liability Company Act; and
1-27 (B) a state or federal savings and loan
1-28 association.
1-29 (4) <(3)> "Charter" includes a limited liability
1-30 company's certificate of organization.
1-31 (5) <(4)> "Internal Revenue Code" means the Internal
1-32 Revenue Code of 1986 in effect for the federal tax year beginning
1-33 on or after January 1, 1994 <1990>, and before January 1, 1995
1-34 <1991>, and any regulations adopted under that code applicable to
1-35 that period.
1-36 (6) <(5)> "Officer" and "director" include a limited
1-37 liability company's directors and managers and a limited banking
1-38 association's directors and managers and participants if there are
1-39 no directors or managers.
1-40 (7) <(6)> "Savings and loan association" includes a
1-41 state or federal savings bank.
1-42 (8) <(7)> "Shareholder" includes a limited liability
1-43 company's member and a limited banking association's participant.
1-44 SECTION 2. Subsection (c), Section 171.0021, Tax Code, is
1-45 amended to read as follows:
1-46 (c) The corporation may claim the credit beginning with the
1-47 first report due under this chapter after January 1, 1994, and may
1-48 carry all or part of the credit forward for not more than five
1-49 consecutive reports <privilege periods> beginning with the 1994
1-50 report. A corporation may not claim <for a privilege period> a
1-51 credit in an amount that exceeds the amount of tax due for that
1-52 report <privilege period. For the purposes of this section, an
1-53 initial period and a second period are considered one privilege
1-54 period>.
1-55 SECTION 3. Section 171.061, Tax Code, is amended to read as
1-56 follows:
1-57 Sec. 171.061. EXEMPTION--NONPROFIT CORPORATION ORGANIZED FOR
1-58 EDUCATIONAL PURPOSES. A nonprofit corporation organized solely for
1-59 educational purposes<, including a corporation organized solely to
1-60 provide a student loan fund or student scholarships,> is exempted
1-61 from the franchise tax.
1-62 SECTION 4. Subsections (a) and (g), Section 171.063, Tax
1-63 Code, are amended to read as follows:
1-64 (a) The following corporations are exempt from the franchise
1-65 tax:
1-66 (1) a nonprofit corporation exempted from the federal
1-67 income tax under Section 501(c)(3), (4), (5), (6), <or> (7), (8),
1-68 (10), or (19), <of the> Internal Revenue Code <of 1954, as it
2-1 existed on January 1, 1975;> which in the case of a nonprofit
2-2 hospital means a hospital providing charity care and community
2-3 benefits as set forth in Paragraph (A), (B), (C), (D), (E), or (F):
2-4 (A) charity care and government-sponsored
2-5 indigent health care are provided at a level which is reasonable in
2-6 relation to the community needs, as determined through the
2-7 community needs assessment, the available resources of the
2-8 hospital, and the tax-exempt benefits received by the hospital;
2-9 (B) charity care and government-sponsored
2-10 indigent health care are provided in an amount equal to at least
2-11 four percent of the hospital's net patient revenue;
2-12 (C) charity care and government-sponsored
2-13 indigent health care are provided in an amount equal to at least
2-14 100 percent of the hospital's tax-exempt benefits, excluding
2-15 federal income tax; or
2-16 (D) a nonprofit hospital that has been
2-17 designated as a disproportionate share hospital under the state
2-18 Medicaid program in either of the previous two fiscal years shall
2-19 be considered to have provided a reasonable amount of charity care
2-20 and government-sponsored indigent health care and shall be deemed
2-21 in compliance with the standards in this subsection;
2-22 (E) for tax periods ending before 1996, charity
2-23 care and community benefits are provided in a combined amount equal
2-24 to at least five percent of the hospital's net patient revenue,
2-25 provided that charity care and government-sponsored indigent health
2-26 care are provided in an amount equal to at least three percent of
2-27 net patient revenue; or
2-28 (F) for tax periods ending after 1995, charity
2-29 care and community benefits are provided in a combined amount equal
2-30 to at least five percent of the hospital's net patient revenue,
2-31 provided that charity care and government-sponsored indigent health
2-32 care are provided in an amount equal to at least four percent of
2-33 net patient revenue; or
2-34 (2) a corporation exempted under Section 501(c)(2) or
2-35 (25), <of the> Internal Revenue Code <of 1986>, if the corporation
2-36 or corporations for which it holds title to property is either
2-37 exempt from or not subject to the franchise tax;
2-38 (3) a corporation exempted from federal income tax
2-39 under Section 501(c)(16), Internal Revenue Code <of 1986>; and
2-40 (4) a nonprofit corporation exempted from the federal
2-41 income tax under Section 501(c)(3), <of the> Internal Revenue Code
2-42 <of 1986>, that is a nonprofit hospital and does not receive any
2-43 payment for providing health care services to inpatients or
2-44 outpatients from any source including but not limited to the
2-45 patient or person legally obligated to support the patient,
2-46 third-party payors, Medicare, Medicaid, or any other state or local
2-47 indigent care program. Payment for providing health care services
2-48 does not include charitable donations, legacies, bequests, or
2-49 grants or payments for research.
2-50 For purposes of this subsection, the terms "charity care,"
2-51 "government-sponsored indigent health care," "net patient revenue,"
2-52 "nonprofit hospital," and "tax-exempt benefits" have the meanings
2-53 set forth in Sections 311.031 and 311.042, Health and Safety Code.
2-54 A determination of the amount of community benefits and charity
2-55 care and government-sponsored indigent health care provided by a
2-56 hospital and the hospital's compliance with the requirements of
2-57 Section 311.045, Health and Safety Code, shall be based on the most
2-58 recently completed and audited prior fiscal year of the hospital.
2-59 The providing of charity care and government-sponsored
2-60 indigent health care in accordance with Paragraph (A) of
2-61 Subdivision (1) shall be guided by the prudent business judgment of
2-62 the hospital which will ultimately determine the appropriate level
2-63 of charity care and government-sponsored indigent health care based
2-64 on the community needs, the available resources of the hospital,
2-65 the tax-exempt benefits received by the hospital, and other factors
2-66 that may be unique to the hospital. These criteria shall not be
2-67 determinative factors, but shall be guidelines contributing to the
2-68 hospital's decision along with other factors which may be unique to
2-69 the hospital. The formulas contained in Paragraphs (B), (C), (E),
2-70 and (F) of Subdivision (1) shall also not be considered
3-1 determinative of a reasonable amount of charity care and
3-2 government-sponsored indigent health care.
3-3 The requirements of this subsection shall not apply to the
3-4 extent a hospital demonstrates that reductions in the amount of
3-5 community benefits, charity care, and government-sponsored indigent
3-6 health care are necessary to maintain financial reserves at a level
3-7 required by a bond covenant, are necessary to prevent the hospital
3-8 from endangering its ability to continue operations, or if the
3-9 hospital, as a result of a natural or other disaster, is required
3-10 substantially to curtail its operations.
3-11 In any fiscal year that a hospital, through unintended
3-12 miscalculation, fails to meet any of the standards in Subdivision
3-13 (1), the hospital shall not lose its tax-exempt status without the
3-14 opportunity to cure the miscalculation in the fiscal year following
3-15 the fiscal year the failure is discovered by both meeting one of
3-16 the standards and providing an additional amount of charity care
3-17 and government-sponsored indigent health care that is equal to the
3-18 shortfall from the previous fiscal year. A hospital may apply this
3-19 provision only once every five years.
3-20 (g) If a corporation's federal tax exemption is withdrawn by
3-21 the Internal Revenue Service for failure of the corporation to
3-22 qualify or maintain its qualification for the exemption, the
3-23 corporation's exemption under this section ends on the effective
3-24 date of that <the> withdrawal by the Internal Revenue Service. The
3-25 effective date of the withdrawal is considered the corporation's
3-26 beginning date for purposes of determining the corporation's
3-27 privilege periods and for all other purposes of this chapter.
3-28 SECTION 5. Section 171.064, Tax Code, is amended to read as
3-29 follows:
3-30 Sec. 171.064. EXEMPTION--NONPROFIT CORPORATION ORGANIZED FOR
3-31 CONSERVATION PURPOSES. A nonprofit corporation organized solely to
3-32 educate the public about the protection and conservation of fish,
3-33 game, other wildlife, grasslands, or <and> forests is exempted from
3-34 the franchise tax.
3-35 SECTION 6. Section 171.069, Tax Code, is amended to read as
3-36 follows:
3-37 Sec. 171.069. EXEMPTION--MARKETING ASSOCIATIONS. A
3-38 marketing association incorporated under Chapter 52, Agriculture
3-39 Code <Article 5737 et seq., Revised Civil Statutes of Texas, 1925>,
3-40 is exempted from the franchise tax.
3-41 SECTION 7. Section 171.071, Tax Code, is amended to read as
3-42 follows:
3-43 Sec. 171.071. EXEMPTION--FARMERS' COOPERATIVE SOCIETY. A
3-44 farmers' cooperative society incorporated under Chapter 51,
3-45 Agriculture Code <Article 2514 et seq., Revised Civil Statutes of
3-46 Texas, 1925>, is exempted from the franchise tax.
3-47 SECTION 8. Section 171.076, Tax Code, is amended to read as
3-48 follows:
3-49 Sec. 171.076. EXEMPTION--COOPERATIVE CREDIT ASSOCIATION. A
3-50 cooperative credit association incorporated under Chapter 55,
3-51 Agriculture Code <Article 2508 et seq., Revised Civil Statutes of
3-52 Texas, 1925>, is exempted from the franchise tax.
3-53 SECTION 9. Section 171.082, Tax Code, is amended to read as
3-54 follows:
3-55 Sec. 171.082. EXEMPTION--CERTAIN HOMEOWNERS' ASSOCIATIONS.
3-56 (a) A nonprofit corporation is exempted from the franchise tax if:
3-57 (1) the corporation is organized and operated
3-58 primarily to obtain, manage, construct, and maintain the property
3-59 in or of a residential condominium or residential real estate
3-60 development; and
3-61 (2) <voting control of the corporation is vested in>
3-62 the owners of individual lots, residences, or residential units
3-63 control at least 51 percent of the votes of the corporation and
3-64 that voting control, however acquired, is not held by:
3-65 (A) a single individual or family; or
3-66 (B) one or more developers, declarants, banks,
3-67 investors, or other similar parties<, and not in the developer>.
3-68 (b) For purposes of this section, a condominium project is
3-69 considered residential if the project is legally restricted for use
3-70 as residences. A real estate development is considered residential
4-1 if the property is legally restricted for use as residences.
4-2 SECTION 10. Subchapter B, Chapter 171, Tax Code, is amended
4-3 by adding Section 171.087 to read as follows:
4-4 Sec. 171.087. EXEMPTION--NONPROFIT CORPORATION ORGANIZED FOR
4-5 STUDENT LOAN FUNDS OR STUDENT SCHOLARSHIP PURPOSES. A nonprofit
4-6 corporation organized solely to provide a student loan fund or
4-7 student scholarships is exempted from the franchise tax.
4-8 SECTION 11. Subsection (f), Section 171.109, Tax Code, is
4-9 amended to read as follows:
4-10 (f) A corporation declaring dividends shall exclude those
4-11 dividends from its taxable capital, and a <as of the date the
4-12 dividends are declared. A> corporation receiving dividends shall
4-13 include those dividends in its gross receipts<, to the extent not
4-14 excluded under Section 171.1032(b) or 171.1051(c),> and taxable
4-15 capital as of the earlier of:
4-16 (1) the date the dividends are declared, if the
4-17 dividends are actually paid within one year after the declaration
4-18 date; or
4-19 (2) the date the dividends are actually paid <by the
4-20 corporation declaring the dividends>.
4-21 SECTION 12. Subsection (e), Section 171.110, Tax Code, is
4-22 amended to read as follows:
4-23 (e) For purposes of this section, a business loss is any
4-24 negative amount after apportionment and allocation. The business
4-25 loss shall be carried forward to the year succeeding the loss year
4-26 as a deduction to net taxable earned surplus, then successively to
4-27 the succeeding four taxable years after the loss year or until the
4-28 loss is exhausted, whichever occurs first, but for not more than
4-29 five taxable years after the loss year. Notwithstanding the
4-30 preceding sentence, a business loss from a tax year that ends
4-31 before January 1, 1991, may not be used to reduce net taxable
4-32 earned surplus.
4-33 SECTION 13. Section 171.112, Tax Code, is amended by adding
4-34 Subsection (h) to read as follows:
4-35 (h) Except as otherwise provided by this section, a
4-36 corporation shall use the same accounting methods to apportion its
4-37 taxable capital as it used to compute its taxable capital.
4-38 SECTION 14. Section 171.151, Tax Code, is amended to read as
4-39 follows:
4-40 Sec. 171.151. PRIVILEGE PERIOD COVERED BY TAX. The
4-41 franchise tax shall be paid for each of the following:
4-42 (1) an initial period beginning on the corporation's
4-43 beginning date <that the corporation files its charter or is
4-44 granted a certificate of authority or the date that a foreign
4-45 corporation begins doing business in this state, whichever is
4-46 earlier,> and ending on the day before the first anniversary of the
4-47 beginning <that> date;
4-48 (2) a second period beginning on the first anniversary
4-49 of the beginning date <that the corporation files its charter or is
4-50 granted its certificate of authority or the date that a foreign
4-51 corporation begins doing business in this state, whichever is
4-52 earlier,> and ending on December 31 following that date; and
4-53 (3) after the initial and second periods have expired,
4-54 a regular annual period beginning each year on January 1 and ending
4-55 the following December 31.
4-56 SECTION 15. Subsection (c), Section 171.152, Tax Code, is
4-57 amended to read as follows:
4-58 (c) Payment of the tax covering the regular annual period is
4-59 due May 15, of each year after the beginning of the regular annual
4-60 period. However, if the first anniversary of the corporation's
4-61 beginning date <that the domestic corporation files its charter or
4-62 the foreign corporation begins doing business in Texas or is
4-63 granted its certificate of authority, whichever occurs first,> is
4-64 after October 3 and before January 1, the payment of the tax
4-65 covering the first regular annual period is due on the same date as
4-66 the tax covering the initial period.
4-67 SECTION 16. Subsections (a) and (c), Section 171.153, Tax
4-68 Code, are amended to read as follows:
4-69 (a) The tax covering the initial period is reported on the
4-70 initial report and is based on the business done by the corporation
5-1 during the period beginning on the corporation's beginning date
5-2 <day the corporation files its charter or is granted a certificate
5-3 of authority or the date that a foreign corporation begins doing
5-4 business in this state, whichever is earlier,> and:
5-5 (1) ending on the last accounting period ending date
5-6 that is at least six months after the beginning date and at least
5-7 60 days before the original due date of the initial report; or
5-8 (2) if there is no such period ending date in
5-9 Subdivision (1) of this subsection, then ending on the day that is
5-10 the last day of a calendar month and that is nearest to the end of
5-11 the corporation's first year of business; or
5-12 (3) ending on the day after the merger occurs, for the
5-13 survivor of a merger which occurs after the day on which the tax is
5-14 based in Subdivision (1) or Subdivision (2), whichever is
5-15 applicable, of Subsection (a) and before January 1, of the year an
5-16 initial report is due by the survivor.
5-17 (c) The tax covering the regular annual period is based on
5-18 the business done by the corporation during its last accounting
5-19 period that ends in the year before the year in which the tax is
5-20 due; unless a corporation is the survivor of a merger which occurs
5-21 between the end of its last accounting period in the year before
5-22 the report year and January 1 of the report year, in which case the
5-23 tax will be based on the financial condition of the surviving
5-24 corporation for the 12-month period ending on the day after the
5-25 merger. However, if the first anniversary of the corporation's
5-26 beginning date <that the corporation files its charter, is granted
5-27 its certificate of authority, or begins doing business in this
5-28 state> is after October 3 and before January 1, the tax covering
5-29 the first regular annual period is based on the same business on
5-30 which the tax covering the initial period is based and is reported
5-31 on the initial report.
5-32 SECTION 17. Subsections (b) and (c), Section 171.1531, Tax
5-33 Code, are amended to read as follows:
5-34 (b) The survivor of a merger is entitled to a credit against
5-35 the tax computed on its net taxable capital under Section
5-36 171.002(b)(1) <or refund> in the amount of the franchise tax
5-37 computed on net taxable capital paid by the nonsurvivors for the
5-38 credit period, provided the tax computed on net taxable capital
5-39 paid by the survivor for the credit period is based on the
5-40 survivor's financial condition after the merger. Only a survivor
5-41 that is subject to the franchise tax is entitled to the merger
5-42 credit <or refund>. The merger credit shall be allocated among
5-43 survivors based on net taxable capital reported, and as provided by
5-44 Section 171.153.
5-45 (c) The credit <or refund> will be limited to the lesser of
5-46 the amount of tax on net taxable capital paid for the credit period
5-47 by the survivor or by the nonsurvivors.
5-48 SECTION 18. Section 171.1532, Tax Code, is amended to read
5-49 as follows:
5-50 Sec. 171.1532. BUSINESS ON WHICH TAX ON NET TAXABLE EARNED
5-51 SURPLUS IS BASED. (a) The tax covering the privilege periods
5-52 included on the initial report, as required by Section 171.153, is
5-53 based on the business done by the corporation during the period
5-54 beginning on the corporation's beginning date <day the corporation
5-55 files its charter or is granted a certificate of authority or the
5-56 date that a foreign corporation begins doing business in this
5-57 state, whichever is earlier,> and:
5-58 (1) ending on the last accounting period ending date
5-59 that is at least 60 days before the original due date of the
5-60 initial report; or
5-61 (2) if there is no such period ending date in
5-62 Subdivision (1) of this subsection, then ending on the day that is
5-63 the last day of a calendar month and that is nearest to the end of
5-64 the corporation's first year of business.
5-65 (b) The tax covering the regular annual period, other than a
5-66 regular annual period included on the initial report, is based on
5-67 the business done by the corporation during the period beginning
5-68 with the day after the last date upon which net taxable earned
5-69 surplus on a previous report was <the initial report is> based<, as
5-70 required by Subsection (a) of this section,> and ending with its
6-1 last accounting period ending date for federal income tax purposes
6-2 in the year before the year in which the report is originally due.
6-3 SECTION 19. Section 171.203, Tax Code, is amended by
6-4 amending Subsection (a) and by adding Subsections (d) and (e) to
6-5 read as follows:
6-6 (a) A corporation on which the franchise tax is imposed
6-7 shall file a report with the comptroller containing:
6-8 (1) the name of each corporation in which the
6-9 corporation filing the report owns a 10 percent or greater interest
6-10 and the percentage owned by the corporation;
6-11 (2) the name of each corporation that owns a 10
6-12 percent or greater interest in the corporation filing the report;
6-13 (3) the name, title, and mailing address of each
6-14 person who is an officer or <and> director of the corporation on
6-15 the date the report is filed and the expiration date of each
6-16 person's term as an officer or director, if any;
6-17 (4) the name and address of the agent of the
6-18 corporation designated under Section 171.354 of this code; and
6-19 (5) the address of the corporation's principal office
6-20 and principal place of business.
6-21 (d) The corporation shall send a copy of the report to each
6-22 person named in the report under Subsection (a)(3). An officer or
6-23 director of the corporation must sign the report under a
6-24 certification that:
6-25 (1) all information contained in the report is true
6-26 and correct to the best of the officer's knowledge; and
6-27 (2) a copy of the report has been mailed to each
6-28 person who is an officer or director of the corporation on the date
6-29 the return is filed.
6-30 (e) If a person's name is included in a report under
6-31 Subsection (a)(3) and the person is not an officer or director of
6-32 the corporation on the date the report is filed, the person may
6-33 file with the comptroller a sworn statement disclaiming the
6-34 person's status as shown on the report. The comptroller shall
6-35 maintain a record of statements filed under this subsection and
6-36 shall make that information available on request using the same
6-37 procedures the comptroller uses for other requests for public
6-38 information.
6-39 SECTION 20. Subsection (b), Section 171.363, Tax Code, is
6-40 amended to read as follows:
6-41 (b) A person commits an offense if the person is an
6-42 accountant or an agent for or an officer or employee of a
6-43 corporation and the person knowingly enters or provides false
6-44 information on any <the> report, return, or other document filed by
6-45 <of> the corporation under this chapter.
6-46 SECTION 21. Subsection (g), Section 171.202, Tax Code, is
6-47 repealed.
6-48 SECTION 22. This Act takes effect January 1, 1996, and
6-49 applies to a report originally due on or after that date.
6-50 SECTION 23. The importance of this legislation and the
6-51 crowded condition of the calendars in both houses create an
6-52 emergency and an imperative public necessity that the
6-53 constitutional rule requiring bills to be read on three several
6-54 days in each house be suspended, and this rule is hereby suspended.
6-55 * * * * *