AN ACT

 1-1     relating to the administration of franchise taxes; imposing

 1-2     penalties.

 1-3           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

 1-4           SECTION 1.  Subdivisions (3) and (5), Subsection (b), Section

 1-5     171.001, Tax Code, are amended to read as follows:

 1-6                 (3)  "Corporation" includes:

 1-7                       (A)  a limited liability company, as defined

 1-8     under the Texas Limited Liability Company Act; [and]

 1-9                       (B)  a state or federal savings and loan

1-10     association; and

1-11                       (C)  a banking corporation.

1-12                 (5)  "Internal Revenue Code" means the Internal Revenue

1-13     Code of 1986 in effect for the federal tax year beginning on or

1-14     after January 1, 1996 [1994], and before January 1, 1997 [1995],

1-15     and any regulations adopted under that code applicable to that

1-16     period.

1-17           SECTION 2.  Subsections (b) and (d), Section 171.002, Tax

1-18     Code, are amended to read as follows:

1-19           (b)  The amount of franchise tax on each corporation[, except

1-20     as provided in Subsection (d),] is computed by adding the

1-21     following:

1-22                 (1)  the amount calculated by applying the tax rate

1-23     prescribed by Subsection (a)(1) to the corporation's net taxable

 2-1     capital; and

 2-2                 (2)  the difference between:

 2-3                       (A)  the amount calculated by applying the tax

 2-4     rate prescribed by Subsection (a)(2) to the corporation's net

 2-5     taxable earned surplus; and

 2-6                       (B)  the amount determined under Subdivision (1).

 2-7           (d)  If the amount of tax computed [under Subsection (b)] for

 2-8     a corporation is less than $100, the corporation is not required to

 2-9     pay that amount and is not considered to owe any tax for that

2-10     period.

2-11           SECTION 3.  Subsection (c), Section 171.063, Tax Code, is

2-12     amended to read as follows:

2-13           (c)  A corporation's exemption under Subsection (b) of this

2-14     section is [may be] established by furnishing the comptroller with

2-15     a copy of the Internal Revenue Service's letter of exemption issued

2-16     to the corporation.  The copy of the letter must [may] be filed

2-17     with the comptroller within 15 months after the day that is the

2-18     last day of a calendar month and that is nearest to the date of the

2-19     corporation's charter or certificate of authority.

2-20           SECTION 4.  Section 171.102, Tax Code, is amended by adding

2-21     Subsection (d) to read as follows:

2-22           (d)  This section applies only to the computation of a

2-23     corporation's taxable capital under Section 171.101 of this code.

2-24           SECTION 5.  Section 171.103, Tax Code, is  amended to read as

2-25     follows:

 3-1           Sec. 171.103.  DETERMINATION OF GROSS RECEIPTS FROM BUSINESS

 3-2     DONE IN THIS STATE FOR TAXABLE CAPITAL.  In apportioning taxable

 3-3     capital, the gross receipts of a corporation from its business done

 3-4     in this state is the sum of the corporation's receipts from:

 3-5                 (1)  each sale of tangible personal property if the

 3-6     property is delivered or shipped to a buyer in this state

 3-7     regardless of the FOB point or another condition of the sale, and

 3-8     each sale of tangible personal property shipped from this state to

 3-9     a purchaser in another state in which the seller is not subject to

3-10     taxation;

3-11                 (2)  each service performed in this state;

3-12                 (3)  each rental of property situated in this state;

3-13                 (4)  [each royalty for] the use of a patent, [or]

3-14     copyright, trademark, franchise, or license in this state; [and]

3-15                 (5)  each sale of real property located in this state,

3-16     including royalties from oil, gas, or other mineral interests; and

3-17                 (6)  other business done in this state.

3-18           SECTION 6.  Subsection (a), Section 171.1032, Tax Code, is

3-19     amended to read as follows:

3-20           (a)  Except for the gross receipts of a corporation that are

3-21     subject to the provisions of Section 171.1061, in apportioning

3-22     taxable earned surplus, the gross receipts of a corporation from

3-23     its business done in this state is the sum of the corporation's

3-24     receipts from:

3-25                 (1)  each sale of tangible personal property if the

 4-1     property is delivered or shipped to a buyer in this state

 4-2     regardless of the FOB point or another condition of the sale, and

 4-3     each sale of tangible personal property shipped from this state to

 4-4     a purchaser in another state in which the seller is not subject to

 4-5     any tax on, or measured by, net income, without regard to whether

 4-6     the tax is imposed;

 4-7                 (2)  each service performed in this state;

 4-8                 (3)  each rental of property situated in this state;

 4-9                 (4)  [each royalty for] the use of a patent, [or]

4-10     copyright, trademark, franchise, or license in this state; [and]

4-11                 (5)  each sale of real property located in this state,

4-12     including royalties from oil, gas, or other mineral interests; and

4-13                 (6)  other business done in this state.

4-14           SECTION 7.  Section 171.106, Tax Code, is amended to read as

4-15     follows:

4-16           Sec. 171.106.  APPORTIONMENT OF TAXABLE CAPITAL AND TAXABLE

4-17     EARNED SURPLUS TO THIS STATE.  (a)  Except as provided by

4-18     Subsections [Subsection] (c) and (d), a corporation's taxable

4-19     capital is apportioned to this state to determine the amount of the

4-20     tax imposed under Section 171.002(b)(1) by multiplying the

4-21     corporation's taxable capital by a fraction, the numerator of which

4-22     is the corporation's gross receipts from business done in this

4-23     state, as determined under Section 171.103 or 171.1031, as

4-24     applicable, and the denominator of which is the corporation's gross

4-25     receipts from its entire business, as determined under Section

 5-1     171.105.

 5-2           (b)  Except as provided by Subsections [Subsection] (c) and

 5-3     (d), a corporation's taxable earned surplus is apportioned to this

 5-4     state to determine the amount of tax imposed under Section

 5-5     171.002(b)(2) by multiplying the taxable earned surplus by a

 5-6     fraction, the numerator of which is the corporation's gross

 5-7     receipts from business done in this state, as determined under

 5-8     Section 171.1031 or 171.1032, as applicable, and the denominator of

 5-9     which is the corporation's gross receipts from its entire business,

5-10     as determined under Section 171.1051.

5-11           (c)  A corporation's taxable capital or earned surplus that

5-12     is derived, directly or indirectly, from the sale of management,

5-13     distribution, or administration services to or on behalf of a

5-14     regulated investment company, including a corporation that includes

5-15     trustees or sponsors of employee benefit plans that have accounts

5-16     in a regulated investment company, is apportioned to this state to

5-17     determine the amount of the tax imposed under Section 171.002 by

5-18     multiplying the corporation's total taxable capital or earned

5-19     surplus from the sale of services to or on behalf of a regulated

5-20     investment company by a fraction, the numerator of which is the

5-21     average of the sum of shares owned at the beginning of the year and

5-22     the  sum of shares owned at the end of the year by the investment

5-23     company shareholders who are commercially domiciled in this state

5-24     or, if the shareholders are individuals, are residents of this

5-25     state, and the denominator of which is the average of the sum of

 6-1     shares owned at the beginning of the year and the sum of shares

 6-2     owned at the end of the year by all investment company

 6-3     shareholders.  The corporation shall make a separate computation to

 6-4     allocate taxable capital and earned surplus.  In this subsection,

 6-5     "regulated investment company" has the meaning assigned by Section

 6-6     851(a), Internal Revenue Code.

 6-7           (d)  A corporation's taxable capital or taxable earned

 6-8     surplus that is derived, directly or indirectly, from the sale of

 6-9     management, administration, or investment services to an employee

6-10     retirement plan is apportioned to this state to determine the

6-11     amount of the tax imposed under Section 171.002 by multiplying the

6-12     corporation's total taxable capital or earned surplus from the sale

6-13     of services to an employee retirement plan company by a fraction,

6-14     the numerator of which is the average of the sum of beneficiaries

6-15     domiciled in Texas at the beginning of the year and the sum of

6-16     beneficiaries domiciled in Texas at the end of the year, and the

6-17     denominator of which is the average of the sum of all beneficiaries

6-18     at the beginning of the year and the sum of all beneficiaries at

6-19     the end of the year.  The corporation shall make a separate

6-20     computation to apportion taxable capital and earned surplus.  In

6-21     this section, "employee retirement plan" means a plan or other

6-22     arrangement that is qualified under Section 401(a), Internal

6-23     Revenue Code, or satisfies the requirements of Section 403,

6-24     Internal Revenue Code, or a government plan described in Section

6-25     414(d), Internal Revenue Code.  The term does not include an

 7-1     individual retirement account or individual retirement annuity

 7-2     within the meaning of Section 408, Internal Revenue Code.

 7-3           (e)  On or before January 1, 1998, each entity registered

 7-4     with the State Securities Board under The Securities Act (Article

 7-5     581, Vernon's Texas Civil Statutes) that provides management,

 7-6     administration, or investment services to an employee retirement

 7-7     plan, must file a report with the comptroller containing such

 7-8     information as the comptroller deems necessary in order to

 7-9     determine the fiscal impact of Subsection (d).  The State

7-10     Securities Board and the Securities Commissioner shall cooperate

7-11     with the comptroller in obtaining the information.  The Securities

7-12     Commissioner shall impose the penalties provided in The Securities

7-13     Act (Article 581-1 et seq., Vernon's Texas Civil Statutes) against

7-14     any entity that the comptroller certifies is delinquent in the

7-15     filing of the report required by this section.

7-16           (f)  On or before September 1, 1998, the comptroller shall

7-17     issue a report which evaluates the statewide fiscal impact of

7-18     Subsection (d).  If the comptroller determines that implementing

7-19     Subsection (d) will not have a negative fiscal impact on this

7-20     state, Subsection (d) shall be effective for reports or returns

7-21     originally due on or after January 1, 1999.  If the comptroller

7-22     determines that there will be a negative fiscal impact, that

7-23     subsection shall not be implemented.

7-24           (g)  If this Act and another Act of the 75th Legislature,

7-25     Regular Session, 1997, make the same substantive change from the

 8-1     current law but differ in text, this Act prevails regardless of the

 8-2     relative dates of enactment.

 8-3           SECTION 8.  Subsection (d), Section 171.109, Tax Code, is

 8-4     amended to read as follows:

 8-5           (d)  A corporation shall report its surplus based solely on

 8-6     its own financial condition.  Consolidated reporting of [the]

 8-7     surplus [of related corporations] is prohibited.

 8-8           SECTION 9.  Section 171.110, Tax Code, is amended by adding

 8-9     Subsection (h) to read as follows:

8-10           (h)  A corporation shall report its net taxable earned

8-11     surplus based solely on its own financial condition.  Consolidated

8-12     reporting is prohibited.

8-13           SECTION 10.  Subsection (d), Section 171.112, Tax Code, is

8-14     amended to read as follows:

8-15           (d)  A corporation shall report its gross receipts based

8-16     solely on its own financial condition.  Consolidated reporting [of

8-17     related corporations] is prohibited.

8-18           SECTION 11.  Subsection (c), Section 171.1121, Tax Code, is

8-19     amended to read as follows:

8-20           (c)  A corporation shall report its gross receipts based

8-21     solely on its own financial condition.  Consolidated reporting [of

8-22     related corporations] is prohibited.

8-23           SECTION 12.  Section 171.202, Tax Code, is amended by

8-24     amending Subsections (c), (d), and (e) and adding Subsection (i) to

8-25     read as follows:

 9-1           (c)  The comptroller shall grant an extension of time to a

 9-2     corporation that is not required by rule to make its tax payments

 9-3     by electronic funds transfer for the filing of a report required by

 9-4     this section to any date on or before the next November 15, if a

 9-5     corporation:

 9-6                 (1)  requests the extension, on or before May 15, on a

 9-7     form provided by the comptroller; and

 9-8                 (2)  remits with the request:

 9-9                       (A)  not less than 90 percent of the amount of

9-10     tax reported as due on the report filed on or before November 15;

9-11     or

9-12                       (B)  100 percent of the tax reported as due for

9-13     [paid in] the previous calendar year on the report due in the

9-14     previous calendar year and filed on or before May 14.

9-15           (d)  In the case of a taxpayer whose previous return was its

9-16     initial report, the optional payment provided under Subsection

9-17     (c)(2)(B) or (e)(2)(B) must be equal to the greater of:

9-18                 (1)  an amount produced by multiplying the net taxable

9-19     capital, as reported [required to be shown] on the initial report

9-20     filed on or before May 14, by the rate of tax in Section

9-21     171.002(a)(1) that [which] is effective January 1 of the year in

9-22     which the report is due; or

9-23                 (2)  an [the] amount produced by multiplying the [paid

9-24     on] net taxable earned surplus, as reported [required] on the

9-25     initial report filed on or before May 14, by the rate of tax in

 10-1    Section 171.002(a)(2) that is effective January 1 of the year in

 10-2    which the report is due.

 10-3          (e)  The comptroller shall grant an extension of time for the

 10-4    filing of a report required by this section by a corporation

 10-5    required by rule to make its tax payments by electronic funds

 10-6    transfer to any date on or before the next August 15, if the

 10-7    corporation:

 10-8                (1)  requests the extension, on or before May 15, on a

 10-9    form provided by the comptroller; and

10-10                (2)  remits with the request:

10-11                      (A)  not less than 90 percent of the amount of

10-12    tax reported as due on the report filed on or before August 15; or

10-13                      (B)  100 percent of the tax reported as due for

10-14    [paid in] the previous calendar year on the report due in the

10-15    previous calendar year and filed on or before May 14.

10-16          (i)  If a corporation requesting an extension under

10-17    Subsection (c) or (e) does not file the report due in the previous

10-18    calendar year on or before May 14, the corporation may not receive

10-19    an extension under Subsection (c) or (e) unless the corporation

10-20    complies with Subsection (c)(2)(A) or (e)(2)(A), as appropriate.

10-21          SECTION 13.  Subsection (d), Section 171.203, Tax Code, is

10-22    amended to read as follows:

10-23          (d)  The corporation shall send a copy of the report to each

10-24    person named in the report under Subsection (a)(3) who is not

10-25    currently employed by the corporation or a related corporation

 11-1    listed in Subsection (a)(1) or (2).  An officer or director of the

 11-2    corporation or another authorized person must sign the report under

 11-3    a certification that:

 11-4                (1)  all information contained in the report is true

 11-5    and correct to the best of the person's [officer's] knowledge; and

 11-6                (2)  a copy of the report has been mailed to each

 11-7    person identified in this subsection on the date the return is

 11-8    filed.

 11-9          SECTION 14.  Subchapter E, Chapter 171, Tax Code, is amended

11-10    by adding Section 171.212 to read as follows:

11-11          Sec. 171.212.  REPORT OF CHANGES TO FEDERAL INCOME TAX

11-12    RETURN.  (a)  A corporation must file an amended report under this

11-13    chapter if:

11-14                (1)  the corporation's net taxable earned surplus is

11-15    changed as the result of an audit or other adjustment by the

11-16    Internal Revenue Service or another competent authority; or

11-17                (2)  the corporation files an amended federal income

11-18    tax return or other return that changes the corporation's net

11-19    taxable earned surplus.

11-20          (b)  The corporation shall file the amended report under

11-21    Subsection (a)(1) not later than the 120th day after the date the

11-22    revenue agent's report or other adjustment is final.  For purposes

11-23    of this subsection, a revenue agent's report or other adjustment is

11-24    final on the date on which  all administrative appeals with the

11-25    Internal Revenue Service or other competent authority have been

 12-1    exhausted or waived.

 12-2          (c)  The corporation shall file the amended report under

 12-3    Subsection (a)(2) not later than the 120th day after the date the

 12-4    corporation files the amended federal income tax return or other

 12-5    return.  For purposes of this subsection, a corporation is

 12-6    considered to have filed an amended federal income tax return if

 12-7    the corporation is a member of an affiliated group during a period

 12-8    in which an amended consolidated federal income tax report is

 12-9    filed.

12-10          (d)  If a corporation fails to comply with this section, the

12-11    corporation is liable for a penalty of 10 percent of the tax that

12-12    should have been reported under this section and that had not

12-13    previously been reported to the comptroller.  The penalty

12-14    prescribed by this subsection is in addition to any other penalty

12-15    provided by law.

12-16          SECTION 15.  (a)  Except as provided by Subsections (b) and

12-17    (c) of this section, this Act takes effect January 1, 1998, and

12-18    applies to a report originally due on or after that date.

12-19          (b)  Section 171.212, Tax Code, as added by this Act, takes

12-20    effect on the earliest date that it may take effect under Section

12-21    39, Article III, Texas Constitution.

12-22          (c)  Subsection (d), Section 171.106, Tax Code, as added by

12-23    this Act, takes effect for all reports originally due on or after

12-24    the date the comptroller of public accounts determines that the

12-25    implementation of Subsection (d), Section 171.106, Tax Code, will

 13-1    not have a negative fiscal impact on the state, but in no case

 13-2    earlier than January 1, 1999.  If the comptroller determines that

 13-3    implementing Subsection (d), Section 171.106, Tax Code, will result

 13-4    in a negative fiscal impact, that subsection has no effect.

 13-5          SECTION 16.  The legislature intends that each change in law

 13-6    made to the following sections of the Tax Code by this Act be

 13-7    considered as a clarification of existing law and not imply that

 13-8    the existing law may be construed as inconsistent with the law as

 13-9    amended by this Act:

13-10                (1)  171.001(b)(3);

13-11                (2)  171.103(5);

13-12                (3)  171.1032(a)(5);

13-13                (4)  171.106(c);

13-14                (5)  171.109(d);

13-15                (6)  171.110;

13-16                (7)  171.112(d); and

13-17                (8)  171.1121(c).

13-18          SECTION 17.  The importance of this legislation and the

13-19    crowded condition of the calendars in both houses create an

13-20    emergency and an imperative public necessity that the

13-21    constitutional rule requiring bills to be read on three several

13-22    days in each house be suspended, and this rule is hereby suspended,

13-23    and that this Act take effect and be in force according to its

13-24    terms, and it is so enacted.

         _______________________________     _______________________________

             President of the Senate              Speaker of the House

               I hereby certify that S.B. No. 861 passed the Senate on

         April 3, 1997, by the following vote:  Yeas 31, Nays 0; and that

         the Senate concurred in House amendment on May 30, 1997, by the

         following vote:  Yeas 31, Nays 0.

                                             _______________________________

                                                 Secretary of the Senate

               I hereby certify that S.B. No. 861 passed the House, with

         amendment, on May 27, 1997, by the following vote:  Yeas 148,

         Nays 0, one present not voting.

                                             _______________________________

                                                 Chief Clerk of the House

         Approved:

         _______________________________

                     Date

         _______________________________

                   Governor