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