LEGISLATIVE BUDGET BOARD
                                   Austin, Texas
         
                                   FISCAL NOTE
                               75th Regular Session
         
                                  April 7, 1997
         
         
      TO: Honorable David Sibley, Chair            IN RE:  Senate Bill No. 555
          Committee on Economic Development                              By: Sibley
          Senate
          Austin, Texas
         
         
         
         
         FROM:  John Keel, Director    
         
In response to your request for a Fiscal Note on SB555 ( Relating 
to certain business organizations.) this office has detemined 
the following:
         
         Biennial Net Impact to General Revenue Funds by SB555-As Introduced
         
Implementing the provisions of the bill would result in a net 
negative impact of $(5,604,080) to General Revenue Related Funds 
through the biennium ending August 31, 1999.
         
The bill would make no appropriation but could provide the legal 
basis for an appropriation of funds to implement the provisions 
of the bill.
         
 
Fiscal Analysis
 
This bill would amend various portions of the Texas Business 
Corporation Act, the Texas Miscellaneous Corporation Laws Act, 
the Texas Limited Liability Company Act, the Texas Revised Limited 
Partnership Act, and the Texas Revised Partnership Act.  This 
bill would add the Business Combination Law as part of the Texas 
Business Corporation Act.

In addition, the bill would amend 
sections 171.252 and 171.255 of the Tax Code, relating to the 
liability of corporate officers in cases of non-payment of state 
taxes and fees.  Current law provides that, when a corporation 
fails to pay its franchise tax, the firm's officers become personally 
liable for all debts of the corporation.  This bill would lower 
the standard of personal liability to a standard based only 
on payment of state taxes and fees.

This bill would take 
effect September 1, 1997 and would apply to all entities affected 
regardless of the date of formation or incorporation.
 
Methodolgy
 
The changes to the business organization statutes would provide 
for a business reorganization process to be known as a "conversion," 
in which a combination of two business entities occurs.  In 
addition, the bill would provide statutory recognition to shareholder 
agreements.  The bill also would provide for the electronic 
filing of documents with the Secretary of State.

The Secretary 
of State estimates that amendments to the Texas Revised Partnership 
Act would have a positive impact on general revenue from filing 
fees for qualification of foreign limited liability partnerships. 
 The Secretary of State projects that this revenue would be 
$136,500 in fiscal year 1998 and increasing amounts in subsequent 
years.

The prospect of personal liability for officers for 
all debts of the corporation is considered a significant franchise 
tax self-enforcement mechanism but the Comptroller of Public 
Accounts projects that changes made by the bill would seriously 
diminish the effectiveness of the self-enforcement mechanism. 
 This fiscal note assumes that additional tax delinquencies 
would result from the diminished motivation to remit franchise 
taxes.  The fiscal impact is the amount of tax otherwise due 
from delinquent franchise taxpayers that would not be collected 
because the firm's tax liability fell below the minimum threshold 
for enforcement action.

This fiscal note does not include 
a fiscal effect for additional franchise tax delinquencies for 
which enforcement action would be anticipated.
The probable fiscal implications of implementing the provisions 
of the bill during each of the first five years following passage 
is estimated as follows:
 
Five Year Impact:
 
Fiscal Year Probable Revenue   Probable Revenue   
            Gain/(Loss) from   Gain/(Loss) from                                                           
            General Revenue    General Revenue                                                            
            Fund               Fund                                                                       
            0001               0001                                                                        
       1998      ($2,891,000)          $136,500                                                      
       1998       (2,997,000)           147,420                                                      
       2000       (3,079,000)           159,213                                                      
       2001       (3,238,000)           171,950                                                      
       2002       (3,560,000)           185,706                                                      
 
 
         Net Impact on General Revenue Related Funds:
 
The probable fiscal implication to General Revenue related funds 
during each of the first five years is estimated as follows:
 
              Fiscal Year      Probable Net Postive/(Negative)
                               General Revenue Related Funds
                                             Funds
               1998         ($2,754,500)
               1999          (2,849,580)
               2000          (2,919,787)
               2001          (3,066,050)
               2002          (3,374,294)
 
Similar annual fiscal implications would continue as long as 
the provisions of the bill are in effect.
          
No fiscal implication to units of local government is anticipated.
          
   Source:            Agencies:   304   Comptroller of Public Accounts
                                         307   Secretary of State
                                         
                      LBB Staff:   JK ,TH ,JC