SRC-ARR, SLL, DBM S.B. 441 76(R)BILL ANALYSIS Senate Research CenterS.B. 441 By: Ellis Finance 8/17/1999 Enrolled DIGEST Currently, Texas' sales tax, when combined with local tax, is among the highest in the nation. By eliminating the sales tax on certain necessary items, Texans will benefit from a less regressive sales tax. S.B. 441 sets forth provisions regarding tax exemptions and credits. PURPOSE As enrolled, S.B. 441 sets forth provisions regarding tax exemptions and credits. RULEMAKING AUTHORITY This bill does not grant any additional rulemaking authority to a state officer, institution, or agency. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 151A, Tax Code, by adding Sections 151.00393 and 151.00394, as follows: Sec. 151.00393. INTERNET. Defines "internet." Sec. 151.00394. INTERNET ACCESS SERVICE. Defines "internet access service." Provides that, on and after October 1, 1999, "internet access service" is not included in the definitions of "data processing service" and "information service." SECTION 2. Amends Section 151.0101(a), Tax Code, to redefine "taxable services." SECTION 3. Amends Section 151.0103, Tax Code, to define "telecommunications services." SECTION 4. Amends Section 151.3111(b), Tax Code, to provide that Subsection (a) does not apply to performance of a service on tangible personal property exempt under Section 151.326, among other items. SECTION 5. Amends Section 151.313(a), Tax Code, to provide that a drug or medicine, without regard to whether it is prescribed or dispensed by a licensed practitioner of the healing arts, that is labeled with a national drug code issued by the federal Food and Drug Administration, and blood glucose monitoring test strips are exempted from certain taxes. Makes conforming changes. SECTION 6. Amends Chapter 151H, Tax Code, by adding Section 151.325, as follows: Sec. 151.325. BASIC FEE FOR INTERNET ACCESS SERVICE. Provides that the sale, use, or other consumption of Internet access service is exempted from the taxes imposed by this chapter in an amount not to exceed the first $25 of a monthly charge. Provides that this exemption applies without regard to certain conditions. Provides that the exemption in this section applies to the total sales price the service provider charges for Internet access to a purchaser, without regard to whether the service provider charges one lump-sum amount or separately bills the purchaser for each user. SECTION 7. Amends Chapter 151H, Tax Code, by adding Section 151.326, as follows: Sec. 151.326. CLOTHING AND FOOTWEAR FOR LIMITED PERIOD. Exempts from tax the sale of an article of clothing or footwear designed to be worn on or about the human body under certain conditions. Provides that this section does not apply to certain items. Authorizes the governing body of a local taxing authority to repeal the application of this exemption in the manner provided by Chapter 326, on or after January 1, 2000. SECTION 8. Amends Chapter 151H, Tax Code, by adding Section 151.351, as follows: Sec. 151.351. INFORMATION SERVICES AND DATA PROCESSING SERVICES. Provides that there is exempted from the taxes imposed by this chapter 20 percent of the value of information services and data processing services. SECTION 9. Amends Title 3C, Tax Code, by adding Chapter 326, as follows: CHAPTER 326. STATE SALES AND USE TAX EXEMPTION IN RELATION TO LOCAL SALES AND USE TAXES Sec. 326.001. APPLICABILITY. Provides that this chapter applies to local sales and use taxes administered and computed under this subtitle and to which this subtitle applies, including certain taxes. Sec. 326.002. STATE EXEMPTIONS. Provides that, notwithstanding any other law, an exemption to the state sales and use tax provided by Chapter 151 does not apply to a local sales and use tax to which this chapter applies if certain requirements are met. Sec. 326.003. REPEAL BY LOCAL TAXING AUTHORITY. Authorizes the governing body of a taxing authority, by a majority vote, to adopt an appropriate order to repeal the application of an exemption described by Section 326.002. Requires the governing body to hold a public hearing before taking a vote. Authorizes a taxing authority that has repealed the application of an exemption under this section to reinstate the exemption in the same manner. Requires a vote of the governing body repealing the application or reinstating exemption to be entered in the minutes of the meeting. Requires the secretary of the taxing authority to send to the comptroller of public accounts (comptroller) a copy of the order adopted under this section. Sec. 326.004. EFFECTIVE DATE. Sets forth the effective date of the repeal of the application of the exemption or a reinstated exemption. SECTION 10. Amends Section 171.002(d), Tax Code, to provides that a corporation is not required to pay any tax and is not considered to owe any tax for a period is the amount of the corporation's gross receipts from its entire business under Section 171.105 is less than $150,000 and from its entire business under Section 171.1051, including the amount excepted under Section 171.1051(a), is less than $150,000. Makes conforming changes. SECTION 11. Amends Section 171.203(a), Tax Code, to make a conforming change. SECTION 12. Amends Section 171.204, Tax Code, to authorize the comptroller to require an officer of a corporation that does not owe any tax because of the application of Section 171.002(d)(2) to file an abbreviated information report with the comptroller stating the amount of the corporation's gross receipts from its entire business. Prohibits the comptroller from requiring a corporation described by this section to file an information report that requires the corporation to report or compute its earned surplus or taxable capital. SECTION 13. Amends Chapter 171, Tax Code, by adding Subchapter N, as follows: SUBCHAPTER N. TAX CREDIT FOR ESTABLISHING DAY-CARE CENTER OR PURCHASING CHILD-CARE SERVICES Sec. 171.701. DEFINITIONS. Defines "day-care center" and "family home." Sec. 171.702. CREDIT. Provides that a corporation that meets the eligibility requirements under this subchapter is entitled to a credit in the amount allowed by this subchapter against the tax imposed under this chapter. Sec. 171.703. CREDIT FOR DAY-CARE CENTER AND PURCHASED CHILD CARE. Authorizes a corporation to claim a credit under this subchapter only for certain qualifying expenditures. Sets forth qualifying expenditures. Sets forth the amount of the credit. Provides that, if a corporation shares in the cost of establishing and operating a day-care center, the corporation is entitled to a credit for the qualifying expenditures made by that corporation, subject to the limitation prescribed by Subsection (c). Sec. 171.704. APPLICATION FOR CREDIT. Requires a corporation to apply for a credit under this subchapter on or with the tax report for the period for which the credit is claimed. Requires the corporation to maintain proof that the services were actually provided to children of employees of the corporation at a day-care center or registered or listed family home. Requires the comptroller to adopt a form for the application for the credit. Requires a corporation to use this form in applying for the credit. Sec. 171.705. PERIOD FOR WHICH CREDIT MAY BE CLAIMED. Authorizes a corporation to claim a credit under this subchapter for qualifying expenditures made during an accounting period only against the tax owed for the corresponding reporting period. Prohibits a corporation from claiming a credit in an amount that exceeds 90 percent of the amount of tax due for the report. Sec. 171.706. ASSIGNMENT PROHIBITED. Prohibits a corporation from conveying, assigning, or transferring the credit to another entity unless all of the assets of the corporation are conveyed, assigned, or transferred in the same transaction. Sec. 171.707. BIENNIAL REPORT BY COMPTROLLER. Requires the comptroller, before the beginning of each regular legislative session, to submit to certain persons a report containing certain information. Requires the final report issued prior to the expiration of this subchapter to include historical information on the credit authorized under this subchapter. Prohibits the comptroller from including in the report information that is confidential by law. Authorizes the comptroller to require a corporation that claims a credit under this subchapter to submit information on the location of the corporation's qualifying expenditures and any other information necessary to complete the report required under this section. SECTION 14. Amends Chapter 171, Tax Code, by adding Subchapter O, as follows: SUBCHAPTER O. TAX CREDIT FOR CERTAIN RESEARCH AND DEVELOPMENT ACTIVITIES Sec. 171.721. DEFINITIONS. Defines "base amount," "basic research payment," "qualified research expense," and "strategic investment area." Sec. 171.722. ELIGIBILITY. Sets forth eligibility for a tax credit under this subchapter. Sec. 171.723. CALCULATION OF CREDIT. Provides that the credit for any report equals five percent of a certain sum. Authorizes the corporation to elect to compute the credit for qualified research expenses incurred in this state in a manner consistent with the alternative incremental credit described in Section 41(c)(4), Internal Revenue Code, only of certain requirements are met for the corresponding federal tax period. Provides that for the purposes of the alternate credit computation method, the credit percentages applicable to qualified research expenses are 0.41 percent, 0.55 percent, and 0.69 percent, depending on the expense. Authorizes a corporation to multiply by two the amount of any qualified research expenses and basic research payments made in a strategic investment area. Provides that the burden of establishing entitlement to and the value of the credit is on the corporation. Defines "gross receipts." Sec. 171.724. LIMITATIONS. Sets forth limitations on the total credit that may be claimed by a corporation under this subchapter. Provides that a corporation that establishes its eligibility for a credit under this subchapter is not eligible to establish a credit under Subchapter P. Sec. 171.725. CARRYFORWARD. Authorizes a corporation to carry forward unused credit for not more than 20 consecutive reports. Provides that a credit carryforward from a previous report is considered to be utilized before the current year credit. Sec. 171.726. DETERMINATION OF STRATEGIC INVESTMENT AREAS. Requires the comptroller to determine areas that qualify as strategic investment areas using the most recently completed full calendar year data available on that date and shall publish a list and map of the designated area. Provides that the designation is effective for the following calendar year for purposes of credits available under this subchapter. Sec. 171.727. BIENNIAL REPORT BY COMPTROLLER. Requires the comptroller, before the beginning of each regular legislative session, to submit to certain persons a report containing certain information. Requires the final report issued prior to the expiration of this subchapter to include historical information on the credit authorized under this subchapter. Prohibits the comptroller from including in the report information that is confidential by law. Authorizes the comptroller to requires a corporation that claims to submit information on the location of the corporation's research expenses and payments in this state and any other information necessary, to complete the report required under this section. Sec. 171.728. COMPTROLLER POWERS AND DUTIES. Requires the comptroller to adopt rules and forms necessary to implement this subchapter. Sec. 171.729. EXPIRATION. Provides that this subchapter expires December 31, 2009. Provides that the expiration of this subchapter does not affect the carryforward of a credit under Section 171.725 or those credits to which a corporation is eligible before the date this subchapter expires. Sec. 171.730. TEMPORARY CREDIT RATES AND LIMITATIONS. Provides that this section applies to a report originally due before January 1, 2002. Sets forth a formula for purposes of computing the credit under Section 171.723(a) for a report described by Subsection (a). Sets forth a formula for purposes of computing the credit under Section 171.723(d) for a report described by Subsection (a). Prohibits the total credit claimed under this subchapter for a report described by Subsection (a) from exceeding 25 percent of the amount of franchise tax due for the report before any other applicable tax credits. Sets forth the credit percentages applicable to qualified research expenses for purposes of the alternate credit computation method in Section 171.723(b). Provides that this section expires January 1, 2002. Provides that the expiration of this section does not affect the carryforward of a credit under Section 171.725 for those credits to which a corporation is eligible before the date this section expires. SECTION 15. Amends Chapter 171, Tax Code, by adding Subchapter P, as follows: SUBCHAPTER P. TAX CREDITS FOR CERTAIN JOB CREATION ACTIVITIES Sec. 171.751. DEFINITIONS. Defines "agricultural processing," "central administrative offices," "county average weekly wage," "data processing," "distribution," "group health benefit plan," "manufacturing," "qualified business," "qualified job," "research and development," "strategic investment area," and "warehousing." Sec. 171.752. ELIGIBILITY. Sets forth the corporation eligible for a credit against the tax imposed under this chapter. Authorizes a corporation to claim a credit or take a carryforward credit without regard to whether the strategic investment area in which it created the qualifying jobs subsequently loses its designation as a strategic investment area. Sec. 171.753. CALCULATION OF CREDIT. Authorizes a corporation to establish a credit equal to 25 percent of the total wages and salaries paid by the corporation for qualifying jobs during the period upon which the tax is based. Sec. 171.754. LENGTH OF CREDIT. Requires the credit established to be claimed in five equal installments of one-fifty the credit amount over the five consecutive reports beginning with the report based upon the period during which the qualifying jobs were created. Sec. 171.755. LIMITATIONS. Prohibits the total credit claimed under this subchapter for a report from exceeding 50 percent of the amount of franchise tax due for the report before any other applicable tax credits. Prohibits the total credit claimed under this subchapter and Subchapters O and Q for a report, including the amount of any carryforward credits, from exceeding the amount of franchise tax due for the report after any other applicable credits. Provides that a corporation that established its eligibility for a credit under this subchapter is not eligible to establish a credit under Subchapter O. Sec. 171.756. CARRYFORWARD. Authorizes a corporation to carryforward any unused credit for not more than five consecutive reports. Provides that a carryforward is considered the remaining portion for an installment that cannot be claimed in the current year because of the tax limitation under Section 171.755. Provides that a carryforward is added to the next year's installment of the credit in determining the tax limitation for that year. Provides that a credit carryforward from a previous report is considered to be utilized before the current year installment. Sec. 171.757. CERTIFICATION OF ELIGIBILITY. Requires a corporation to file with its report information that sufficiently demonstrates that the corporation is eligible for the credit and is in compliance with Section 171.752. Provides that the burden of establishing entitlement to and the value of the credit is on the corporation. Provides that, if, in one of the five years in which the installment of a credit accrues, the number of the corporation's full-time employees falls below the number of full-time employees the corporation had in the year in which the corporation qualified for the credit, the credit expires and the corporation may not take any remaining installment credit. Authorizes the corporation to take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under Section 171.756, notwithstanding Subsection (c). Sec. 171.758. ASSIGNMENT PROHIBITED. Prohibits a corporation from conveying, assigning, or transferring the credit to another entity unless all of the assets of the corporation are conveyed, assigned, or transferred in the same transaction. Sec. 171.759. BIENNIAL REPORT BY COMPTROLLER. Requires the comptroller, before the beginning of each regular legislative session, to submit to certain persons a report containing certain information. Requires the final report issued prior to the expiration of this subchapter to include historical information on the credit authorized under this subchapter. Prohibits the comptroller from including in the report information that is confidential by law. Authorizes the comptroller to require a corporation that claim to submit information on the location of the corporation's research expenses and payments in this state and any other information necessary to complete the report required under this section. Sec. 171.760. COMPTROLLER POWERS AND DUTIES. Requires the comptroller to adopt rules and forms necessary to implement this subchapter. Sec. 171.761. EXPIRATION. Provides that this subchapter expires December 31, 2009. Provides that the expiration of this subchapter does not affect the carryforward of a credit under Section 171.756 or those credits to which a corporation is eligible before the date this subchapter expires. SECTION 16. Amends Chapter 171, Tax Code, by adding Subchapter Q, as follows: SUBCHAPTER Q. TAX CREDITS FOR CERTAIN CAPITAL INVESTMENTS Sec. 171.801. DEFINITIONS. Defines "agricultural processing," "central administrative offices," "county average weekly wage," "data processing," "distribution," "manufacturing," "qualified business," "research and development," "warehousing," "qualified capital investment," and "strategic investment area." Sec. 171.802. ELIGIBILITY. Provides that a qualified business is eligible for a credit against the tax imposed under this chapter in the amount and under the conditions and limitations provided by this subchapter. Sets forth the requirements to qualify for the credit authorized under this subchapter. Authorizes a corporation to claim a credit or take a carryforward credit without regard to whether the strategic investment area in which it made the qualified capital investment subsequently loses its designation as a strategic investment area. Sec. 171.803. CALCULATION OF CREDIT. Authorizes a corporation to establish a credit equal to 7.5 percent of the qualified capital investment during the period upon which the tax is based. Sec. 171.804. LENGTH OF CREDIT. Requires the credit established to be claimed in five equal installments of one-fifth the credit amount over the five consecutive reports beginning with the report based upon the period during which the qualified capital investment was made. Sec. 171.805. LIMITATIONS. Prohibits the total credit claimed under this subchapter for a report from exceeding 50 percent of the amount of franchise tax due for the report before any other applicable tax credits. Prohibits the total credit claimed under this subchapter and Subchapters O and P for a report, including the amount of any carryforward credits, from exceeding the amount of franchise tax due for the report after any other applicable credits. Provides that a corporation that established its eligibility for a credit under this subchapter is not eligible to establish a franchise tax reduction under Section 171.1015. Sec. 171.806. CARRYFORWARD. Authorizes a corporation to carryforward any unused credit for not more than five consecutive reports. Provides that a carryforward is considered the remaining portion for an installment that cannot be claimed in the current year because of the tax limitation under Section 171.805. Provides that a carryforward is added to the next year's installment of the credit in determining the tax limitation for that year. Provides that a credit carryforward from a previous report is considered to be utilized before the current year installment. Sec. 171.807. CERTIFICATION OF ELIGIBILITY. Requires a corporation to file with its report information that sufficiently demonstrates that the corporation is eligible for the credit and is in compliance with Section 171.802. Provides that the burden of establishing entitlement to and the value of the credit is on the corporation. Provides that a credit expires under this subchapter and the corporation may not take any remaining installment of the credit if in one of the five years in which the installment of a credit accrues, the qualified business takes certain actions. Authorizes the corporation to take the portion of an installment that accrued in a previous year and was carried forward to the extent permitted under Section 171.806, notwithstanding Subsection (c). Sec. 171.808. ASSIGNMENT PROHIBITED. Prohibits a corporation from conveying, assigning, or transferring the credit to another entity unless all of the assets of the corporation are conveyed, assigned, or transferred in the same transaction. Sec. 171.809. BIENNIAL REPORT BY COMPTROLLER. Requires the comptroller, before the beginning of each regular legislative session, to submit to certain persons a report containing certain information. Requires the final report issued prior to the expiration of this subchapter to include historical information on the credit authorized under this subchapter. Prohibits the comptroller from including in the report information that is confidential by law. Authorizes the comptroller to require a corporation that claims to submit information on the location of the corporation's research expenses and payments in this state and any other information necessary to complete the report required under this section. Requires the comptroller to provide notice to the member of the legislature that the report required under this section is available on request. Sec. 171.810. COMPTROLLER POWERS AND DUTIES. Requires the comptroller to adopt rules and forms necessary to implement this subchapter. Sec. 171.811. EXPIRATION. Provides that this subchapter expires December 31, 2009. Provides that the expiration of this subchapter does not affect the carryforward of a credit under Section 171.806 or those credits to which a corporation is eligible before the date this subchapter expires. SECTION 17. Amends Chapter 171, Tax Code, by adding Subchapter R, as follows: SUBCHAPTER R. TAX CREDIT FOR CONTRIBUTIONS TO BEFORE AND AFTER SCHOOL PROGRAMS Sec. 171.831. DEFINITION. Defines "school-age child care." Sec. 171.832. CREDIT. Provides that a corporation that meets the eligibility requirements under this subchapter is entitled to a credit in the amount allowed by this subchapter against the tax imposed under this chapter. Sec. 171.833. EXPENDITURES ELIGIBLE FOR CREDIT. Authorizes a corporation to claim a credit under this subchapter only for a qualifying expenditure relating to the operation of a school-age child care program that is operated by certain entities. Sets forth qualifying expenditures. Sec. 171.834. AMOUNT; LIMITATIONS. Provides that the amount of the credit is equal to 30 percent of a corporation's qualifying expenditures. Authorizes a corporation to claim a credit under this subchapter for a qualifying expenditure during an accounting period only against the tax owed for the corresponding reporting period. Prohibits a corporation from claiming a credit in an amount that exceeds 50 percent of the amount of net franchise tax due for the reporting period. Sec. 171.835. APPLICATION FOR CREDIT. Requires a corporation to apply for a credit under this subchapter on or with the tax report for the period for which the credit is claimed. Requires the comptroller to adopt a form for the application for the credit. Requires a corporation to use this form in applying for the credit. Sec. 171.836. ASSIGNMENT PROHIBITED. Prohibits a corporation from conveying, assigning, or transferring the credit to another entity unless all of the assets of the corporation are conveyed, assigned, or transferred in the same transaction. SECTION 18. Authorizes the comptroller to combine the reports required under Subchapters N, O, P, and Q, Chapter 171, Tax Code, as added by this Act, into a single report. SECTION 19. Requires the comptroller, before the beginning of the 79th Legislature, Regular Session, to report to the legislature and the governor on the effect that exempting small corporations from the franchise tax under Section 171.002, Tax Code, as amended by this Act, has had on the economy of this state, including on the creation of new jobs in this state. Sets forth information to be included in the report. Authorizes the comptroller to include the report in any other report made to the legislature. SECTION 20. (a) Effective date: October 1, 1999, except as otherwise provided by this section. (b) Provides that the changes in law made by this Act by amending Section 151.3111(b), Tax Code, and adding Section 151.326, Tax Code, take effect on the earliest day that they may take effect under Section 39, Article III, Texas Constitution. Authorizes the comptroller to adopt emergency rules for the implementation of those provisions. (c) Effective date for Section 151.313(a), as amended by this Act: April 1, 2000. (d) Provides that the changes in law made by this Act by amending Sections 171.002(d), 171.203, and 171.204, Tax Code, and adding Subchapters N, O, P, Q, and R, Chapter 171, Tax Code, take effect January 1, 2000, and apply only to a report originally due on or after that date. (e) Authorizes a corporation to claim a credit under Subchapters N, O, P, Q, and R, Chapter 171, Tax Code, as added by this Act, only for expenses and payments incurred, qualified investments or expenditures made, or new jobs created on or after January 1, 2000. (f) Provides that the changes in law made by this Act do not affect taxes imposed before the effective date of those changes, and the law in effect before the effective date of those changes is continued in effect for purposes of the liability for and collection of those taxes. SECTION 21. Emergency clause.