By Delisi                                             H.B. No. 2235
         Line and page numbers may not match official copy.
         Bill not drafted by TLC or Senate E&E.
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to franchise tax incentives for desalination devices.
 1-3           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-4           SECTION 1. The Tax Code is amended to include Section 171.089
 1-5     to read as follows:
 1-6           Sec. 171.089.  EXEMPTION - CORPORATION WITH BUSINESS INTEREST
 1-7     IN DESALINATION DEVICES. (a)  In this section, "brine" means water
 1-8     that contains a high concentration of salt that is discharged from
 1-9     desalination systems or mechanisms, and may include constituents
1-10     used in pretreatment processes, in addition to the high salt
1-11     concentration seawater.
1-12           (b)  In this section, "desalination device" means a system or
1-13     series of mechanisms designed primarily to remove salt from
1-14     seawater and produce as outputs desalted water and brine.
1-15           (c)  A corporation engaged soley in the business of
1-16     manufacturing, selling, or installing desalination devices is
1-17     exempted from the franchise tax.
1-18           SECTION 2.  The Tax Code is amended to include Section
1-19     171.901 to read as follows:
1-20           Sec. 171.901.  DEDUCTION OF COST OF DESALINATION DEVICE FROM
1-21     TAXABLE CAPITAL OR TAXABLE EARNED SURPLUS APPORTIONED TO THIS
1-22     STATE. (a)  In this section, "desalination device" has the meaning
 2-1     assigned it in Section 171.089 of this code.
 2-2           (b)  A corporation may deduct from its apportioned taxable
 2-3     capital the amortized cost of a desalination device or from its
 2-4     apportioned taxable earned surplus 10 percent of the amortized cost
 2-5     of a desalination device if:
 2-6                 (1)  the device is acquired by the corporation for
 2-7     removing salt from seawater;
 2-8                 (2)  the device is used in this state by the
 2-9     corporation; and
2-10                 (3)  the cost of the device is amortized in accordance
2-11     with Subsection (c) of this section.
2-12           (c)  The amortization of the cost of a desalination device
2-13     must:
2-14                 (1)  be for a period of at least 60 months;
2-15                 (2)  provide for equal monthly amounts;
2-16                 (3)  begin on the month in which the device is placed
2-17     in service in this state; and
2-18                 (4)  cover only a period in which the device is in use
2-19     in this state.
2-20           (d)  A corporation that makes a deduction under this section
2-21     shall file with the comptroller an amortization schedule showing
2-22     the period in which a deduction is to be made.  On the request of
2-23     the comptroller, the corporation shall file with the comptroller
2-24     proof of the cost of the desalination device or proof of the
2-25     device's operation in this state.
2-26           (e)  A corporation may elect to make the deduction authorized
 3-1     by this section either from apportioned taxable capital or
 3-2     apportioned taxable earned surplus for each separate regular annual
 3-3     period.  An election for an initial period applies to the second
 3-4     tax period and to the first regular annual period.
 3-5           SECTION 3. EFFECTIVE DATE. (a)  This Act takes effect January
 3-6     1, 2002, and applies only to a report due on or after that date.
 3-7           (b)  A corporation may claim an exemption or deduction under
 3-8     Sections 171.089 and 171.901, Tax Code, as added by this Act, only
 3-9     for an expenditure made on or after January 1, 2002.