By Solis, Capelo, Seaman, Martinez Fischer,           H.B. No. 2686
                                A BILL TO BE ENTITLED
 1-1                                   AN ACT
 1-2     relating to tax incentives for certain businesses located in
 1-3     enterprise zones, defense readjustment zones, or strategic
 1-4     investment areas.
 1-5           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
 1-6           SECTION 1. Section 2303.407, Government Code, is amended to
 1-7     read as follows:
 1-8           Sec. 2303.407.  ALLOCATION OF JOBS ELIGIBLE FOR TAX REFUND.
 1-9     When the department designates a business as an enterprise project,
1-10     the department shall allocate to the project the maximum number of
1-11     new permanent jobs or retained jobs eligible to be included in a
1-12     computation of a tax refund for the project.  The number may not
1-13     exceed 250 [625] or a number equal to 110 percent of the number of
1-14     anticipated new permanent jobs or retained jobs specified in the
1-15     application for designation of the business as an enterprise
1-16     project under Section 2303.405, whichever is less.
1-17           SECTION 2. Section 2303.504, Government Code, is amended to
1-18     read as follows:
1-19           Sec. 2303.504.  STATE TAX REFUNDS AND CREDITS [DEDUCTION];
1-20     REPORT.     (a)  Subject to Section 2303.516, an [An] enterprise
1-21     project is entitled to:
1-22                 (1)  a refund of state taxes under Section 151.429, Tax
1-23     Code; and
1-24                 (2)  a franchise tax credit under Subchapter P or Q,
1-25     Chapter 171 [deduction from taxable capital under  Section
 2-1     171.1015], Tax Code.
 2-2           (b)  Subject to Section 2303.516, a [A] qualified business is
 2-3     entitled to a refund of state taxes under Sections 151.431 and
 2-4     171.501, Tax Code.
 2-5           (c)  Not later than the 60th day after the last day of each
 2-6     fiscal year, the comptroller shall report to the department the
 2-7     statewide total of the tax refunds and credits made under this
 2-8     section during that fiscal year.
 2-9           SECTION 3. Subchapter G, Chapter 2303, Government Code, is
2-10     amended by adding Section 2303.516 to read as follows:
2-11           Sec. 2303.516. (a)  The department may monitor a qualified
2-12     business or enterprise project to determine whether and to what
2-13     extent the business or project has followed through on any
2-14     commitments made by it or on its behalf  under this chapter.
2-15           (b)  The department may determine that the business or
2-16     project is not entitled to a refund or credit of state taxes under
2-17     Section 2303.504 if the department finds that:
2-18                 (1)  the business or project is not willing to
2-19     cooperate with the department in providing the department with the
2-20     information the department needs to make the determination under
2-21     Subsection (a); or
2-22                 (2)  the business or project has substantially failed
2-23     to follow through on any commitments made by it or on its behalf
2-24     under this chapter.
2-25           SECTION 4. Section 2310.404, Government Code, is amended to
2-26     read as follows:
2-27           Sec. 2310.404.  STATE TAX REFUNDS AND CREDITS [DEDUCTION];
 3-1     REPORT. (a)  Subject to Section 2310.413, a [A] defense
 3-2     readjustment project is eligible for:
 3-3                 (1)  a refund of state taxes under Section 151.4291,
 3-4     Tax Code;
 3-5                 (2)  a franchise tax credit under Subchapter P or Q,
 3-6     Chapter 171 [deduction from taxable capital under Section
 3-7     171.1016], Tax Code; and
 3-8                 (3)  the exclusion of receipts from service performed
 3-9     in a readjustment zone in the determination of gross receipts from
3-10     business done in this state under Sections 171.103 and 171.1032,
3-11     Tax Code.
3-12           (b)  Not later than the 60th day after the last day of each
3-13     fiscal year, the comptroller shall report to the department the
3-14     statewide total of the tax refunds or credits made under this
3-15     section during that fiscal year.
3-16           SECTION 5. Subchapter F, Chapter 2303, Government Code, is
3-17     amended by adding Section 2310.413 to read as follows:
3-18           Sec. 2310.413. (a)  The department may monitor a defense
3-19     readjustment project to determine whether and to what extent the
3-20     project has followed through on any commitments made by it or on
3-21     its behalf  under this chapter.
3-22           (b)  The department may determine that the defense
3-23     readjustment project is not eligible for state tax refunds and
3-24     credits under Section 2310.404 if the department finds that:
3-25                 (1)  the project is not willing to cooperate with the
3-26     department in providing the department with the information the
3-27     department needs to make the determination under Subsection (a); or
 4-1                 (2)  the project has substantially failed to follow
 4-2     through on its commitments made by it or on its behalf under this
 4-3     chapter.
 4-4           SECTION 6. Sections 151.429(a) and (b), Tax Code, are amended
 4-5     to read as follows:
 4-6           (a)  An enterprise project is eligible for a refund in the
 4-7     amount provided by this section of the taxes imposed by this
 4-8     chapter on purchases of:
 4-9                 (1)  equipment or machinery sold to an enterprise
4-10     project for use in an enterprise zone;
4-11                 (2)  building materials sold to an enterprise project
4-12     for use in remodeling, rehabilitating, or constructing a structure
4-13     in an enterprise zone;
4-14                 (3)  labor for remodeling, rehabilitating, or
4-15     constructing a structure by an enterprise project in an enterprise
4-16     zone; [and]
4-17                 (4)  electricity and natural gas purchased and consumed
4-18     in the normal course of business in the enterprise zone;
4-19                 (5)  tangible personal property purchased and consumed
4-20     in the normal course of business in the enterprise zone; and
4-21                 (6)  taxable services.
4-22           (b)  Subject to the limitations provided by Subsection (c) of
4-23     this section, an enterprise project qualifies for a refund of taxes
4-24     under this section of $5,000 [$2,000] for each new permanent job or
4-25     job that has been retained by the enterprise project for a
4-26     qualified employee.
4-27           SECTION 7. Section 151.4291(a), Tax Code, is amended to read
 5-1     as follows:
 5-2           (a)  A defense readjustment project is eligible for a refund
 5-3     in the amount provided by this section of the taxes imposed by this
 5-4     chapter on purchases of:
 5-5                 (1)  equipment or machinery sold to a defense
 5-6     readjustment project for use in a readjustment zone;
 5-7                 (2)  building materials sold to a defense readjustment
 5-8     project for use in remodeling, rehabilitating, or constructing a
 5-9     structure in a readjustment zone;
5-10                 (3)  labor for remodeling, rehabilitating, or
5-11     constructing a structure by a defense readjustment project in a
5-12     readjustment zone; [and]
5-13                 (4)  electricity and natural gas purchased and consumed
5-14     in the normal course of business in the readjustment zone;
5-15                 (5)  tangible personal property purchased and consumed
5-16     in the normal course of business in the readjustment zone; and
5-17                 (6)  taxable services.
5-18           SECTION 8. Section 171.751, Tax Code, is amended by amending
5-19     Subdivision (9) and adding Subdivisions (13)-(16) to read as
5-20     follows:
5-21                 (9)  "Qualifying job" means a new permanent full-time
5-22     job that:
5-23                       (A)  is located in:
5-24                             (i)  a strategic investment area; [or]
5-25                             (ii)  a county within this state with a
5-26     population of less than 50,000, if the job is created by a business
5-27     primarily engaged in agricultural processing; or
 6-1                             (iii)  an enterprise zone or a readjustment
 6-2     zone, regardless of whether the job meets the qualifications
 6-3     prescribed by Paragraphs (B)-(F), if the job is created by a
 6-4     qualified business that has been designated as an enterprise
 6-5     project or defense readjustment project, respectively;
 6-6                       (B)  requires at least 1,600 hours of work a
 6-7     year;
 6-8                       (C)  pays at least 110 percent of the county
 6-9     average weekly wage for the county where the job is located;
6-10                       (D)  is covered by a group health benefit plan
6-11     for which the business pays at least 80 percent of the premiums or
6-12     other charges assessed under the plan for the employee;
6-13                       (E)  is not transferred from one area in this
6-14     state to another area in this state; and
6-15                       (F)  is not created to replace a previous
6-16     employee.
6-17                 (13)  "Defense readjustment project" means a person
6-18     designated by the Texas Department of Economic Development as a
6-19     defense readjustment project under Chapter 2310, Government Code,
6-20     on or after September 1, 2001.
6-21                 (14)  "Enterprise project" means a person designated by
6-22     the Texas Department of Economic Development as an enterprise
6-23     project under Chapter 2303, Government Code, on or after September
6-24     1, 2001.
6-25                 (15)  "Enterprise zone" has the meaning assigned that
6-26     term by Section 2303.003, Government Code.
6-27                 (16)  "Readjustment zone" has the meaning assigned that
 7-1     term by Section 2310.001, Government Code.
 7-2           SECTION 9. Section 171.752(b), Tax Code, is amended to read
 7-3     as follows:
 7-4           (b)  A corporation may claim a credit or take a carryforward
 7-5     credit without regard to whether the strategic investment area,
 7-6     enterprise zone, or readjustment zone in which it created the
 7-7     qualifying jobs subsequently loses its designation as a strategic
 7-8     investment area, enterprise zone, or readjustment zone, if
 7-9     applicable.
7-10           SECTION 10. Section 171.754, Tax Code, is amended to read as
7-11     follows:
7-12           Sec. 171.754.  LENGTH OF CREDIT. (a)  Except as provided by
7-13     Subsection (b), the [The] credit established shall be claimed in
7-14     five equal installments of one-fifth the credit amount over the
7-15     five consecutive reports beginning with the report based upon the
7-16     period during which the qualifying jobs were created.
7-17           (b)  Subject to Section 171.755, a corporation that has been
7-18     designated as an enterprise project or as a defense readjustment
7-19     project may claim the entire credit earned during an accounting
7-20     period against the taxes imposed for the corresponding reporting
7-21     period.
7-22           SECTION 11. Section 171.801, Tax Code, is amended by amending
7-23     Subdivision (2) and adding Subdivision (4) to read as follows:
7-24                 (2)  "Qualified capital investment" means tangible
7-25     personal property first placed in service in a strategic investment
7-26     area, [or] first placed in service in a county with a population of
7-27     less than 50,000 by a corporation primarily engaged in agricultural
 8-1     processing, or first placed in service in an enterprise zone or
 8-2     defense readjustment zone by a qualified business that has been
 8-3     designated as an enterprise project or readjustment project,
 8-4     respectively, and that is described in Section 1245(a), Internal
 8-5     Revenue Code, such as engines, machinery, tools, and implements
 8-6     used in a trade or business or held for investment and subject to
 8-7     an allowance for depreciation, cost recovery under the accelerated
 8-8     cost recovery system, or amortization.  The term does not include
 8-9     real property or buildings and their structural components.
8-10     Property that is leased under a capitalized lease is considered a
8-11     "qualified capital investment," but property that is leased under
8-12     an operating lease is not considered a "qualified capital
8-13     investment."  Property expensed under Section 179, Internal Revenue
8-14     Code, is not considered a "qualified capital investment."
8-15                 (4)  "Defense readjustment project," "enterprise
8-16     project," "enterprise zone," and "readjustment zone" have the
8-17     meanings assigned by Section 171.751.
8-18           SECTION 12. Section 171.802(c), Tax Code, is amended to read
8-19     as follows:
8-20           (c)  A corporation may claim a credit or take a carryforward
8-21     credit without regard to whether the strategic investment area,
8-22     enterprise zone, or readjustment zone in which it made the
8-23     qualified capital investment subsequently loses its designation as
8-24     a strategic investment area, enterprise zone, or readjustment zone,
8-25     if applicable.
8-26           SECTION 13. Section 171.804, Tax Code, is amended to read as
8-27     follows:
 9-1           Sec. 171.804.  LENGTH OF CREDIT. (a)  Except as provided by
 9-2     Subsection (b), the [The] credit established shall be claimed in
 9-3     five equal installments of one-fifth the credit amount over the
 9-4     five consecutive reports beginning with the report based upon the
 9-5     period during which the qualified capital investment was made.
 9-6           (b)  Subject to Section 171.805, a corporation that has been
 9-7     designated as an enterprise project or as a defense readjustment
 9-8     project may claim the entire credit earned during an accounting
 9-9     period against the taxes imposed for the corresponding reporting
9-10     period.
9-11           SECTION 14.  Section 171.721, Tax Code, is amended to read as
9-12     follows:
9-13           Sec. 171.721.  DEFINITIONS. In this subchapter:
9-14                 (1)  "Base amount," "basic research payment," and
9-15     "qualified research expense" have the meanings assigned those terms
9-16     by Section 41, Internal Revenue Code, except that all such payments
9-17     and expenses must be for research conducted within this state.
9-18                 (2)  "Strategic investment area" means an area that is
9-19     determined by the comptroller under Section 171.726 that is:
9-20                       (A)  a county within this state with above state
9-21     average unemployment and below state average per capita income;
9-22     [or]
9-23                       (B)  an area within this state that is a
9-24     federally designated urban enterprise community or an urban
9-25     enhanced enterprise community; or
9-26                       (C)  a county within this state that has a
9-27     spaceport, as defined by Section 4D, Development Corporation Act of
 10-1    1979 (Article 5190.6, Vernon's Texas Civil Statutes), as added by
 10-2    Chapter 1537, Acts of the 76th Legislature, Regular Session, 1999,
 10-3    within its boundaries.
 10-4          SECTION 15. Sections 171.1015, 171.1016, and 171.805(c), Tax
 10-5    Code, are repealed.
 10-6          SECTION 16. (a)  Except as provided by Subsection (b) of this
 10-7    section, this Act takes effect September 1, 2001.  The changes in
 10-8    law made by this Act apply only to an enterprise project or defense
 10-9    readjustment project designated by the Texas Department of Economic
10-10    Development as such a project on or after September 1, 2001.  An
10-11    enterprise project or defense readjustment project designated
10-12    before that date is governed by the law in effect on the date it
10-13    was designated, and that law is continued in effect for that
10-14    purpose.
10-15          (b)  Sections 8-13 of this Act take effect January 1, 2003,
10-16    and apply to a report originally due on or after that date.
10-17    Notwithstanding any other law, an enterprise project or defense
10-18    readjustment project designated on or after January 1, 2001, may,
10-19    beginning on the date the project is designated, establish credits
10-20    as provided by the changes in law made by Sections 8-13 of this Act
10-21    but may only claim the credits on reports due on or after January
10-22    1, 2003.
10-23          (c)  Subject to Section 151.429(f), Tax Code, an enterprise
10-24    project or defense readjustment project designated on or after
10-25    September 1, 2001, may apply for a refund for which the project is
10-26    entitled under Sections 151.429(a)(1)-(4), Tax Code, as provided by
10-27    Section 151.429, Tax Code.  The comptroller may pay the refund as
 11-1    provided by Section 151.429, Tax Code, and other law.
 11-2          (d)  Subject to Section 151.429(f), Tax Code, an enterprise
 11-3    project or defense readjustment project designated on or after
 11-4    September 1, 2001, may accrue the right to a refund for which the
 11-5    project is entitled under Sections 151.429(a)(5) and (6), Tax Code,
 11-6    as added by this Act, and may apply for that refund as provided by
 11-7    Section 151.429, Tax Code.  However, the comptroller may not pay a
 11-8    refund described by this subsection before September 1, 2003.
 11-9    Notwithstanding any other law, for purposes of determining whether
11-10    interest accrues on a refund application submitted before September
11-11    1, 2003, the comptroller is considered to have made a final
11-12    decision on the application for the refund on September 1, 2003.
11-13          (e)  The change in law made by this Act does not affect taxes
11-14    imposed before the effective date of this Act, and the former law
11-15    is continued in effect for purposes of the liability for and
11-16    collection of those taxes.