LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 77th Regular Session
  
                              April 8, 2001
  
  
          TO:  Honorable Rene Oliveira, Chair, House Committee on Ways &
               Means
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  HB3350  by Keffer (Relating to the calculation of the
               franchise tax.), As Introduced
  
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*  No significant fiscal implication to the State is anticipated.        *
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The bill amends franchise tax law, Chapter 171 of the Tax Code, amending
the definition of "Internal Revenue Code" to refer to the code in effect
for the federal tax year beginning on or after January 1, 2000, and
before January 1, 2001.  The estimated net effect of the changes would be
to increase franchise tax liability by about $24 million in the upcoming
biennium.

The bill amends the provision regarding a subsidiary corporation's
qualification for excluding officers' and directors' compensation from
earned surplus.  A subsidiary corporation would not qualify for the
exclusion if it had a parent corporation that did not qualify.  The
changes related to a subsidiary corporation's qualification to exclude
officers' and directors' compensation would be a clarification of
existing Comptroller policy and thus would have no fiscal impact.

Under current law, there is no definition of a "parent corporation."
This bill would clarify that a corporation is a parent corporation, if it
controls the subsidiary corporation either directly or indirectly.
 
The bill limits to 25 the number of officers and directors whose
compensation must be included in earned surplus.  If a corporation has
more than 25 officers and directors, the bill requires that the
compensation of the 25 highest-compensated officers (executive officers
if a bank) or directors be added back to earned surplus.  The bill
strikes the language in current law regarding who is presumed to be an
officer of a corporation.  The limitation on the number of officers and
directors whose compensation must be added back to earned surplus would
reduce taxpayers' liabilities.  The fiscal impact was estimated using
data from the franchise tax files and information on the number of
officers at large corporations.  With the limit set at the 25
highest-compensated officers or directors, the saving realized by
taxpayers would be approximately equal to the additional liability
incurred from adopting the more recent Internal Revenue Code provisions,
thereby yielding no fiscal implications to the state for the bill in
total.

The bill would take effect January 1, 2002, and it would apply to reports
originally due on or after that date.
  
Local Government Impact
  
No fiscal implication to units of local government is anticipated.
  
  
Source Agencies:   304   Comptroller of Public Accounts
LBB Staff:         JK, SD, WP, CT