LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 77th Regular Session
  
                                May 7, 2001
  
  
          TO:  Honorable Rene Oliveira, Chair, House Committee on Ways &
               Means
  
        FROM:  John Keel, Director, Legislative Budget Board
  
       IN RE:  SB1689  by Ellis, Rodney (Relating to the franchise
               tax.), As Engrossed
  
**************************************************************************
*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  SB1689, As Engrossed:  negative impact of $(300,000,000) through      *
*  the biennium ending August 31, 2003.                                  *
**************************************************************************
  
General Revenue-Related Funds, Five-Year Impact:
  
          ****************************************************
          *  Fiscal Year  Probable Net Positive/(Negative)   *
          *               Impact to General Revenue Related  *
          *                             Funds                *
          *       2002                       $(250,000,000)  *
          *       2003                         (50,000,000)  *
          *       2004                         (50,000,000)  *
          *       2005                         (50,000,000)  *
          *       2006                         (50,000,000)  *
          ****************************************************
  
All Funds, Five-Year Impact:
  
         *****************************************************
         * Fiscal Year    Probable Revenue Gain/(Loss) from   *
         *                      General Revenue Fund          *
         *                              0001                  *
         *      2002                           $(250,000,000) *
         *      2003                             (50,000,000) *
         *      2004                             (50,000,000) *
         *      2005                             (50,000,000) *
         *      2006                             (50,000,000) *
         *****************************************************
  
Fiscal Analysis
  
The bill amends Chapter 171 of the Tax Code, relating to the franchise
tax.

Section 1 of the bill amends Tax Code Section 171.052 to identify
corporations exempt from the franchise tax, because of the corporation's
payment of taxes based on gross premiums under the Insurance Code.

Section 1 would have no fiscal impact upon the state.

Section 2 of the bill would alter the tax treatment of the business loss
carry forward when a merger occurred.  Current Comptroller policy is
stated in the language that the bill would add to Section 171.110(e).
The policy is to allow a business loss carry-forward only by the
corporation that incurred the loss.  Under that policy the loss may not
be transferred to or claimed by another entity, including the survivor of
a merger if the loss were incurred by the corporation that did not
survive the merger.

Section 2 of the bill would also add Subsection (k) to Section 171.110 of
the Tax Code.  The new subsection would allow a surviving corporation of
a merger to claim the business of the non-surviving corporation for
reports due on or after January 1, 2004.  The business loss could be
carried forward for not more than five years following the merger or
until the losses are exhausted.

Section 2 would negatively impact franchise tax revenues by reversing
Comptroller policy consistently taken in refund claims and litigation
with taxpayers over the treatment of business losses in a merger.  The
State would be liable for refunds of $200 million, which would be made
in fiscal year 2002.  Further, beginning with fiscal 2002, the State
would lose $50 million per year from the revised treatment of business
loss carry-forwards in cases of corporate mergers.
  
  
Methodology
  
This estimate is based on analyses by the Comptroller's Office of
franchise tax records.
  
  
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