LEGISLATIVE BUDGET BOARD
                              Austin, Texas
                                     
                    FISCAL NOTE, 77th Regular Session
  
                               May 11, 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.), Committee Report 2nd House, as amended
  
**************************************************************************
*  Estimated Two-year Net Impact to General Revenue Related Funds for    *
*  SB1689, Committee Report 2nd House, as amended:  positive impact      *
*  of $2,400,000 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                           $1,200,000  *
          *       2003                            1,200,000  *
          *       2004                            1,200,000  *
          *       2005                            1,200,000  *
          *       2006                            1,200,000  *
          ****************************************************
  
All Funds, Five-Year Impact:
  
         *****************************************************
         * Fiscal Year    Probable Revenue Gain/(Loss) from   *
         *                      General Revenue Fund          *
         *                              0001                  *
         *      2002                               $1,200,000 *
         *      2003                                1,200,000 *
         *      2004                                1,200,000 *
         *      2005                                1,200,000 *
         *      2006                                1,200,000 *
         *****************************************************
  
Fiscal Analysis
  
The would amend Chapter 171 of the Tax Code, relating to the franchise
tax.

Section 1 of the bill would amend 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.  The
bill would specify that farm mutuals, local mutual aid associations, and
burial associations are not subject to the franchise tax.  Section 2
would clarify the use of the business loss carryforward when a merger
occurred.

The bill would take effect September 1, 2001.
  
  
Methodology
  
The bill's provisions would codify certain existing policies of the
Comptroller.

When a corporation that has a business loss carryforward is the
non-survivor of a merger, the Comptroller's long-standing interpretation
has been that the business loss does not transfer to the survivor.
Section 2 of this bill would codify the agency's interpretation by
clarifying that no transfer of a business loss carryforward can occur,
even in a merger.  Anticipated annual franchise revenue in the amount of
$1.2 million was withheld from the 2002-2003 Biennial Revenue Estimate as
a contingency for the business loss carryforward issue.  The bill's
clarification of agency policy would have the effect of restoring that
money to the estimate.

Note:  Section 2 of the bill would mitigate possible legal
vulnerabilities for which the negative revenue impact could be highly
significant on the order of $300 million in refunds and base losses
during the 2002-03 biennium.
  
  
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