78R3904 DAK-D

By:  Davis of Dallas                                              H.B. No. 694



A BILL TO BE ENTITLED

AN ACT

relating to the application of the franchise tax to certain 
entities.       
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:                        
	SECTION 1.  Section 171.001(a), Tax Code, is amended to read 
as follows:     
	(a)  A franchise tax is imposed on:                                            
		(1)  each corporation that does business in this state 
or that is chartered or authorized to do business in this state; [, 
and]
		(2)  each limited liability company that does business 
in this state or that is organized under the laws of this state or is 
authorized to do business in this state; and
		(3)  a business trust, limited liability company, or 
other entity that, for federal income tax purposes, is classified 
as a corporation and that:
			(A)  is doing business in this state;                                 
			(B)  is carrying on activities in this state;                         
			(C)  has capital or property employed or used in 
this state; or     
			(D)  owns property in this state, by or in the name 
of itself or any person, partnership, association, limited 
partnership, joint-stock association, or corporation.
	SECTION 2.  Section 171.001(b)(3), Tax Code, is amended to 
read as follows:  
		(3)  "Corporation" includes:                                                  
			(A)  a limited liability company, as defined under 
the Texas Limited Liability Company Act;
			(B)  a savings and loan association; [and]                  
			(C)  a banking corporation; and                                       
			(D)  a business trust, limited liability company, 
or other entity that, for federal income tax purposes, is 
classified as a corporation and that:
				(i)  is doing business in this state;                                
				(ii)  is carrying on activities in this 
state;                     
				(iii)  has capital or property employed or 
used in this state; or  
				(iv)  owns property in this state, by or in 
the name of itself or any person, partnership, association, limited 
partnership, joint-stock association, or corporation.
	SECTION 3.  (a)  Subject to other provisions of this section, 
this Act takes effect for initial, annual, or final reports 
originally due on or after January 1, 2004.
	(b)  For an entity becoming subject to the franchise tax 
under this Act:     
		(1)  income or losses occurring before January 1, 2003, 
may not be considered for purposes of the earned surplus component;
		(2)  for entities in existence on January 1, 2003, that 
would have been subject to the franchise tax had this Act been in 
effect on January 1, 2003, the first report due under this Act will 
be either a final report, if applicable, or an annual report due May 
15, 2004; and
		(3)  for entities that would have become subject to the 
franchise tax after January 1, 2003, had this Act been in effect on 
January 1, 2003, the first report due under this Act will be an 
initial report or a final report, if applicable.
	SECTION 4.  This Act takes effect January 1, 2004.