78R2742 SMJ-D

By:  Delisi                                                       H.B. No. 695



A BILL TO BE ENTITLED

AN ACT

relating to franchise tax deductions and exemptions for certain 
business activities involving desalination devices.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:                        
	SECTION 1.  Subchapter B, Chapter 171, Tax Code, is amended 
by adding Section 171.088 to read as follows:
	Sec. 171.088.  EXEMPTION--CORPORATION ENGAGED IN BUSINESS 
INVOLVING DESALINATION DEVICES. (a)  In this section:
		(1)  "Brine" means water that:                                         
			(A)  is discharged from a desalination device;                        
			(B)  contains a high concentration  of salt; and                      
			(C)  may contain a constituent used in a 
pretreatment process.      
		(2)  "Desalination device" means a system or a series 
of mechanisms designed primarily to remove salt from seawater and 
produce desalted water and brine.
	(b)  A corporation engaged solely in the business of 
manufacturing, selling, or installing desalination devices is 
exempted from the franchise tax.
	SECTION 2.  Subchapter C, Chapter 171, Tax Code, is amended 
by adding Section 171.108 to read as follows:
	Sec. 171.108.  DEDUCTION OF COST OF DESALINATION DEVICE. (a)  
In this section, "desalination device" has the meaning assigned by 
Section 171.088.
	(b)  A corporation may deduct from its apportioned taxable 
capital the amortized cost of a desalination device or from its 
apportioned taxable earned surplus 10 percent of the amortized cost 
of a desalination device if:
		(1)  the device is acquired by the corporation for 
removing salt from seawater;
		(2)  the device is used in this state by the 
corporation; and        
		(3)  the cost of the device is amortized:                              
			(A)  beginning in the month in which the device is 
placed in service in this state;
			(B)  in equal monthly amounts for a period of at 
least 60 months; and
			(C)  only for a period in which the device is used 
in this state.   
	(c)  A corporation that makes a deduction under this section 
shall file with the comptroller an amortization schedule showing 
the period in which a deduction will be made.  On the request of the 
comptroller, the corporation shall file with the comptroller proof 
of the cost of the desalination device or of the device's operation 
in this state.
	(d)  A corporation may elect to make the deduction under this 
section either from apportioned taxable capital or apportioned 
taxable earned surplus for each regular annual period.  An election 
for an initial tax period applies to the second tax period and to 
the first regular annual period.
	SECTION 3.  (a)  This Act takes effect January 1, 2004.                        
	(b)  The change in law made by this Act does not affect taxes 
imposed before the effective date of this Act, and the law in effect 
before the effective date of this Act is continued in effect for the 
purposes of the liability for and collection of those taxes.
	(c)  The change in law made by Section 171.108, Tax Code, as 
added by this Act, applies only to a report originally due on or 
after the effective date of this Act.  A corporation may claim a 
deduction under Section 171.108, Tax Code, as added by this Act, 
only for an expenditure made on or after the effective date of this 
Act.