78R4481 DAK-D
By: Shapleigh S.B. No. 1030
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(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) any other entity:
(i) that is operated for profit;
(ii) that is operating, organized, or
registered under the laws of this state in a manner that provides
liability limitations for a person who holds an ownership interest
in the entity, including a partner's interest in a partnership; and
(iii) in which any ownership interest is
held by an entity other than a natural person, without regard to
whether the person that is not a natural person is located in this
state or is in any other manner doing business in this state.
SECTION 2. Subchapter C, Chapter 171, Tax Code, is amended
by adding Sections 171.114 and 171.115 to read as follows:
Sec. 171.114. TREATMENT OF CERTAIN ENTITIES. (a) This
section applies only to a corporation that is an entity described by
Section 171.001(b)(3)(D).
(b) The net taxable capital of the entity is computed by:
(1) adding the entity's capital accounts,
undistributed profits, and surplus to determine the entity's
taxable capital;
(2) apportioning the entity's taxable capital to this
state as provided by Section 171.106 to determine the entity's
apportioned taxable capital; and
(3) subtracting from the amount computed under
Subdivision (2) any other allowable deductions to determine the
entity's net taxable capital.
(c) For purposes of Subsection (b)(1), an amount that
belongs to or is included in the entity's capital accounts,
undistributed profits, or surplus is excluded if the amount has
been added once under that subsection in determining the entity's
taxable capital.
(d) The net taxable earned surplus of the entity is
determined as provided by Section 171.110 if the entity is not a
partnership. If the entity is a partnership, the net taxable earned
surplus of the entity is computed by:
(1) determining the partnership's reportable federal
taxable income and making the following adjustments:
(A) subtracting any taxable income of a partner
who is a natural person;
(B) subtracting dividends received from a
subsidiary, associate, or affiliated corporation that does not
transact a substantial portion of its business or regularly
maintain a substantial portion of its assets in the United States;
and
(C) adding any compensation of each officer or
director who owns 0.1 percent or more of the partnership, to the
extent excluded in determining reportable federal taxable income;
(2) apportioning the partnership's taxable earned
surplus to this state as provided by Section 171.106 to determine
the partnership's apportioned taxable earned surplus;
(3) adding the partnership's taxable earned surplus
allocated to this state as provided by Section 171.1061; and
(4) subtracting from that amount any allowable
deductions and any business loss that is carried forward to the tax
reporting period and deductible under Subsection (f).
(e) For purposes of Subsection (d)(1):
(1) an amount may not be subtracted from reportable
federal taxable income more than once; and
(2) an amount may not be added to reportable federal
taxable income more than once.
(f) For purposes of this section, a business loss is any
negative amount after apportionment and allocation. The business
loss shall be carried forward to the year succeeding the loss year
as a deduction to net taxable earned surplus, then successively to
the succeeding four taxable years after the loss year or until the
loss is exhausted, whichever occurs first, but for not more than
five taxable years after the loss year. Notwithstanding the
preceding sentence, a business loss incurred before January 1,
2003, may not be used to reduce net taxable earned surplus.
Sec. 171.115. INCOME OF NATURAL PERSONS EXCLUDED.
Notwithstanding any other provision of this chapter, to the extent
that the net income of natural persons, including a person's share
of partnership and unincorporated association income, may not be
taxed as provided by Section 24, Article VIII, Texas Constitution,
the income is not included in net taxable earned surplus and is not
subject to the tax imposed under this chapter.
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.