LEGISLATIVE BUDGET BOARD
Austin, Texas
 
FISCAL NOTE, 78TH LEGISLATIVE REGULAR SESSION
 
April 9, 2003

TO:
Honorable Ron Wilson, Chair, House Committee on Ways & Means
 
FROM:
John Keel, Director, Legislative Budget Board
 
IN RE:
HB695 by Delisi (Relating to franchise tax deductions and exemptions for certain business activities involving desalination devices.), As Introduced



Estimated Two-year Net Impact to General Revenue Related Funds for HB695, As Introduced: a negative impact of ($140,000) through the biennium ending August 31, 2005.



Fiscal Year Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2004 $0
2005 ($140,000)
2006 ($200,000)
2007 ($200,000)
2008 ($200,000)




Fiscal Year Probable Revenue Gain/(Loss) from
GENERAL REVENUE FUND
1
2004 $0
2005 ($140,000)
2006 ($200,000)
2007 ($200,000)
2008 ($200,000)

Fiscal Analysis

The bill would amend Chapter 171 of the Tax Code to authorize a franchise tax incentive for a desalination device.

"Desalination device" would be defined as a system or series of mechanisms designed primarily to remove salt from seawater and produce as outputs desalted water and brine. Under this bill, a corporation engaged solely in the business of manufacturing, selling, or installing desalination devices would be exempt from the franchise tax.

In addition, a corporation would be allowed to deduct from its apportioned taxable capital the amortized costs of a desalination device, or from its apportioned taxable earned surplus, 10 percent of the amortized cost of a desalination device. To qualify for this deduction, the device would have to be acquired by a corporation for removing salt from seawater and be used in Texas; and the cost of the device would have to be amortized over a period of at least 60 months.

The bill would take effect on January 1, 2004 and would apply to a tax report due on or after that date and to a deduction only for an expenditure made on or after that date.


Methodology

This fiscal note is based on analyses provided by the Comptrollerís Office.

Comptroller staff used the revenue impact of Texas' solar energy device exemption and deductions as the basis in deriving the fiscal impact of the bill. The costs of that exemption and deductions were modified to reflect that desalination equipment is most commonly used by local jurisdictions, according to personnel from the Water Development Board. Local jurisdictions are not entities subject to the franchise tax.

The bill would have an insignificant fiscal impact in 2004 because the corporate accounting year on which the fiscal 2004 tax report is based would have concluded before the bill's effective date. The bill would have a reduced revenue impact in fiscal 2005 because the accounting year for non-calendar year corporations would be partially completed before the effective date. The bill would be fully implemented for fiscal 2006.


Local Government Impact

No fiscal implication to units of local government is anticipated.


Source Agencies:
304 Comptroller of Public Accounts, 307 Secretary of State
LBB Staff:
JK, JO, SD, WP, CT