Floor Packet Page No. 268
Amend CSHB 3 by striking ARTICLE 2 (house committee report,
page 16, line 16, through page 29, line 9) and substituting a new
ARTICLE 2 to read as follows:
ARTICLE 2. REFORMED FRANCHISE TAX
SECTION 2.01. Subchapter A, Chapter 171, Tax Code, is
amended to read as follows:
SUBCHAPTER A. TAX IMPOSED
Sec. 171.001. TAX IMPOSED. (a) A franchise tax is imposed
on[:
[(1)] each taxable entity [corporation] that does
business in this state or that is chartered or organized 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].
(b) In this chapter:
(1) "Banking corporation" means each state, national,
domestic, or foreign bank, whether organized under the laws of this
state, another state, or another country, or under federal law,
including a limited banking association organized under Subtitle A,
Title 3, Finance Code, and each bank organized under Section 25(a),
Federal Reserve Act (12 U.S.C. Secs. 611-631) (edge corporations),
but does not include a bank holding company as that term is defined
by Section 2, Bank Holding Company Act of 1956 (12 U.S.C. Sec.
1841).
(2) "Beginning date" means:
(A) for a taxable entity [corporation] chartered
or organized in this state, the date on which the taxable entity's
[corporation's] charter or organization takes effect; and
(B) for any other taxable entity [a foreign
corporation], the date on which the taxable entity [corporation]
begins doing business in this state.
(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.
(4) "Charter" includes a limited liability company's
certificate of organization, a limited partnership's certificate
of limited partnership, and the registration of a limited liability
partnership.
(5) "Internal Revenue Code" means the Internal Revenue
Code of 1986 in effect [for the federal tax year beginning] on [or
after] January 1, 2005, not including any changes made by federal
law after that date [1996, and before January 1, 1997], and any
regulations adopted under that code [applicable to that period].
(6) "Officer" and "director" include a limited
liability company's directors and managers and a limited banking
association's directors and managers and participants if there are
no directors or managers.
(7) "Savings and loan association" means a savings and
loan association or savings bank, whether organized under the laws
of this state, another state, or another country, or under federal
law.
(8) "Shareholder" includes a limited liability
company's member and a limited banking association's participant.
(9-a) "Taxable entity" includes, except as provided by
Subdivision (9-b):
(A) a corporation;
(B) a partnership; and
(C) any entity that does business in this state
or that is chartered or organized in this state, including an entity
described by Subdivision (9-c).
(9-b) "Taxable entity" does not include, except as
provided by Subdivision (9-c):
(A) an entity that is:
(i) a grantor trust as defined by Sections
671 and 7701(a)(30)(E), Internal Revenue Code, all of the grantors
and beneficiaries of which are natural persons or charitable
entities as described in Section 501(c)(3), Internal Revenue Code,
excluding a trust taxable as a business entity pursuant to Treasury
Regulation Section 301.7701-4(b);
(ii) an estate of a natural person as
defined by Section 7701(a)(30)(D), Internal Revenue Code,
excluding an estate taxable as a business entity pursuant to
Treasury Regulation Section 301.7701-4(b); or
(iii) an escrow;
(B) a real estate investment trust as defined by
Section 856, Internal Revenue Code, and its "qualified REIT
subsidiary" entities as defined by Section 856(i)(2), Internal
Revenue Code;
(C) an entity other than a corporation or a
limited liability company that is:
(i) a publicly traded partnership, as
defined by Section 7704(b)(1), Internal Revenue Code, interests in
which are listed and traded in an established national securities
market and that is treated as a partnership for federal income tax
purposes; and
(ii) a limited partnership at least 90
percent of whose interests are owned directly or indirectly by an
entity described in Subparagraph (i) and at least 90 percent of
whose income constitutes qualifying income as defined by Section
7704(d), Internal Revenue Code;
(D) a family limited partnership in which at
least 80 percent of the interests are held, directly or indirectly,
by members of the same family, including an individual's ancestors,
lineal descendants, spouse, brothers and sisters by the whole or
half blood, and the estate of any of these persons, and that is a
limited partnership:
(i) formed pursuant to the Texas Revised
Limited Partnership Act (Article 6132a-1, Vernon's Texas Civil
Statutes);
(ii) formed pursuant to the limited
partnership law of any other state; or
(iii) treated as a partnership for federal
income tax purposes;
(E) a regulated investment company as defined by
Section 851, Internal Revenue Code;
(F) a real estate mortgage investment conduit as
defined by Section 860D, Internal Revenue Code;
(G) a passive investment partnership as
described by Subparagraph (i) or (ii), at least 90 percent of whose
federal gross income is composed of passive investment income,
including dividends, interest, capital gains, foreign currency
exchange gain, periodic and nonperiodic payments with respect to
notional principal contracts, option premiums, cash settlement or
termination payments with respect to a financial instrument,
royalties from the license of intangible property and nonoperating
mineral interests, rents from the lease of real property provided
that the lessor does not furnish the lessee with any services or
utilities other than customary cleaning and security services, and
distributive shares of limited partnership income and income from a
limited liability company, and the partnership is:
(i) formed pursuant to the Texas Revised
Limited Partnership Act (Article 6132a-1, Vernon's Texas Civil
Statutes); or
(ii) formed pursuant to the limited
partnership law of any other state or a foreign country;
(H) a sole proprietorship;
(I) a general partnership;
(J) an entity, arrangement, or investment
vehicle without any employees that is used solely for a finance,
securitization, or monetization purpose; or
(K) a trust:
(i) that is taxable as a trust under Section
641, Internal Revenue Code;
(ii) all of the beneficiaries of which are
natural persons or charitable entities as defined in Section
501(c)(3), Internal Revenue Code;
(iii) that is not a trust taxable as a
business entity pursuant to Treasury Regulation Section
301.7701-4(b);
(iv) at least 90 percent of whose federal
gross income consists of passive investment income as described
under Paragraph (G); and
(v) that is organized as a trust and is
described in Section 7701(a)(30)(E), Internal Revenue Code.
(9-c)(A) A family limited partnership as described in
Subdivision (9-b) is a taxable entity under this chapter if the
partnership:
(i) is not a passive investment partnership
as defined under Subdivision (9-b)(G); and
(ii) conducts an active trade or business.
(B) An entity conducts an active trade or
business if:
(i) the activities being carried on by the
entity include one or more active operations that form a part of the
process of earning income or profit; and
(ii) the entity performs active management
and operational functions.
(C) Activities performed by the entity shall
include activities performed by persons outside the entity,
including independent contractors, to the extent such persons
perform services on behalf of the entity and those services
constitute all or part of the entity's trade or business.
(D) An entity conducts an active trade or
business if assets held by the entity are used in the active trade
or business of one or more related entities.
(E) For purposes of this subdivision, the
ownership of a royalty interest or a non-operating working interest
in mineral rights shall not constitute conduct of an active trade or
business.
(c) The tax imposed under this chapter extends to the limits
of the United States Constitution and the federal law adopted under
the United States constitution.
(d) For purposes of Subsection (a), a taxable entity does
business in this state if the entity is a foreign entity and is:
(1) holding a partnership interest, including an
interest as an assignee, as a general partner in a general
partnership that is doing business in this state;
(2) holding a partnership interest, including an
interest as an assignee, as a general partner in a limited
partnership that is doing business in this state; or
(3) holding a partnership interest, including an
interest as an assignee, as a limited partner in a limited
partnership that is doing business in this state.
Sec. 171.0011. ELECTION OF RATES. (a) Except as otherwise
provided by this section and Section 171.0012, a taxable entity
shall elect to pay the tax imposed under this chapter at:
(1) the rate provided by Section 171.002; or
(2) the alternate rate provided by Section 171.003.
(b) The election cannot be changed until after the third
anniversary of the date the election is made.
(c) A taxable entity that is in the business of leasing
employees:
(1) may not elect to pay the tax imposed under this
chapter at the rate provided by Section 171.002 and shall pay the
tax imposed under this chapter at the alternate rate provided by
Section 171.003; and
(2) for the purposes of this chapter, is considered as
having elected to pay the tax imposed under this chapter at the
alternate rate provided by Section 171.003.
(d) A taxable entity that is an airline:
(1) may not elect to pay the tax imposed under this
chapter at the alternate rate provided by Section 171.003 and shall
pay the tax imposed under this chapter at the rate provided by
Section 171.002;
(2) for the purposes of this chapter, is considered as
having elected to pay the tax imposed under this chapter at the rate
provided by Section 171.002; and
(3) is not subject to the minimum tax liability under
Section 171.0013.
(e) The comptroller shall promulgate a form for a taxable
entity to use to make an election under this section. If the
taxable entity is an entity other than a corporation and any
interests in the entity are owned by natural persons, the election
form must be signed by each of those natural persons and by an
authorized officer of the entity. The election form shall provide
that the taxable entity and those natural persons agree that the
taxable earned surplus of the entity shall be calculated pursuant
to this chapter without regard to any exclusion, exemption, or
prohibition in Section 24, Article VIII, Texas Constitution.
Sec. 171.0012. MANDATORY ELECTION FOR ALL MEMBERS OF
AFFILIATED GROUP. (a) In this section:
(1) "Affiliated group" means one or more chains of
entities connected through ownership with a common parent, but only
if the common parent has a controlling interest in at least one of
the connected entities and maintains a controlling interest
indirectly through the ownership chain in the other connected
entities.
(2) "Controlling interest" means:
(A) for a corporation, either 50 percent or more,
owned directly or indirectly, of the total combined voting power of
all classes of stock of the corporation, or 50 percent or more,
owned directly or indirectly, of the beneficial ownership interest
in the voting stock of the corporation; and
(B) for a partnership, association, trust, or
other entity, 50 percent or more, owned directly or indirectly, of
the capital, profits, or beneficial interest in the partnership,
association, trust, or other entity.
(b) Notwithstanding any other provision of this chapter,
all entities that are part of the same affiliated group must make
the same election and must pay the tax imposed under this chapter at
the rate provided by either Section 171.002 or the alternate rate
provided by Section 171.003.
(c) For the purposes of this chapter, a taxable entity
required to elect the same rate as all the other members of its
affiliated group under this section is considered as having elected
to pay the tax imposed under this chapter at that rate.
Sec. 171.0013. MINIMUM TAX LIABILITY. (a) Except as
provided by Section 171.0011(d)(3), the minimum tax liability for a
taxable entity that elects to pay the tax under this chapter at the
rate provided by Section 171.002 is an amount equal to 50 percent of
the amount of tax the taxable entity would be liable for under this
chapter if the taxable entity had elected to pay the tax under this
chapter at the alternate rate provided by Section 171.003.
(b) The minimum tax liability for a taxable entity that
elects to pay the tax under this chapter at the alternate rate
provided by Section 171.003 is an amount equal to 50 percent of the
amount of tax the taxable entity would be liable for under this
chapter if the taxable entity had elected to pay the tax under this
chapter at the rate provided by Section 171.002.
(c) This section does not apply to an entity that is not a
taxable entity as defined by Section 171.001(b)(9-b).
Sec. 171.0014. ADDITIONAL TAX. (a) An additional tax is
imposed on a taxable entity that has elected to pay the tax imposed
by this chapter at the rate provided by Section 171.002 and during
the period in which that election is in effect [corporation that]
for any reason becomes no longer subject to the earned surplus
component of the tax, without regard to whether the taxable entity
[corporation] remains subject to the taxable capital component of
the tax, other than through a valid election to pay the tax imposed
under this chapter at the alternate rate provided by Section
171.003. An additional tax is imposed on a taxable entity that has
elected to pay the tax imposed by this chapter at the alternate rate
provided by Section 171.003 and during the period in which that
election is in effect for any reason becomes no longer subject to
the tax imposed under this chapter.
(b) The additional tax is equal to 4.5 percent of the
taxable entity's [corporation's] net taxable earned surplus
computed on the period beginning on the day after the last day for
which the tax imposed on net taxable earned surplus was computed
under Section 171.1532 and ending on the date the taxable entity
[corporation] is no longer subject to the earned surplus component
of the tax.
(c) The additional tax imposed and any report required by
the comptroller are due on the 60th day after the date the taxable
entity [corporation] becomes no longer subject to the earned
surplus component of the tax.
(d) Except as otherwise provided by this section, the
provisions of this chapter apply to the tax imposed under this
section.
Sec. 171.0015. RULES: AVOIDANCE OF DOUBLE TAXATION. (a)
Except as provided by Section 171.0012, each entity shall be
treated as a separate taxable entity.
(b) Wages, as that term is defined under Subchapter F,
Chapter 201, Labor Code, that are paid by one taxable entity may not
be included in the tax base of another taxable entity either
directly, indirectly, or constructively for purposes of
determining taxable wages under Subchapter C-1.
(c) A taxable entity shall be entitled to the dividends
received deduction for dividends received in computing its earned
surplus. For the purposes of this subsection, "dividends received
deduction" means the deduction allowed by Section 243, Internal
Revenue Code.
(d) Except as provided by Subsection (e), any taxable entity
that is allocated a distributive share of income, gain, or capital
from another taxable or exempt entity under federal income tax
rules, including an actual distribution of income, gain, or
capital, shall be entitled to exclude that amount in computing its
earned surplus for purposes of this chapter.
(e) Subsection (d) does not apply to the distributive share
of income, gain, or capital from an interest in a publicly traded
partnership, as defined by Section 171.001(b)(9-b)(C)(i), that is
allocated to a taxable entity that is a direct owner of that
interest. If the direct owner of that interest is not a taxable
entity, Subsection (d) does not apply to the first upper-tier level
of a taxable entity or entities, if any, that are indirect owners of
that interest.
Sec. 171.002. RATES; COMPUTATION OF TAX. (a) Subject to
the minimum tax liability of the taxable entity under Section
171.0013, the [The] rates of the franchise tax are for a taxable
entity that elects to pay the tax at the rate provided by this
section:
(1) 0.25 percent per year of privilege period of net
taxable capital; and
(2) 4.5 percent of net taxable earned surplus.
(b) The amount of franchise tax on each taxable entity
[corporation] is computed by adding the following:
(1) the amount calculated by applying the tax rate
prescribed by Subsection (a)(1) to the taxable entity's
[corporation's] net taxable capital; and
(2) the difference between:
(A) the amount calculated by applying the tax
rate prescribed by Subsection (a)(2) to the taxable entity's
[corporation's] net taxable earned surplus; and
(B) the amount determined under Subdivision (1).
(c) In making a computation under Subsection (b), an amount
computed under Subsection (b)(1) or (b)(2) that is zero or less is
computed as a zero.
Sec. 171.003. ALTERNATE RATE. Subject to the minimum tax
liability of the taxable entity under Section 171.0013, the
alternate rate of the franchise tax for a taxable entity that elects
to pay the alternate rate is 1.15 percent of taxable wages as
determined under Subchapter C-1.
Sec. 171.004. EXEMPTION FOR CERTAIN SMALL BUSINESSES.
[(d)] A taxable entity [corporation] is not required to pay any tax
and is not considered to owe any tax for a period if:
(1) the amount of tax computed for the taxable entity
[corporation] is less than $100; or
(2) the amount of the taxable entity's [corporation's]
gross receipts:
(A) from its entire business under Section
171.105 is less than $150,000; and
(B) from its entire business under Section
171.1051, including the amount excepted under Section 171.1051(a),
is less than $150,000.
Sec. 171.005. RATE OF TAX FOR CORPORATION IN PROCESS OF
LIQUIDATION. The franchise tax rate on a corporation in the process
of liquidation, as defined by Section 171.102 [of this code], is the
rate established by Section 171.002 [of this code].
SECTION 2.02. Subchapter B, Chapter 171, Tax Code, is
amended by adding Section 171.088 to read as follows:
Sec. 171.088. EXEMPTION--NONCORPORATE TAXABLE ENTITY
ELIGIBLE FOR CERTAIN EXEMPTIONS. A taxable entity that is not a
corporation but that, because of its activities, would qualify for
a specific exemption under this subchapter if it were a corporation
qualifies for the exemption and is exempt from the tax in the same
manner and under the same conditions as a corporation.
SECTION 2.03. Section 171.101, Tax Code, is amended to read
as follows:
Sec. 171.101. DETERMINATION OF NET TAXABLE CAPITAL. The
[(a) Except as provided by Subsections (b) and (c), the] net
taxable capital of a taxable entity [corporation] is computed by:
(1) [adding the corporation's stated capital, as
defined by Article 1.02, Texas Business Corporation Act, and the
corporation's surplus, to determine the corporation's taxable
capital;
[(2)] apportioning the taxable entity's surplus
[corporation's taxable capital] to this state as provided by
Section 171.106(a) or (c), as applicable, to determine the taxable
entity's [corporation's] apportioned taxable capital; and
(2) [(3)] subtracting from the amount computed under
Subdivision (1) [(2)] any other allowable deductions to determine
the taxable entity's [corporation's] net taxable capital.
[(b) The net taxable capital of a limited liability company
is computed by:
[(1) adding the company's members' contributions, as
provided for under the Texas Limited Liability Company Act, and
surplus to determine the company's taxable capital;
[(2) apportioning the amount determined under
Subdivision (1) to this state in the same manner that the taxable
capital of a corporation is apportioned to this state under Section
171.106(a) or (c), as applicable, to determine the company's
apportioned taxable capital; and
[(3) subtracting from the amount computed under
Subdivision (2) any other allowable deductions, to determine the
company's net taxable capital.
[(c) The net taxable capital of a savings and loan
association is computed by:
[(1) determining the association's net worth; and
[(2) apportioning the amount determined under
Subdivision (1) to this state in the same manner that the taxable
capital of a corporation is apportioned to this state under Section
171.106(a) to determine the association's net taxable capital.]
SECTION 2.04. Section 171.103, Tax Code, is amended to read
as follows:
Sec. 171.103. DETERMINATION OF GROSS RECEIPTS FROM BUSINESS
DONE IN THIS STATE FOR TAXABLE CAPITAL. In apportioning taxable
capital, the gross receipts of a taxable entity [corporation] from
its business done in this state is the sum of the taxable entity's
[corporation's] receipts from:
(1) each sale of tangible personal property if the
property is delivered or shipped to a buyer in this state regardless
of the FOB point or another condition of the sale, and each sale of
tangible personal property shipped from this state to a purchaser
in another state in which the seller is not subject to taxation;
(2) each service performed in this state;
(3) each rental of property situated in this state;
(4) the use of a patent, copyright, trademark,
franchise, or license in this state;
(5) each sale of real property located in this state,
including royalties from oil, gas, or other mineral interests; and
(6) other business done in this state.
SECTION 2.05. Section 171.1032, Tax Code, is amended to
read as follows:
Sec. 171.1032. DETERMINATION OF GROSS RECEIPTS FROM
BUSINESS DONE IN THIS STATE FOR TAXABLE EARNED SURPLUS. (a) Except
for the gross receipts of a taxable entity [corporation] that are
subject to the provisions of Section 171.1061, in apportioning
taxable earned surplus, the gross receipts of a taxable entity
[corporation] from its business done in this state is the sum of the
taxable entity's [corporation's] receipts from:
(1) each sale of tangible personal property if the
property is delivered or shipped to a buyer in this state regardless
of the FOB point or another condition of the sale, and each sale of
tangible personal property shipped from this state to a purchaser
in another state in which the seller is not subject to any tax on, or
measured by, net income, without regard to whether the tax is
imposed;
(2) each service performed in this state;
(3) each rental of property situated in this state;
(4) the use of a patent, copyright, trademark,
franchise, or license in this state;
(5) each sale of real property located in this state,
including royalties from oil, gas, or other mineral interests;
(6) each partnership or joint venture to the extent
provided by Subsection (c); and
(7) other business done in this state.
(b) A taxable entity [corporation] shall deduct from its
gross receipts computed under Subsection (a) any amount to the
extent included under Subsection (a) because of the application of
Section 78 or Sections 951-964, Internal Revenue Code, any amount
excludable under Section 171.110(k), and dividends received from a
subsidiary, associate, or affiliated entity [corporation] that
does not transact a substantial portion of its business or
regularly maintain a substantial portion of its assets in the
United States.
(c) A taxable entity [corporation] shall include in its
gross receipts computed under Subsection (a) the taxable entity's
[corporation's] share of the gross receipts of each partnership,
including a general partnership and a publicly traded partnership
as defined by Section 171.001(b)(9-b)(C)(i), and joint venture of
which the taxable entity [corporation] is a part apportioned to
this state as though the taxable entity [corporation] directly
earned the receipts, including receipts from business done with the
taxable entity [corporation].
SECTION 2.06. Section 171.104, Tax Code, is amended to read
as follows:
Sec. 171.104. GROSS RECEIPTS FROM BUSINESS DONE IN TEXAS:
DEDUCTION FOR FOOD AND MEDICINE RECEIPTS. A taxable entity
[corporation] may deduct from its receipts includable under Section
171.103(1) [of this code] the amount of the taxable entity's
[corporation's] receipts from sales of the following items, if the
items are shipped from outside this state and the receipts would be
includable under Section 171.103(1) [of this code] in the absence
of this section:
(1) food that is exempted from the Limited Sales,
Excise, and Use Tax Act by Section 151.314(a) [of this code]; and
(2) health care supplies that are exempted from the
Limited Sales, Excise, and Use Tax Act by Section 151.313 [of this
code].
SECTION 2.07. Section 171.105, Tax Code, is amended to read
as follows:
Sec. 171.105. DETERMINATION OF GROSS RECEIPTS FROM ENTIRE
BUSINESS FOR TAXABLE CAPITAL. (a) In apportioning taxable
capital, the gross receipts of a taxable entity [corporation] from
its entire business is the sum of the taxable entity's
[corporation's] receipts from:
(1) each sale of the taxable entity's [corporation's]
tangible personal property;
(2) each service, rental, or royalty; and
(3) other business.
(b) If a taxable entity [corporation] sells an investment or
capital asset, the taxable entity's [corporation's] gross receipts
from its entire business for taxable capital include only the net
gain from the sale.
SECTION 2.08. Section 171.1051, Tax Code, is amended to
read as follows:
Sec. 171.1051. DETERMINATION OF GROSS RECEIPTS FROM ENTIRE
BUSINESS FOR TAXABLE EARNED SURPLUS. (a) Except for the gross
receipts of a taxable entity [corporation] that are subject to the
provisions of Section 171.1061, in apportioning taxable earned
surplus, the gross receipts of a taxable entity [corporation] from
its entire business is the sum of the taxable entity's
[corporation's] receipts from:
(1) each sale of the taxable entity's [corporation's]
tangible personal property;
(2) each service, rental, or royalty;
(3) each partnership and joint venture as provided by
Subsection (d); and
(4) other business.
(b) If a taxable entity [corporation] sells an investment or
capital asset, the taxable entity's [corporation's] gross receipts
from its entire business for taxable earned surplus includes only
the net gain from the sale.
(c) A taxable entity [corporation] shall deduct from its
gross receipts computed under Subsection (a) any amount to the
extent included in Subsection (a) because of the application of
Section 78 or Sections 951-964, Internal Revenue Code, any amount
excludable under Section 171.110(k), and dividends received from a
subsidiary, associate, or affiliated entity [corporation] that
does not transact a substantial portion of its business or
regularly maintain a substantial portion of its assets in the
United States.
(d) A taxable entity [corporation] shall include in its
gross receipts computed under Subsection (a) the taxable entity's
[corporation's] share of the gross receipts of each partnership,
including a general partnership and a publicly traded partnership
as defined by Section 171.001(b)(9-b)(C)(i), and joint venture of
which the taxable entity [corporation] is a part.
SECTION 2.09. Sections 171.106(a)-(d), Tax Code, are
amended to read as follows:
(a) Except as provided by Subsections (c) and (d), a taxable
entity's [corporation's] taxable capital is apportioned to this
state to determine the amount of the tax imposed under Section
171.002(b)(1) by multiplying the taxable entity's [corporation's]
taxable capital by a fraction, the numerator of which is the taxable
entity's [corporation's] gross receipts from business done in this
state, as determined under Section 171.103, and the denominator of
which is the taxable entity's [corporation's] gross receipts from
its entire business, as determined under Section 171.105.
(b) Except as provided by Subsections (c) and (d), a taxable
entity's [corporation's] taxable earned surplus is apportioned to
this state to determine the amount of tax imposed under Section
171.002(b)(2) by multiplying the taxable earned surplus by a
fraction, the numerator of which is the taxable entity's
[corporation's] gross receipts from business done in this state, as
determined under Section 171.1032, and the denominator of which is
the taxable entity's [corporation's] gross receipts from its entire
business, as determined under Section 171.1051.
(c) A taxable entity's [corporation's] taxable capital or
earned surplus that is derived, directly or indirectly, from the
sale of management, distribution, or administration services to or
on behalf of a regulated investment company, including a taxable
entity [corporation] that includes trustees or sponsors of employee
benefit plans that have accounts in a regulated investment company,
is apportioned to this state to determine the amount of the tax
imposed under Section 171.002 by multiplying the taxable entity's
[corporation's] total taxable capital or earned surplus from the
sale of services to or on behalf of a regulated investment company
by a fraction, the numerator of which is the average of the sum of
shares owned at the beginning of the year and the sum of shares
owned at the end of the year by the investment company shareholders
who are commercially domiciled in this state or, if the
shareholders are individuals, are residents of this state, and the
denominator of which is the average of the sum of shares owned at
the beginning of the year and the sum of shares owned at the end of
the year by all investment company shareholders. The taxable
entity [corporation] shall make a separate computation to allocate
taxable capital and earned surplus. In this subsection, "regulated
investment company" has the meaning assigned by Section 851(a),
Internal Revenue Code.
(d) A taxable entity's [corporation's] taxable capital or
taxable earned surplus that is derived, directly or indirectly,
from the sale of management, administration, or investment services
to an employee retirement plan is apportioned to this state to
determine the amount of the tax imposed under Section 171.002 by
multiplying the taxable entity's [corporation's] total taxable
capital or earned surplus from the sale of services to an employee
retirement plan company by a fraction, the numerator of which is the
average of the sum of beneficiaries domiciled in Texas at the
beginning of the year and the sum of beneficiaries domiciled in
Texas at the end of the year, and the denominator of which is the
average of the sum of all beneficiaries at the beginning of the year
and the sum of all beneficiaries at the end of the year. The taxable
entity [corporation] shall make a separate computation to apportion
taxable capital and earned surplus. In this section, "employee
retirement plan" means a plan or other arrangement that is
qualified under Section 401(a), Internal Revenue Code, or satisfies
the requirements of Section 403, Internal Revenue Code, or a
government plan described in Section 414(d), Internal Revenue Code.
The term does not include an individual retirement account or
individual retirement annuity within the meaning of Section 408,
Internal Revenue Code.
SECTION 2.10. Section 171.1061, Tax Code, is amended to
read as follows:
Sec. 171.1061. ALLOCATION OF CERTAIN TAXABLE EARNED SURPLUS
TO THIS STATE. An item of income included in a taxable entity's
[corporation's] taxable earned surplus, except that portion
derived from dividends and interest, that a state, other than this
state, or a country, other than the United States, cannot tax
because the activities generating that item of income do not have
sufficient unitary connection with the taxable entity's
[corporation's] other activities conducted within that state or
country under the United States Constitution, is allocated to this
state if the taxable entity's [corporation's] commercial domicile
is in this state. Income that can only be allocated to the state of
commercial domicile because the income has insufficient unitary
connection with any other state or country shall be allocated to
this state or another state or country net of expenses related to
that income. A portion of a taxable entity's [corporation's]
taxable earned surplus allocated to this state under this section
may not be apportioned under Section 171.110(a-4)(2)
[171.110(a)(2)].
SECTION 2.11. Sections 171.107(b), (d), and (e), Tax Code,
are amended to read as follows:
(b) A taxable entity [corporation] may deduct from its
apportioned taxable capital the amortized cost of a solar energy
device or from its apportioned taxable earned surplus 10 percent of
the amortized cost of a solar energy device if:
(1) the device is acquired by the taxable entity
[corporation] for heating or cooling or for the production of
power;
(2) the device is used in this state by the taxable
entity [corporation]; and
(3) the cost of the device is amortized in accordance
with Subsection (c) [of this section].
(d) A taxable entity [corporation] that makes a deduction
under this section shall file with the comptroller an amortization
schedule showing the period in which a deduction is to be made. On
the request of the comptroller, the taxable entity [corporation]
shall file with the comptroller proof of the cost of the solar
energy device or proof of the device's operation in this state.
(e) A taxable entity [corporation] may elect to make the
deduction authorized by this section either from apportioned
taxable capital or apportioned taxable earned surplus for each
separate regular annual period. An election for an initial period
applies to the second tax period and to the first regular annual
period.
SECTION 2.12. Sections 171.108(b), (d), and (e), Tax Code,
as added by Section 4, HB 2201, Acts of the 79th Legislature,
Regular Session, 2005, are amended to read as follows:
(b) A taxable entity [corporation] may deduct from its
apportioned taxable capital the amortized cost of equipment or from
its apportioned taxable earned surplus 10 percent of the amortized
cost of equipment:
(1) that is used in a clean coal project;
(2) that is acquired by the taxable entity
[corporation] for use in generation of electricity, production of
process steam, or industrial production;
(3) that the taxable entity [corporation] uses in this
state; and
(4) the cost of which is amortized in accordance with
Subsection (c).
(d) A taxable entity [corporation] that makes a deduction
under this section shall file with the comptroller an amortization
schedule showing the period for which the deduction is to be made.
On the request of the comptroller, the taxable entity [corporation]
shall file with the comptroller proof of the cost of the equipment
or proof of the equipment's operation in this state.
(e) A taxable entity [corporation] may elect to make the
deduction authorized by this section from apportioned taxable
capital or apportioned taxable earned surplus, but not from both,
for each separate regular annual period. An election for an initial
period applies to the second tax period and to the first regular
annual period.
SECTION 2.13. Section 171.109, Tax Code, is amended by
amending Subsections (a), (b)-(f), (h), (j), (k), (m), and (n), by
reenacting and amending Subsection (g), as amended by Chapters 801
and 1198, Acts of the 71st Legislature, Regular Session, 1989, and
by adding Subsection (a-2) to read as follows:
(a) In this chapter:
(1) "Surplus" or "taxable capital" means the net
assets of a taxable entity [corporation minus its stated capital.
For a limited liability company, "surplus" means the net assets of
the company minus its members' contributions]. Surplus includes
unrealized, estimated, or contingent losses or obligations or any
writedown of assets other than those listed in Subsection (i) [of
this section] net of appropriate income tax provisions. The
definition under this subdivision does not apply to earned surplus.
(2) "Net assets" means the total assets of a taxable
entity [corporation] minus its total debts.
(3) "Debt" means any legally enforceable obligation
measured in a certain amount of money which must be performed or
paid within an ascertainable period of time or on demand.
(a-2) In this section, "distribution" includes a dividend.
(b) Except as otherwise provided in this section, a taxable
entity [corporation] must compute its surplus, assets, and debts
according to generally accepted accounting principles. If
generally accepted accounting principles are unsettled or do not
specify an accounting practice for a particular purpose related to
the computation of surplus, assets, or debts, the comptroller by
rule may establish rules to specify the applicable accounting
practice for that purpose.
(c) A taxable entity [corporation] whose taxable capital is
less than $1 million may report its surplus according to the method
used in the taxable entity's [corporation's] most recent federal
income tax return originally due on or before the date on which the
taxable entity's [corporation's] franchise tax report is originally
due. In determining if taxable capital is less than $1 million, the
taxable entity [corporation] shall apply the methods the taxable
entity [corporation] used in computing that federal income tax
return unless another method is required under this chapter.
(d) A taxable entity [corporation] shall report its surplus
based solely on its own financial condition. Consolidated
reporting of surplus is prohibited.
(e) A taxable entity [Unless the provisions of Section
171.111 apply due to an election under that section, a corporation]
may not change the accounting methods used to compute its surplus
more often than once every four years without the written consent of
the comptroller. A change in accounting methods is not justified
solely because it results in a reduction of tax liability.
(f) A taxable entity making a distribution [corporation
declaring dividends] shall exclude the distribution [those
dividends] from its taxable capital, and a taxable entity
[corporation] receiving a distribution [dividends] shall include
the distribution [those dividends] in its gross receipts and
taxable capital as of the earlier of:
(1) the date the distribution is [dividends are]
declared, if the distribution is [dividends are] actually paid in
cash or property other than a note payable within one year after the
declaration date; or
(2) the date the distribution is [dividends are]
actually paid in cash or property other than a note payable.
(g) All oil and gas exploration and production activities
conducted by a taxable entity [corporation] that reports its
surplus according to generally accepted accounting principles as
required or permitted by this chapter must be reported according to
the successful efforts or the full cost method of accounting.
(h) A parent or investor taxable entity [corporation] must
use the cost method of accounting in reporting and calculating the
franchise tax on its investments in subsidiary taxable entities
[corporations] or other investees. The retained earnings of a
subsidiary taxable entity [corporation] or other investee before
acquisition by the parent or investor taxable entity [corporation]
may not be excluded from the cost of the subsidiary taxable entity
[corporation] or investee to the parent or investor taxable entity
[corporation] and must be included by the parent or investor
taxable entity [corporation] in calculating its surplus.
(j) A taxable entity [corporation] may not exclude from
surplus:
(1) liabilities for compensation and other benefits
provided to employees, other than wages, that are not debt as of the
end of the accounting period on which the taxable capital component
is based, including retirement, medical, insurance,
postretirement, and other similar benefits; and
(2) deferred investment tax credits.
(k) Notwithstanding any other provision in this chapter, a
taxable entity [corporation] subject to the tax imposed by this
chapter shall use double entry bookkeeping to account for all
transactions that affect the computation of that tax.
(m) A taxable entity [corporation] may not use the push-down
method of accounting in computing or reporting its surplus.
[(n) A corporation must use the equity method of accounting
when reporting an investment in a partnership or joint venture.]
SECTION 2.14. Section 171.110, Tax Code, is amended to read
as follows:
Sec. 171.110. DETERMINATION OF NET TAXABLE EARNED SURPLUS.
(a) The [net] taxable earned surplus of a corporation is computed
by[:
[(1)] determining the corporation's reportable
federal taxable income, subtracting from that amount any amount
excludable under Subsection (k), any amount included in reportable
federal taxable income under Section 78 or Sections 951-964,
Internal Revenue Code, and 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 adding
to that amount any compensation of officers or directors, or if a
bank, any compensation of directors and executive officers, to the
extent excluded in determining federal taxable income.
(a-1) The comptroller shall adopt rules to determine the
reportable federal taxable income of an entity other than a
corporation using principles similar to the standards applied to a
corporation and a limited liability company.
(a-2) The taxable earned surplus of a partnership is the
greater of:
(1) an amount computed by:
(A) determining the amount of the partnership's
ordinary income or loss under applicable provisions of the Internal
Revenue Code, and adding guaranteed payments to partners and
capital gains that are additional items not already included in
ordinary income or loss; and
(B) subtracting:
(i) the amount paid to the partners that is
subject to self-employment taxes; and
(ii) the amount paid to a qualified pension
plan or benefit plan for the partners; or
(2) 15 percent of the amount determined under
Subdivision (1)(A).
(a-3) The taxable earned surplus of an entity other than a
corporation or a partnership is the entity's reportable federal
taxable income.
(a-4) The net taxable earned surplus of a taxable entity is
computed by:
(1) determining the taxable entity's taxable earned
surplus as provided by Subsection (a), (a-1), (a-2), or (a-3), as
appropriate [to determine the corporation's taxable earned
surplus];
(2) apportioning the taxable entity's [corporation's]
taxable earned surplus to this state as provided by Section
171.106(b) or (c), as applicable, to determine the taxable entity's
[corporation's] apportioned taxable earned surplus;
(3) adding the taxable entity's [corporation'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 (e).
[(b) Except as provided by Subsection (c), a corporation is
not required to add the compensation of officers or directors as
required by Subsection (a)(1) if the corporation is:
[(1) a corporation that has not more than 35
shareholders; or
[(2) an S corporation, as that term is defined by
Section 1361, Internal Revenue Code.
[(c) A subsidiary corporation may not claim the exclusion
under Subsection (b) if it has a parent corporation that does not
qualify for the exclusion. For purposes of this subsection, a
corporation qualifies as a parent if it ultimately controls the
subsidiary, even if the control arises through a series or group of
other subsidiaries or entities. Control is presumed if a parent
corporation directly or indirectly owns, controls, or holds a
majority of the outstanding voting stock of a corporation or
ownership interests in another entity.]
(d) A corporation's reportable federal taxable income is
the corporation's federal taxable income after Schedule C special
deductions and before net operating loss deductions as computed
under the Internal Revenue Code, except that an S corporation's
reportable federal taxable income is the amount of the income
reportable to the Internal Revenue Service as taxable to the
corporation's shareholders.
(e) 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 from a tax year that ends before
January 1, 1991, may not be used to reduce net taxable earned
surplus. A business loss can be carried forward only by the taxable
entity [corporation] that incurred the loss and cannot be
transferred to or claimed by any other entity, including the
survivor of a merger if the loss was incurred by the taxable entity
[corporation] that did not survive the merger.
(f) A taxable entity [corporation] may use either the "first
in-first out" or "last in-first out" method of accounting to
compute its net taxable earned surplus, but only to the extent that
the taxable entity [corporation] used that method on its most
recent federal income tax report originally due on or before the
date on which the taxable entity's [corporation's] franchise tax
report is originally due.
[(g) For purposes of this section, an approved Employee
Stock Ownership Plan controlling a minority interest and voted
through a single trustee shall be considered one shareholder.]
(h) A taxable entity [corporation] shall report its net
taxable earned surplus based solely on its own financial condition.
Consolidated reporting is prohibited.
[(i) For purposes of this section, any person designated as
an officer is presumed to be an officer if that person:
[(1) holds an office created by the board of directors
or under the corporate charter or bylaws; and
[(2) has legal authority to bind the corporation with
third parties by executing contracts or other legal documents.
[(j) A corporation may rebut the presumption described in
Subsection (i) that a person is an officer if it conclusively shows,
through the person's job description or other documentation, that
the person does not participate or have authority to participate in
significant policy making aspects of the corporate operations.]
(k) Dividends and interest received from federal
obligations are not included in earned surplus or gross receipts
for earned surplus purposes.
(l) In this section:
(1) "Federal obligations" means:
(A) stocks and other direct obligations of, and
obligations unconditionally guaranteed by, the United States
government and United States government agencies; and
(B) direct obligations of a United States
government-sponsored agency.
(2) "Obligation" means any bond, debenture, security,
mortgage-backed security, pass-through certificate, or other
evidence of indebtedness of the issuing entity. The term does not
include a deposit, a repurchase agreement, a loan, a lease, a
participation in a loan or pool of loans, a loan collateralized by
an obligation of a United States government agency, or a loan
guaranteed by a United States government agency.
(3) "United States government" means any department or
ministry of the federal government, including a federal reserve
bank. The term does not include a state or local government, a
commercial enterprise owned wholly or partly by the United States
government, or a local governmental entity or commercial enterprise
whose obligations are guaranteed by the United States government.
(4) "United States government agency" means an
instrumentality of the United States government whose obligations
are fully and explicitly guaranteed as to the timely payment of
principal and interest by the full faith and credit of the United
States government. The term includes the Government National
Mortgage Association, the Department of Veterans Affairs, the
Federal Housing Administration, the Farmers Home Administration,
the Export-Import Bank, the Overseas Private Investment
Corporation, the Commodity Credit Corporation, the Small Business
Administration, and any successor agency.
(5) "United States government-sponsored agency" means
an agency originally established or chartered by the United States
government to serve public purposes specified by the United States
Congress but whose obligations are not explicitly guaranteed by the
full faith and credit of the United States government. The term
includes the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Farm Credit System, the Federal
Home Loan Bank System, the Student Loan Marketing Association, and
any successor agency.
(m) Except as provided by Subsection (n), in determining net
taxable earned surplus, a taxable entity shall add back to
reportable federal taxable income any royalty payment, interest
payment, or management fee payment made to a related entity during
the period on which earned surplus is based to the extent deducted
in computing reportable federal taxable income.
(n)(1) A taxable entity is not required to add back royalty
payments made to a related entity if:
(A) the related entity during the period on which
earned surplus is based directly or indirectly paid or incurred the
amount to a person or entity that is not a related party, the
transaction was done for a valid business purpose, and the payments
were made at arm's length; or
(B) the royalty payments are paid or incurred to
a related party organized under the laws of a foreign nation, are
subject to a comprehensive income tax treaty between the foreign
nation and the United States, and are taxed in the foreign nation at
a tax rate equal to or greater than 4.5 percent.
(2) A taxable entity is not required to add back
interest payments made to a related entity if:
(A) the rate of interest used to calculate
interest payments does not exceed the interest rate provided by
Section 111.060(b) that was in effect at the time the loan agreement
was made; or
(B) the related entity during the period on which
earned surplus is based directly or indirectly paid or incurred the
amount to a person or entity that is not a related entity, the
transaction was done for a valid business purpose, and the payments
were made at arm's length.
(3) A taxable entity is not required to add back
management fee payments made to a related entity if the taxable
entity established by a preponderance of the evidence that the
payment between the taxable entity and a related entity had a valid
business purpose and the payments were made at arm's length.
(o) For purposes of Subsections (m) and (n), the following
terms have the following meanings:
(1) "Arm's length" means the standard of conduct under
which unrelated parties having substantially equal bargaining
power, each acting in its own interest, would negotiate or carry out
a particular transaction.
(2) "Controlling interest" means:
(A) for a corporation, either 50 percent or more,
owned directly or indirectly, of the total combined voting power of
all classes of stock of the corporation, or 50 percent or more,
owned directly or indirectly, of the beneficial ownership interest
in the voting stock of the corporation; and
(B) for a partnership, association, trust, or
other entity, 50 percent or more, owned directly or indirectly, of
the capital, profits, or beneficial interest in the partnership,
association, trust, or other entity.
(3) "Interest payment" means an amount allowable as an
interest deduction under Section 163, Internal Revenue Code.
(4) "Management fee" includes expenses and costs paid
for services pertaining to accounts receivable and payable,
employee benefit plans, insurance, legal, consulting, payroll,
data processing, purchasing, tax, financial and securities,
accounting, reporting and compliance services, or similar
services.
(5) "Related entity" means a person, corporation, or
other entity, including an entity that is treated as a pass-through
or disregarded entity for purposes of federal taxation, whether the
person, corporation, or entity is a taxable entity or not, in which
one person, corporation, or entity, or set of related persons,
corporations, or entities, directly or indirectly owns or controls
a controlling interest in another entity.
(6) "Royalty payment" means a payment related to the
acquisition, use, maintenance or management, ownership, sale,
exchange, or any other disposition of licenses, trademarks,
copyrights, trade names, trade dress, service marks, mask works,
trade secrets, patents, or any other similar types of intangible
assets as determined by the comptroller.
(7) "Valid business purpose" means one or more
business purposes, other than the avoidance or reduction of taxes,
that alone or in combination constitute the primary motivation for
a business activity or transaction that changes in a meaningful
way, apart from tax effects, the economic position of the entity. A
meaningful change in the taxable entity's economic position
includes an increase in its market share or entry into new business
markets.
(p) Notwithstanding any other provision of this section, a
taxable entity shall add back to reportable federal taxable income
any payments made to a related party that is an entity described in
Section 171.001(b)(9-b)(G) during the period on which earned
surplus is based to the extent deducted in computing reportable
federal taxable income.
(q) The comptroller may distribute, apportion, or allocate
gross income, deductions, credits, or allowances between or among
two or more organizations, trades, or businesses, whether or not
incorporated, whether or not organized in the United States, and
whether or not affiliated, if:
(1) the organizations, trades, or businesses are owned
or controlled directly or indirectly by the same interests; and
(2) the comptroller determines that the distribution,
apportionment, or allocation is necessary to reflect an
arm's-length standard, within the meaning of 26 C.F.R. Section
1.482-1, and to clearly reflect the income of those organizations,
trades, or businesses.
(r) In administering Subsection (q), the comptroller shall
apply the administrative and judicial interpretations of Section
482, Internal Revenue Code.
SECTION 2.15. Sections 171.112(b)-(f) and (h), Tax Code,
are amended to read as follows:
(b) Except as otherwise provided in this section, a taxable
entity [corporation] must compute gross receipts in accordance with
generally accepted accounting principles. If generally accepted
accounting principles are unsettled or do not specify an accounting
practice for a particular purpose related to the computation of
gross receipts, the comptroller by rule may establish rules to
specify the applicable accounting practice.
(c) A taxable entity [corporation] whose taxable capital is
less than $1 million may report its gross receipts according to the
method used in the taxable entity's [corporation's] most recent
federal income tax return originally due on or before the date on
which the taxable entity's [corporation's] franchise tax report is
originally due. In determining if taxable capital is less than $1
million, the taxable entity [corporation] shall apply the methods
the taxable entity [corporation] used in computing that federal
income tax return unless another method is required under this
chapter.
(d) A taxable entity [corporation] shall report its gross
receipts based solely on its own financial condition. Consolidated
reporting is prohibited.
(e) Unless the provisions of Section 171.111 apply due to an
election under that section, a taxable entity [corporation] may not
change its accounting methods used to calculate gross receipts more
often than once every four years without the express written
consent of the comptroller. A change in accounting methods is not
justified solely because it results in a reduction of tax
liability.
(f) Notwithstanding any other provision in this chapter, a
taxable entity [corporation] subject to the tax imposed by this
chapter shall use double entry bookkeeping to account for all
transactions that affect the computation of that tax.
(h) Except as otherwise provided by this section, a taxable
entity [corporation] shall use the same accounting methods to
apportion its taxable capital as it used to compute its taxable
capital.
SECTION 2.16. Sections 171.1121(a)-(d), Tax Code, are
amended to read as follows:
(a) For purposes of this section, "gross receipts" means all
revenues reportable by a taxable entity [corporation] on its
federal tax return, without deduction for the cost of property
sold, materials used, labor performed, or other costs incurred,
unless otherwise specifically provided in this chapter. "Gross
receipts" does not include revenues that are not included in
taxable earned surplus. For example, Schedule C special deductions
and any amounts subtracted from reportable federal taxable income
under Section 171.110(a) [171.110(a)(1)] are not included in
taxable earned surplus and therefore are not considered gross
receipts.
(b) Except as otherwise provided by this section, a taxable
entity [corporation] shall use the same accounting methods to
apportion taxable earned surplus as used in computing reportable
federal taxable income.
(c) A taxable entity [corporation] shall report its gross
receipts based solely on its own financial condition. Consolidated
reporting is prohibited.
(d) Unless the provisions of Section 171.111 apply due to an
election under that section, a taxable entity [corporation] may not
change its accounting methods used to calculate gross receipts more
often than once every four years without the express written
consent of the comptroller. A change in accounting methods is not
justified solely because it results in a reduction of tax
liability.
SECTION 2.17. Section 171.113, Tax Code, is amended to read
as follows:
Sec. 171.113. ALTERNATE METHOD OF DETERMINING TAXABLE
CAPITAL AND GROSS RECEIPTS FOR CERTAIN TAXABLE ENTITIES
[CORPORATIONS]. (a) This section applies only to:
(1) a corporation organized as a close corporation
under Part 12, Texas Business Corporation Act, that has not more
than 35 shareholders;
(2) a foreign corporation organized under the close
corporation law of another state that has not more than 35
shareholders; [and]
(3) an S corporation as that term is defined by Section
1361, Internal Revenue Code of 1986 (26 U.S.C. Section 1361); and
(4) a taxable entity other than a corporation that has
35 or fewer owners.
(b) A taxable entity [corporation] to which this section
applies may elect to compute its surplus, assets, debts, and gross
receipts according to the method the taxable entity [corporation]
uses to report its federal income tax instead of as provided by
Sections 171.109(b) and (g) and Section 171.112(b). This section
does not affect the application of the other subsections of
Sections 171.109 and 171.112 and other provisions of this chapter
to a taxable entity [corporation] making the election.
(c) The comptroller may adopt rules as necessary to specify
the reporting requirements for taxable entities [corporations] to
which this section applies.
(d) This section does not apply to a subsidiary of a taxable
entity [corporation] unless it applies to the parent [corporation]
of the subsidiary.
(e) The election under Subsection (b) becomes effective
when written notice of the election is received by the comptroller
from the taxable entity [corporation]. An election under
Subsection (b) must be postmarked not later than the due date for
the electing taxable entity's [corporation's] franchise tax report
to which the election applies.
SECTION 2.18. Chapter 171, Tax Code, is amended by adding
Subchapter C-1 to read as follows:
SUBCHAPTER C-1. TAXABLE WAGES
Sec. 171.131. TAXABLE WAGES. (a) In this section:
(1) "Employee" means an employee described by Section
171.133 or 171.134.
(2) "Wages" means:
(A) wages as defined under Subchapter F, Chapter
201, Labor Code, paid by a taxable entity and includes the amounts
excluded by Sections 201.082(1) and (9), Labor Code; and
(B) wages, to the extent not covered by Paragraph
(A), described under Section 171.132.
(b) The taxable wages of a taxable entity are the total
amount of wages paid by the entity to all of the entity's employees
during the reporting period as provided by Section 171.1533.
Sec. 171.132. LOCATION OF SERVICE. (a) Wages include wages
for a service performed in this state or in and outside this state
if:
(1) the service is localized in this state; or
(2) the service is not localized in any state and some
of the service is performed in this state and:
(A) the base of operations is in this state, or
there is no base of operations but the service is directed or
controlled from this state; or
(B) the base of operations or place from which
the service is directed or controlled is not in a state in which a
part of the service is performed, and the residence of the person
who performs the service is in this state.
(b) Wages include wages for a service performed anywhere in
the United States, including service performed entirely outside
this state, if:
(1) the service is not localized in a state;
(2) the service is performed by an individual who is
one of a class of employees who are required to travel outside this
state in performance of their duties; and
(3) the individual's base of operations is in this
state or, if there is no base of operations, the individual's
service is directed or controlled from this state.
(c) Wages include wages for a service performed outside the
United States by a citizen of the United States.
(d) For the purposes of this section, service is localized
in a state if the service is performed entirely within the state or
the service performed outside the state is incidental to the
service performed in the state. In this section, a service that is
"incidental" includes a service that is temporary or that consists
of isolated transactions.
Sec. 171.133. FULL-TIME AND PART-TIME EMPLOYEES. (a) In
this section, "contribution" has the meaning assigned that term by
Section 201.011, Labor Code.
(b) An individual is an employee if the taxable entity pays
or is required to pay a contribution for a reporting period without
regard to whether:
(1) the individual is a full-time or part-time
employee; or
(2) the wages paid were for the entire reporting
period or a portion of the reporting period.
Sec. 171.134. DETERMINATION OF WHETHER CERTAIN INDIVIDUALS
ARE EMPLOYEES. An individual is an employee of a taxable entity as
provided by this section, without regard to whether the taxable
entity pays a contribution for the individual, if the individual
provides services in this state to the taxable entity for
compensation and the taxable entity has a right to direct and
control how the individual performs the services for which the
individual is provided compensation, indicated by factors that
include:
(1) whether the individual is subject to the taxable
entity's instructions about when, where, and how to work;
(2) whether the individual is trained to perform
services in a particular manner;
(3) the extent to which the individual has
unreimbursed business expenses;
(4) the extent to which the individual has a
significant investment in the facilities the individual uses in
performing the services;
(5) the extent to which the individual makes the
individual's services available to the relevant market by
advertising, by maintaining a visible business location, or
otherwise;
(6) the extent to which the individual can realize a
profit or loss;
(7) the manner in which the individual is paid by the
taxable entity;
(8) whether a written contract between the individual
and the taxable entity provides that the individual is or is not an
employee;
(9) whether the taxable entity provides the individual
with employee-type benefits, including insurance, a pension plan,
vacation pay, or sick pay;
(10) whether the relationship between the individual
and the taxable entity is considered permanent or for a limited
period; and
(11) the extent to which services performed by the
individual are a key aspect of the affairs of the taxable entity.
SECTION 2.19. Section 171.151, Tax Code, is amended to read
as follows:
Sec. 171.151. PRIVILEGE PERIOD COVERED BY TAX. The
franchise tax shall be paid for each of the following:
(1) an initial period beginning on the taxable
entity's [corporation's] beginning date and ending on the day
before the first anniversary of the beginning date;
(2) a second period beginning on the first anniversary
of the beginning date and ending on December 31 following that date;
and
(3) after the initial and second periods have expired,
a regular annual period beginning each year on January 1 and ending
the following December 31.
SECTION 2.20. Section 171.152(c), Tax Code, is amended to
read as follows:
(c) Payment of the tax covering the regular annual period is
due May 15, of each year after the beginning of the regular annual
period. However, if the first anniversary of the taxable entity's
[corporation's] beginning date is after October 3 and before
January 1, the payment of the tax covering the first regular annual
period is due on the same date as the tax covering the initial
period.
SECTION 2.21. Sections 171.153(a) and (c), Tax Code, are
amended to read as follows:
(a) The tax covering the initial period is reported on the
initial report and is based on the business done by the taxable
entity [corporation] during the period beginning on the taxable
entity's [corporation's] beginning date and:
(1) ending on the last accounting period ending date
that is at least six months after the beginning date and at least 60
days before the original due date of the initial report; or
(2) if there is no such period ending date in
Subdivision (1) [of this subsection], then ending on the day that is
the last day of a calendar month and that is nearest to the end of
the taxable entity's [corporation's] first year of business; or
(3) ending on the day after the merger occurs, for the
survivor of a merger which occurs after the day on which the tax is
based in Subdivision (1) or [Subdivision] (2), whichever is
applicable, [of Subsection (a)] and before January 1, of the year an
initial report is due by the survivor.
(c) The tax covering the regular annual period is based on
the business done by the taxable entity [corporation] during its
last accounting period that ends in the year before the year in
which the tax is due; unless a taxable entity [corporation] is the
survivor of a merger which occurs between the end of its last
accounting period in the year before the report year and January 1
of the report year, in which case the tax will be based on the
financial condition of the surviving taxable entity [corporation]
for the 12-month period ending on the day after the merger.
However, if the first anniversary of the taxable entity's
[corporation's] beginning date is after October 3 and before
January 1, the tax covering the first regular annual period is based
on the same business on which the tax covering the initial period is
based and is reported on the initial report.
SECTION 2.22. Section 171.1532, Tax Code, is amended to
read as follows:
Sec. 171.1532. BUSINESS ON WHICH TAX ON NET TAXABLE EARNED
SURPLUS IS BASED. (a) The tax covering the privilege periods
included on the initial report, as required by Section 171.153, is
based on the business done by the taxable entity [corporation]
during the period beginning on the taxable entity's [corporation's]
beginning date and:
(1) ending on the last accounting period ending date
that is at least 60 days before the original due date of the initial
report; or
(2) if there is no such period ending date in
Subdivision (1) [of this subsection], then ending on the day that is
the last day of a calendar month and that is nearest to the end of
the taxable entity's [corporation's] first year of business.
(b) The tax covering the regular annual period, other than a
regular annual period included on the initial report, is based on
the business done by the taxable entity [corporation] during the
period beginning with the day after the last date upon which net
taxable earned surplus on a previous report was based and ending
with its last accounting period ending date for federal income tax
purposes in the year before the year in which the report is
originally due.
SECTION 2.23. Subchapter D, Chapter 171, Tax Code, is
amended by adding Section 171.1533 to read as follows:
Sec. 171.1533. WAGES ON WHICH TAX ON TAXABLE WAGES IS BASED.
(a) The tax covering the privilege periods included on the initial
report, as required by Section 171.153, is based on the taxable
wages paid by the taxable entity during the period beginning on the
taxable entity's beginning date and:
(1) ending on the last accounting period ending date
that is at least 60 days before the original due date of the initial
report; or
(2) if there is no such period ending date in
Subdivision (1), then ending on the day that is the last day of a
calendar month and that is nearest to the end of the taxable
entity's first year of business.
(b) The tax covering the regular annual period, other than a
regular annual period included on the initial report, is based on
the taxable wages paid by the taxable entity during the period
beginning with the day after the last date on which taxable wages on
a previous report was based and ending with its last accounting
period ending date for federal income tax purposes in the year
before the year in which the report is originally due.
SECTION 2.24. Section 171.154, Tax Code, is amended to read
as follows:
Sec. 171.154. PAYMENT TO COMPTROLLER. A taxable entity
[corporation] on which a tax is imposed by this chapter shall pay
the tax to the comptroller.
SECTION 2.25. Section 171.201, Tax Code, is amended to read
as follows:
Sec. 171.201. INITIAL REPORT. (a) Except as provided by
Section 171.2022, a taxable entity [corporation] on which the
franchise tax is imposed shall file an initial report with the
comptroller containing:
(1) information showing the financial condition of the
taxable entity [corporation] on the day that is the last day of a
calendar month and that is nearest to the end of the taxable
entity's [corporation's] first year of business;
(2) the name and address of:
(A) each officer, [and] director, and manager of
the taxable entity [corporation];
(B) for a limited partnership, each general
partner;
(C) for a limited liability partnership, each
managing partner or, if there is not a managing partner, each
partner; or
(D) for a trust, each trustee;
(3) the name and address of the agent of the taxable
entity [corporation] designated under Section 171.354; [and]
(4) a statement declaring the entity's election of
rate required under Section 171.0011 or 171.0012, as applicable;
and
(5) other information required by the comptroller.
(b) The taxable entity [corporation] shall file the report
on or before the date the payment is due under Subsection (a) of
Section 171.152.
SECTION 2.26. Sections 171.202(a)-(f) and (i), Tax Code,
are amended to read as follows:
(a) Except as provided by Section 171.2022, a taxable entity
[corporation] on which the franchise tax is imposed shall file an
annual report with the comptroller containing:
(1) financial and other information of the taxable
entity [corporation] necessary to compute the tax under this
chapter on both the rate provided by Section 171.002 and the
alternate rate provided by Section 171.003;
(2) the name and address of each officer and director
of the taxable entity [corporation];
(3) the name and address of the agent of the taxable
entity [corporation] designated under Section 171.354; [and]
(4) if applicable, a statement declaring that the
election period provided by Section 171.0011(b) has expired and the
entity's election of rate under Section 171.0011 or 171.0012, as
applicable, for the next election period; and
(5) other information required by the comptroller.
(b) The taxable entity [corporation] shall file the report
before May 16 of each year after the beginning of the regular annual
period. The report shall be filed on forms supplied by the
comptroller.
(c) The comptroller shall grant an extension of time to a
taxable entity [corporation] that is not required by rule to make
its tax payments by electronic funds transfer for the filing of a
report required by this section to any date on or before the next
November 15, if a taxable entity [corporation]:
(1) requests the extension, on or before May 15, on a
form provided by the comptroller; and
(2) remits with the request:
(A) not less than 90 percent of the amount of tax
reported as due on the report filed on or before November 15; or
(B) 100 percent of the tax reported as due for the
previous calendar year on the report due in the previous calendar
year and filed on or before May 14.
(d) In the case of a taxpayer whose previous return was its
initial report, the optional payment provided under Subsection
(c)(2)(B) or (e)(2)(B) must be equal to the greater of:
(1) an amount produced by multiplying the net taxable
capital, as reported on the initial report filed on or before May
14, by the rate of tax in Section 171.002(a)(1) that is effective
January 1 of the year in which the report is due; [or]
(2) an amount produced by multiplying the net taxable
earned surplus, as reported on the initial report filed on or before
May 14, by the rate of tax in Section 171.002(a)(2) that is
effective January 1 of the year in which the report is due; or
(3) an amount produced by multiplying taxable wages,
as reported on the initial report filed on or before May 14, by the
rate of tax in Section 171.003 that is effective January 1 of the
year in which the report is due.
(e) The comptroller shall grant an extension of time for the
filing of a report required by this section by a taxable entity
[corporation] required by rule to make its tax payments by
electronic funds transfer to any date on or before the next August
15, if the taxable entity [corporation]:
(1) requests the extension, on or before May 15, on a
form provided by the comptroller; and
(2) remits with the request:
(A) not less than 90 percent of the amount of tax
reported as due on the report filed on or before August 15; or
(B) 100 percent of the tax reported as due for the
previous calendar year on the report due in the previous calendar
year and filed on or before May 14.
(f) The comptroller shall grant an extension of time to a
taxable entity [corporation] required by rule to make its tax
payments by electronic funds transfer for the filing of a report due
on or before August 15 to any date on or before the next November 15,
if the taxable entity [corporation]:
(1) requests the extension, on or before August 15, on
a form provided by the comptroller; and
(2) remits with the request the difference between the
amount remitted under Subsection (e) and 100 percent of the amount
of tax reported as due on the report filed on or before November 15.
(i) If a taxable entity [corporation]
requesting an extension under Subsection (c) or (e) does not file
the report due in the previous calendar year on or before May 14,
the taxable entity [corporation] may not receive an extension under
Subsection (c) or (e) unless the taxable entity [corporation]
complies with Subsection (c)(2)(A) or (e)(2)(A), as appropriate.
SECTION 2.27. Section 171.2022, Tax Code, is amended to
read as follows:
Sec. 171.2022. EXEMPTION FROM REPORTING REQUIREMENTS. A
taxable entity [corporation] that does not owe any tax under this
chapter for any period is not required to file a report under
Section 171.201 or[,] 171.202[, or 171.2021]. The exemption
applies only to a period for which no tax is due.
SECTION 2.28. Section 171.204, Tax Code, is amended to read
as follows:
Sec. 171.204. INFORMATION REPORT. (a) Except as provided
by Subsection (b), to determine eligibility for the exemption
provided by Section 171.2022, or to determine the amount of the
franchise tax or the correctness of a franchise tax report, the
comptroller may require [an officer of] a taxable entity
[corporation] that may be subject to the tax imposed under this
chapter to file an information report with the comptroller stating
the amount of the taxable entity's [corporation's] taxable capital,
[and] earned surplus, wages paid, or any other information the
comptroller may request.
(b) The comptroller may require a taxable entity [an officer
of a corporation] that does not owe any tax because of the
application of Section 171.004(2) [171.002(d)(2)] to file an
abbreviated information report with the comptroller stating the
amount of the taxable entity's [corporation's] gross receipts from
its entire business. The comptroller may not require a taxable
entity [corporation] described by this subsection to file an
information report that requires the taxable entity [corporation]
to report or compute its earned surplus, [or] taxable capital, or
wages paid.
SECTION 2.29. Section 171.205, Tax Code, is amended to read
as follows:
Sec. 171.205. ADDITIONAL INFORMATION REQUIRED BY
COMPTROLLER. The comptroller may require a taxable entity
[corporation] on which the franchise tax is imposed to furnish to
the comptroller information from the taxable entity's
[corporation's] books and records that has not been filed
previously and that is necessary for the comptroller to determine
the amount of the tax.
SECTION 2.30. Section 171.206, Tax Code, is amended to read
as follows:
Sec. 171.206. CONFIDENTIAL INFORMATION. Except as provided
by Section 171.207 [of this code], the following information is
confidential and may not be made open to public inspection:
(1) information that is obtained from a record or
other instrument that is required by this chapter to be filed with
the comptroller; or
(2) information, including information about the
business affairs, operations, profits, losses, or expenditures of a
taxable entity [corporation], obtained by an examination of the
books and records, officers, partners, trustees, agents, or
employees of a taxable entity [corporation] on which a tax is
imposed by this chapter.
SECTION 2.31. Section 171.208, Tax Code, is amended to read
as follows:
Sec. 171.208. PROHIBITION OF DISCLOSURE OF INFORMATION. A
person, including a state officer or employee or an owner [a
shareholder] of a taxable entity [corporation], who has access to a
report filed under this chapter may not make known in a manner not
permitted by law the amount or source of the taxable entity's
[corporation's] income, profits, losses, expenditures, or other
information in the report relating to the financial condition of
the taxable entity [corporation].
SECTION 2.32. Section 171.209, Tax Code, is amended to read
as follows:
Sec. 171.209. RIGHT OF OWNER [SHAREHOLDER] TO EXAMINE OR
RECEIVE REPORTS. If an owner [a person owning at least one share of
outstanding stock] of a taxable entity [corporation] on whom the
franchise tax is imposed presents evidence of the ownership to the
comptroller, the person is entitled to examine or receive a copy of
an initial or annual report that is filed under Section 171.201 or
171.202 [of this code] and that relates to the taxable entity
[corporation].
SECTION 2.33. Section 171.211, Tax Code, is amended to read
as follows:
Sec. 171.211. EXAMINATION OF [CORPORATE] RECORDS. To
determine the franchise tax liability of a taxable entity
[corporation], the comptroller may investigate or examine the
records of the taxable entity [corporation].
SECTION 2.34. Subchapter E, Chapter 171, Tax Code, is
amended by adding Section 171.213 to read as follows:
Sec. 171.213. ACCESS TO TEXAS WORKFORCE COMMISSION REPORTS.
The comptroller shall have full access to reports filed by a taxable
entity on wages paid with the Texas Workforce Commission.
SECTION 2.35. The heading to Subchapter F, Chapter 171, Tax
Code, is amended to read as follows:
SUBCHAPTER F. FORFEITURE OF CORPORATE AND BUSINESS PRIVILEGES
SECTION 2.36. Subchapter F, Chapter 171, Tax Code, is
amended by adding Section 171.2515 to read as follows:
Sec. 171.2515. FORFEITURE OF RIGHT OF PARTNERSHIP TO
TRANSACT BUSINESS IN THIS STATE. (a) The comptroller may, for the
same reasons and using the same procedures the comptroller uses in
relation to the forfeiture of the corporate privileges of a
corporation, forfeit the right of a partnership subject to a tax
imposed by this chapter to transact business in this state.
(b) The provisions of this subchapter, including Section
171.255, that apply to the forfeiture of corporate privileges apply
to the forfeiture of a partnership's right to transact business in
this state.
SECTION 2.37. Section 171.351, Tax Code, is amended to read
as follows:
Sec. 171.351. VENUE OF SUIT TO ENFORCE CHAPTER. Venue of a
civil suit against a taxable entity [corporation] to enforce this
chapter is either in a county where the taxable entity's
[corporation's] principal office is located according to its
charter or certificate of authority or in Travis County.
SECTION 2.38. Section 171.353, Tax Code, is amended to read
as follows:
Sec. 171.353. APPOINTMENT OF RECEIVER. If a court forfeits
a taxable entity's [corporation's] charter or certificate of
authority, the court may appoint a receiver for the taxable entity
[corporation] and may administer the receivership under the laws
relating to receiverships.
SECTION 2.39. Section 171.354, Tax Code, is amended to read
as follows:
Sec. 171.354. AGENT FOR SERVICE OF PROCESS. Each taxable
entity [corporation] on which a tax is imposed by this chapter shall
designate a resident of this state as the taxable entity's
[corporation's] agent for the service of process.
SECTION 2.40. Sections 171.362(a), (d), and (e), Tax Code,
are amended to read as follows:
(a) If a taxable entity [corporation] on which a tax is
imposed by this chapter fails to pay the tax when it is due and
payable or fails to file a report required by this chapter when it
is due, the taxable entity [corporation] is liable for a penalty of
five percent of the amount of the tax due.
(d) If a taxable entity [corporation] electing to remit
under [Paragraph (A) of Subdivision (2) of Subsection (c) of]
Section 171.202(c)(2)(A) [171.202 of this code] remits less than
the amount required, the penalties imposed by this section and the
interest imposed under Section 111.060 [of this code] are assessed
against the difference between the amount required to be remitted
under [Paragraph (A) of Subdivision (2) of Subsection (c) of]
Section 171.202(c)(2)(A) [171.202] and the amount actually
remitted on or before May 15.
(e) If a taxable entity [corporation] remits the entire
amount required by [Subsection (c) of] Section 171.202(c) [171.202
of this code], no penalties will be imposed against the amount
remitted on or before November 15.
SECTION 2.41. Sections 171.363(a) and (b), Tax Code, are
amended to read as follows:
(a) A taxable entity [corporation] commits an offense if the
taxable entity [corporation] is subject to the provisions of this
chapter and the taxable entity [corporation] wilfully:
(1) fails to file a report;
(2) fails to keep books and records as required by this
chapter;
(3) files a fraudulent report;
(4) violates any rule of the comptroller for the
administration and enforcement of the provisions of this chapter;
or
(5) attempts in any other manner to evade or defeat any
tax imposed by this chapter or the payment of the tax.
(b) A person commits an offense if the person is an
accountant or an agent for or an officer or employee of a taxable
entity [corporation] and the person knowingly enters or provides
false information on any report, return, or other document filed by
the taxable entity [corporation] under this chapter.
SECTION 2.42. Subchapter H, Chapter 171, Tax Code, is
amended by adding Sections 171.364-171.366 to read as follows:
Sec. 171.364. TAX NOT DEDUCTED FROM WAGES. A taxable entity
may not deduct the tax imposed under this chapter from any wages of
the taxable entity's employees.
Sec. 171.365. CRIMINAL PENALTY. (a) A person who violates
Section 171.364 commits an offense.
(b) An offense under this section is a Class A misdemeanor.
Sec. 171.366. CIVIL PENALTY. (a) A person who violates
Section 171.364 is liable to the state for a civil penalty not to
exceed $500 for each violation. Each day a violation continues may
be considered a separate violation for purposes of a civil penalty
assessment.
(b) On request of the comptroller, the attorney general
shall file suit to collect a penalty under this section.
SECTION 2.43. Section 171.401, Tax Code, is amended to read
as follows:
Sec. 171.401. REVENUE DEPOSITED IN GENERAL REVENUE FUND.
The revenue from the tax imposed by this chapter [on corporations]
shall be deposited to the credit of the general revenue fund.
SECTION 2.44. Chapter 171, Tax Code, is amended by adding
Subchapter I-1 to read as follows:
SUBCHAPTER I-1. APPLICATION OF REFUNDS AND CREDITS TO NONCORPORATE
TAXABLE ENTITIES
Sec. 171.451. APPLICATION OF REFUNDS AND CREDITS TO
NONCORPORATE TAXABLE ENTITIES. Except as provided by Section
171.452, a taxable entity that is not a corporation but that,
because of its activities, would qualify for a specific refund or
credit under this chapter if it were a corporation qualifies for the
refund or credit in the same manner and under the same conditions as
a corporation.
Sec. 171.452. TAXABLE ENTITIES ELECTING ALTERNATE RATE NOT
ELIGIBLE FOR CREDITS. Notwithstanding any other provision of this
chapter, a taxable entity that elects to pay the tax under this
chapter at the alternate rate provided by Section 171.003 is not
entitled to a credit under Subchapters J-U.
SECTION 2.45. Chapter 171, Tax Code, is amended by adding
Subchapter X to read as follows:
SUBCHAPTER X. TAX CREDIT FOR CERTAIN PROVIDERS OF HEALTH CARE
SERVICES
Sec. 171.941. DEFINITION of HEALTH CARE PROVIDER. In this
subchapter, "health care provider" means:
(1) an ambulatory surgical center;
(2) an assisted living facility licensed under Chapter
247, Health and Safety Code;
(3) an emergency medical services provider;
(4) a home and community support services agency;
(5) a hospice;
(6) a hospital;
(7) a hospital system;
(8) an intermediate care facility for the mentally
retarded or a home and community-based services waiver program for
persons with mental retardation adopted in accordance with Section
1915(c) of the federal Social Security Act (42 U.S.C. Section
1396n);
(9) a nursing home;
(10) an end stage renal disease facility licensed
under Section 251.011, Health and Safety Code; or
(11) a taxable entity providing health care services,
including physician's services, that participates in the Medicaid
program, the Medicare program, or the Children's Health Insurance
Program (CHIP) as a provider of health care services.
Sec. 171.942. QUALIFICATION. A health care provider is
entitled to a credit in the amount provided by Section 171.943
against the taxes imposed under this chapter for the period on which
earned surplus is based if, for that period, the provider received
not less than 15 percent of the provider's revenue from payments
received under the Medicaid program, the Medicare program, or the
Children's Health Insurance Program (CHIP).
Sec. 171.943. AMOUNT OF CREDIT. The amount of credit for a
health care provider is equal to an amount computed by:
(1) determining a fraction:
(A) the numerator of which is the total amount of
payments the provider received under the Medicaid program, the
Medicare program, or the Children's Health Insurance Program
(CHIP), for the period on which earned surplus is based; and
(B) the denominator of which is the gross
receipts of the provider from business done in this state as
determined under Section 171.1032 for the period on which earned
surplus is based; and
(2) multiplying the fraction determined under
Subdivision (1) by the tax liability of the provider under this
chapter for the period on which earned surplus is based.
Sec. 171.944. LIMITATIONS. (a) A health care provider may
not receive a credit in an amount that exceeds the amount of the tax
or assessment due after applying any other credits.
(b) A health care provider may not convey, assign, or
transfer the credit allowed under this subchapter to another entity
unless all of the assets of the provider are conveyed, assigned, or
transferred in the same transaction.
(c) A health care provider that participates in the Medicaid
program, the Medicare program, or the Children's Health Insurance
Program (CHIP) as a provider of durable medical equipment or as a
vendor of pharmaceuticals may not count payments for those services
for purposes of qualifying for or receiving the exemption under
this subchapter.
Sec. 171.945. RULES. The comptroller shall adopt rules to
implement this subchapter. The Health and Human Services
Commission shall assist the comptroller in the formulation and
adoption of the rules.
SECTION 2.46. If a credit under Chapter 171, Tax Code, is
found by a court in a final judgment upheld on appeal or no longer
subject to appeal to be unconstitutional, the credit is disallowed
for all entities on or after the date of the judgment, and an entity
is not entitled to and may not apply for the credit the entity has
not received on or after that date for any reporting period
beginning before, on, or after that date.
SECTION 2.47. (a) For an entity becoming subject to the
franchise tax under this Act:
(1) income or losses, and related gross receipts,
earned, paid, or accrued before January 1, 2005, may not be
considered for purposes of the earned surplus component, or for
apportionment purposes for the taxable capital component;
(2) an entity subject to the franchise tax on January
1, 2006, for which January 1, 2006, is not the beginning date, shall
file an annual report due May 15, 2006, based on the period:
(A) beginning the later of:
(i) January 1, 2005; or
(ii) the date the entity was organized in
this state, or, if a foreign entity, the date it began doing
business in this state; and
(B) ending on the date the entity's last
accounting period ends in 2005 or, if none, on December 31, 2005;
and
(3) an entity subject to the earned surplus component
of the franchise tax at any time after October 31, 2005, and before
January 1, 2006, but not subject to the earned surplus component on
January 1, 2006, shall file a final report computed on net taxable
earned surplus, for the privilege of doing business at any time
after October 31, 2005, and before January 1, 2006, based on the
period:
(A) beginning the later of:
(i) January 1, 2005; or
(ii) the date the entity was organized in
this state, or, if a foreign entity, the date it began doing
business in this state; and
(B) ending on the date the entity became no
longer subject to the earned surplus component of the tax.
(b) For purposes of this article, an existing partnership is
considered as continuing if it is not terminated.
(c) A partnership is considered terminated only if no part
of any business, financial operation, or venture of the partnership
continues to be carried on by any of its partners in a partnership.
(d) For a merger or consolidation of two or more
partnerships, the resulting partnership is, for purposes of this
article, considered the continuation of any merging or
consolidating partnership whose members own an interest of more
than 50 percent in the capital and profits of the resulting
partnership.
(e) For a division of a partnership into two or more
partnerships, the resulting partnerships, other than any resulting
partnership the members of which had an interest of 50 percent or
less in the capital and profits of the prior partnership, are, for
purposes of this article, considered a continuation of the prior
partnership.
SECTION 2.48. This article takes effect November 1, 2005,
and applies to reports originally due on or after that date.