79S10239 CBH/DAK/BDH/JD-F

By:  Ogden                                                        S.B. No. 3  


A BILL TO BE ENTITLED
AN ACT
relating to financing public schools in this state and reducing school property taxes. BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
ARTICLE 1. PUBLIC SCHOOL FINANCE
PART A. EDUCATION FUNDING AND SCHOOL PROPERTY TAX RELIEF
SECTION 1A.01. Section 41.002(e), Education Code, is amended to read as follows: (e) Notwithstanding Subsection (a), and except as provided by Subsection (g), in accordance with a determination of the commissioner, the wealth per student that a school district may have after exercising an option under Section 41.003(2) or (3) may not be less than the amount needed to maintain state and local revenue in an amount equal to state and local revenue per weighted student for maintenance and operation of the district for the 1992-1993 school year less the district's current year distribution per weighted student from the available school fund, other than amounts distributed under Chapter 31, if the district imposes an effective tax rate for maintenance and operation of the district equal to the greater of the district's current tax rate or the maximum maintenance tax rate permitted under Section 45.003 [$1.50 on the $100 valuation of taxable property]. SECTION 1A.02. Section 41.157(d), Education Code, is amended to read as follows: (d) Notwithstanding Section 45.003, the consolidated taxing district may levy, assess, and collect a maintenance tax for the benefit of the component districts at a rate that exceeds the maximum maintenance tax rate permitted under Section 45.003 [$1.50 per $100 valuation of taxable property] to the extent necessary to pay contracted obligations on the lease purchase of permanent improvements to real property entered into on or before May 12, 1993. The proposition to impose taxes at the necessary rate must be submitted to the voters in the manner provided by Section 45.003. SECTION 1A.03. Section 42.252(a), Education Code, is amended to read as follows: (a) Each school district's share of the Foundation School Program is determined by the following formula:
LFA = TR X DPV
where: "LFA" is the school district's local share; "TR" is a tax rate which for each hundred dollars of valuation is an effective tax rate of $0.76 [$0.86]; and "DPV" is the taxable value of property in the school district for the preceding tax year determined under Subchapter M, Chapter 403, Government Code. SECTION 1A.04. Section 42.253, Education Code, is amended by adding Subsection (e-2) to read as follows: (e-2) For the 2005-2006 school year, the limit authorized by Subsection (e) is reduced by $0.20. For the 2006-2007 school year, the limit authorized by Subsection (e) is reduced by $0.35. This subsection expires September 1, 2007. SECTION 1A.05. Section 42.303, Education Code, is amended to read as follows: Sec. 42.303. LIMITATION ON [ENRICHMENT] TAX RATE. The district [enrichment] tax rate ("DTR") under Section 42.302 may not exceed $0.54 [$0.64] per $100 of valuation, or a greater amount for any year provided by appropriation. SECTION 1A.06. Section 45.003, Education Code, is amended by amending Subsection (d) and adding Subsections (e) and (f) to read as follows: (d) A proposition submitted to authorize the levy of maintenance taxes must include the question of whether the governing board or commissioners court may levy, assess, and collect annual ad valorem taxes for the further maintenance of public schools, at a rate not to exceed the rate, which may be not more than $1.30 [$1.50] on the $100 valuation of taxable property in the district, stated in the proposition. (e) Notwithstanding Subsection (d): (1) for the 2006 tax year, a school district may not impose a maintenance tax at a rate that exceeds $1.20 per $100 of valuation; and (2) for the 2007 and 2008 tax years, a school district may not impose a maintenance tax at a rate that exceeds $1.25 per $100 of valuation. (f) An election held before January 1, 2005, authorizing a maintenance tax at a rate of at least $1.30 on the $100 valuation of taxable property in the district is sufficient to authorize a rate of $1.30 or less for the 2005 tax year. An election held before January 1, 2006, authorizing a maintenance tax at a rate of at least $1.15 on the $100 valuation of taxable property in the district is sufficient to authorize a rate of $1.15 or less for the 2006 tax year. Beginning with the 2007 tax year and subject to Subsection (e), a district may not exceed a rate of $1.15 unless authorized by a majority of the qualified voters of the district voting at an election held for that purpose. SECTION 1A.07. Sections 45.006(b) and (f), Education Code, are amended to read as follows: (b) Notwithstanding Section 45.003, a school district may levy, assess, and collect maintenance taxes at a rate that exceeds the maximum maintenance tax rate permitted under Section 45.003 [$1.50 per $100 valuation of taxable property] if: (1) additional ad valorem taxes are necessary to pay a debt of the district that: (A) resulted from the rendition of a judgment against the district before May 1, 1995; (B) is greater than $5 million; (C) decreases a property owner's ad valorem tax liability; (D) requires the district to refund to the property owner the difference between the amount of taxes paid by the property owner and the amount of taxes for which the property owner is liable; and (E) is payable according to the judgment in more than one of the district's fiscal years; and (2) the additional taxes are approved by the voters of the district at an election held for that purpose. (f) The governing body of a school district that adopts a tax rate that exceeds the maximum maintenance tax rate permitted under Section 45.003 [$1.50 per $100 valuation of taxable property] may set the amount of the exemption from taxation authorized by Section 11.13(n), Tax Code, at any time before the date the governing body adopts the district's tax rate for the tax year in which the election approving the additional taxes is held. SECTION 1A.08. (a) This part takes effect September 1, 2005. (b) This part applies beginning with the 2005-2006 school year.
PART B. [RESERVED]
PART C. REPEALER; TRANSITION; EFFECTIVE DATE
SECTION 1C.01. Effective September 1, 2005, the following laws are repealed: (1) Sections 1-3, Chapter 201, Acts of the 78th Legislature, Regular Session, 2003; and (2) Section 42.253(e-1), Education Code.
ARTICLE 2. RESTRICTIONS ON PROPERTY
VALUATION AND STATE AID TO
SCHOOL DISTRICTS
SECTION 2.01. Section 11.431(a), Tax Code, is amended to read as follows: (a) The chief appraiser shall accept and approve or deny an application for a residence homestead exemption after the deadline for filing the application [it] has passed if the application [it] is filed not later than [one year after] the delinquency date for the taxes on the homestead. SECTION 2.02. Section 25.25(c), Tax Code, is amended to read as follows: (c) The appraisal review board, on motion of the chief appraiser or of a property owner, may direct by written order changes in the appraisal roll for any of the five preceding years if the property is real property and may direct by written order changes in the appraisal roll for either or both of the two preceding years if the property is personal property to correct: (1) clerical errors that affect a property owner's liability for a tax imposed in that tax year; (2) multiple appraisals of a property in that tax year; or (3) the inclusion of property that does not exist in the form or at the location described in the appraisal roll. SECTION 2.03. Section 42.253(i), Education Code, is amended to read as follows: (i) Not later than March 1 each year, the commissioner shall determine the actual amount of state funds to which each school district is entitled under the allocation formulas in this chapter for the current school year and shall compare that amount with the amount of the warrants issued to each district for that year. Except as provided by Section 42.257(b), if [If] the amount of the warrants differs from the amount to which a district is entitled because of variations in the district's tax rate, student enrollment, or taxable value of property, the commissioner shall adjust the district's entitlement for the next fiscal year accordingly. SECTION 2.04. Section 42.257(b), Education Code, is amended to read as follows: (b) If the district would have received a greater amount from the foundation school fund for the applicable school year using the adjusted value, the commissioner shall add the difference to subsequent distributions to the district from the foundation school fund. If the final determination is made after the last day of the state fiscal year corresponding to the tax year for which the determination is made, the commissioner shall add one-fifth of the difference to the September payment to the district of the current year entitlement from the foundation school fund for each of the next five years. An adjustment does not affect the local fund assignment of any other district. SECTION 2.05. Section 42.259(f), Education Code, is amended to read as follows: (f) Except as provided by Section 42.257(b) or by Subsection (c)(8) or (d)(3) of this section, any previously unpaid additional funds from prior years owed to a district shall be paid to the district together with the September payment of the current year entitlement. SECTION 2.06. Section 403.302(h), Government Code, is amended to read as follows: (h) On request of the commissioner of education or a school district, the comptroller may audit the total taxable value of property in a school district and may revise the annual study findings. The request for audit is limited to corrections and changes in a school district's appraisal roll that occurred after preliminary certification of the annual study findings by the comptroller. The [Except as otherwise provided by this subsection, the] request for audit must be filed with the comptroller not later than the first [third] anniversary of the date of the final certification of the annual study findings. [The request for audit may be filed not later than the first anniversary of the date the chief appraiser certifies a change to the appraisal roll if the chief appraiser corrects the appraisal roll under Section 25.25 or 42.41, Tax Code, and the change results in a material reduction in the total taxable value of property in the school district.] The comptroller shall certify the findings of the audit to the commissioner of education. SECTION 2.07. (a) The change in law made by this article to Section 11.431, Tax Code, applies only to an application for a residence homestead exemption for the 2005 and subsequent tax years. Section 11.431, Tax Code, as that section existed immediately before the effective date of this article, applies to an application for a residence homestead exemption for the 2004 tax year and is continued in effect for that purpose. (b) The change in law made by this article to Section 25.25, Tax Code, does not affect a motion filed under that section before the effective date of this article. SECTION 2.08. This article takes effect September 1, 2005, if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for effect on that date, this article takes effect November 1, 2005.
[ARTICLE 3. DELETED]
ARTICLE 4. FRANCHISE TAX
SECTION 4.01. Section 171.001(a), Tax Code, is amended to read as follows: (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]. SECTION 4.02. Sections 171.001(b)(2), (4), and (5), Tax Code, are amended to read as follows: (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; or [and] (B) for any other taxable entity [a foreign corporation], the date on which the taxable entity [corporation] begins doing business in this state. (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]. SECTION 4.03. Section 171.001, Tax Code, is amended by adding Subsection (d) to read as follows: (d) On or before November 1 of each even-numbered year, the comptroller shall submit proposed legislation to update the definition of "Internal Revenue Code" in Subsection (b) to: (1) the governor; (2) the lieutenant governor; (3) the speaker of the house of representatives; (4) the chair of the Senate Committee on Finance; and (5) the chair of the House Committee on Ways and Means. SECTION 4.04. Subchapter A, Chapter 171, Tax Code, is amended by amending Sections 171.0011 and 171.002 and adding Sections 171.0012, 171.0013, 171.0014, 171.003, and 171.004 to read as follows: Sec. 171.0011. TAXABLE ENTITY. (a) Except as provided by Subsection (b), "taxable entity" means a general partnership, limited partnership, limited liability partnership, corporation, banking corporation, savings and loan association, limited liability company, trust, business trust, professional association, business association, joint venture, joint stock company, holding company, or other legal entity doing business in this state for profit. (b) "Taxable entity" does not include a sole proprietorship or a passive entity as described by Subsection (c). (c) An entity is a passive entity only if: (1) the entity is a limited partnership or a trust, other than a business trust; (2) the entity makes no payments of wages or other compensation to employees or independent contractors, other than for accounting or legal services reasonably necessary for the operation of the entity; (3) during the period on which earned surplus is based, the entity receives at least 90 percent of its income from one or more of the following: (A) interest; (B) dividends; (C) real property rents; (D) gains from the sale of real property and securities, other than a sale of securities of an entity that constitutes a controlling interest held by the selling entity and its related parties; or (E) mineral royalties and other nonoperating mineral interests; (4) the income described in Subdivision (3) comes only from assets acquired and held for investment purposes; and (5) the entity was formed, created, or organized before April 30, 2005. Sec. 171.0012. ELECTION OF RATES. (a) Except as otherwise provided by this section, a taxable entity shall elect to pay the tax imposed under this chapter: (1) in the amounts and at the rate provided by Section 171.002; or (2) in the amounts and at the alternate rate provided by Section 171.003. (b) The election applies to a reporting period and may be changed from one reporting period to the next. (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. Sec. 171.0013. MINIMUM TAX LIABILITY. The minimum tax liability for a taxable entity under this chapter is an amount equal to 0.25 percent of the entity's gross receipts from business done in this state under Section 171.1032, including the amounts excepted under Section 171.1032(a). 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 for an entity that has elected to pay the tax under this chapter at the rate provided by Section 171.002 is equal to 2.5 [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. The additional tax for an entity that has elected to pay the tax under this chapter at the alternate rate provided by Section 171.003 is computed as provided by that section for the period beginning on the day after the last day for which the tax imposed under this chapter was computed at the alternate rate provided by Section 171.003 and ending on the date the taxable entity is no longer subject to 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. 171.002. RATES; COMPUTATION OF TAX. (a) The franchise tax for an entity that elects to pay the tax at the rate provided by this section is the greater of: (1) the amount of the minimum tax liability of the taxable entity under Section 171.0013; or (2) the amount of franchise tax computed at the rates and in the manner provided by this section. (a-1) The rates of the franchise tax are, for purposes of Subsection (a)(2): (1) 0.25 percent per year of privilege period of net taxable capital; and (2) 2.5 [4.5] percent of net taxable earned surplus. (b) The amount of franchise tax under Subsection (a)(2) 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. The franchise tax for an entity that elects to pay the tax at the alternate rate provided by this section is the greater of: (1) the amount of the minimum tax liability of the taxable entity under Section 171.0013; or (2) the lesser of: (A) 1.75 percent of taxable wages for the taxable entity for the reporting period as determined under Subchapter C-1; or (B) $1,500 for each employee for the reporting period 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. SECTION 4.05. 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 4.06. Subchapter C, Chapter 171, Tax Code, is amended by adding Section 171.1001 to read as follows: Sec. 171.1001. DEFINITIONS. In this subchapter: (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; (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; and (C) notwithstanding Paragraphs (A) and (B), for a passive entity, 20 percent or more, owned directly or indirectly, of the capital, profits, or beneficial interest in the passive entity. (3) "Interest payment" means an amount allowable as an interest deduction under Section 163, Internal Revenue Code. (4) "Management fee" means a fee for services of a managerial or administrative nature, including services pertaining to management, accounts receivable and payable, employee benefit plans, insurance, legal matters, payroll, data processing, purchasing, taxes, financial matters, securities, accounting, reporting, and compliance. (5) "Related party" 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 directly connected 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 valid business purpose includes compliance with a regulatory requirement of: (A) the federal government; (B) a state or local government; (C) a foreign nation; or (D) an agency or political subdivision of any entity listed in Paragraphs (A)-(C). SECTION 4.07. 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 4.08. 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. (a) 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. (b) If related parties which are wholly owned subsidiaries of the same ultimate parent have collectively as of May 1, 2005, made an investment of at least $100 million in a new manufacturing capital improvement project located in this state for which the total capital investment for real and personal property will be in excess of $400 million and tangible personal property is sold from one related party to another and ultimately resold to an unrelated party in the normal course of business in the form or condition in which it is acquired or as an attachment to other tangible personal property, then the buyer or purchaser for purposes of Subsection (a)(1) is deemed to be the first unrelated purchaser to whom the tangible personal property is resold. SECTION 4.09. 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 entity that is not a taxable entity [partnership 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]. (d) If related parties which are wholly owned subsidiaries of the same ultimate parent have collectively as of May 1, 2005, made an investment of at least $100 million in a new manufacturing capital improvement project located in this state for which the total capital investment is budgeted to be in excess of $400 million and tangible personal property is sold from one related party to another and ultimately resold to an unrelated party in the normal course of business in the form or condition in which it is acquired or as an attachment to other tangible personal property, then the buyer or purchaser for purposes of Subsection (a)(1) is deemed to be the first unrelated purchaser to whom the tangible personal property is resold. SECTION 4.10. 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(a)(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(a)(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 4.11. 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 4.12. 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 entity that is not a taxable entity [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 entity that is not a taxable entity [partnership and joint venture] of which the taxable entity [corporation] is a part. SECTION 4.13. 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 4.14. 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)(2). SECTION 4.15. 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 4.16. 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 Subsections (a-2) and (o) 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 taxable entity [corporation] must use the equity method of accounting when reporting an investment in an entity that is not a taxable entity [a partnership or joint venture]. (o) Notwithstanding any other subsection in this section, there shall be excluded from the taxable capital of a parent or investor taxable entity the direct or indirect investment by that parent or investor taxable entity in the capital of one or more other taxable entities in which that parent or investor taxable entity has a "controlling interest" as that term is defined in Section 171.1001. SECTION 4.17. Section 171.110, Tax Code, is amended by amending Subsections (a), (d), (e), (f), and (h) and adding Subsections (d-1), (m), and (n) to read as follows: (a) The net taxable earned surplus of a taxable entity [corporation] is computed by: (1) determining the taxable entity's [corporation's] reportable federal taxable income and making the following adjustments: (A) for a corporation, subtracting [from that amount] any amount excludable under Subsection (k) and[,] any amount included in reportable federal taxable income under Section 78 or Sections 951-964, Internal Revenue Code; (B) for a corporation, subtracting[, and] dividends received from a subsidiary, associate, or affiliated taxable 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) [, and] adding 100 percent of compensation as described by Subsection (m) [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 to determine the corporation's taxable earned surplus]; and (D) subtracting the lesser of: (i) 50 percent of the amount of compensation added in Paragraph (C); or (ii) $30,000 for each full-time employee and a fractional amount of $30,000 for each part-time employee proportionate to the extent of the part-time employee's employment; (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: (A) the amount paid to provide health benefits to employees in this state, provided that the total amount may not exceed the lesser of: (i) $150,000; or (ii) 10 percent of the taxable entity's apportioned taxable earned surplus; and (B) any allowable deductions and any business loss that is carried forward to the tax reporting period and deductible under Subsection (e). (d) A corporation's reportable federal taxable income is the corporation's federal taxable income under Subsection (a)(1) 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. Reportable federal taxable income for a partnership is the partnership's income as an entity as determined under rules adopted by the comptroller using principles similar to the standards applied to a corporation. Reportable federal taxable income for an entity other than a corporation or partnership is determined under rules adopted by the comptroller using principles similar to the standards applied to a corporation. (d-1) A real estate investment trust may, in determining its reportable federal taxable income for the purpose of this section, deduct dividends paid to shareholders. In this subsection, a real estate investment trust is an entity that complies with Sections 856-860, Internal Revenue Code. (e) For purposes of this section, a business loss is any negative amount of earned surplus 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. (h) A taxable entity [corporation] shall report its net taxable earned surplus based solely on its own financial condition. Consolidated reporting is prohibited. (m) For purposes of this section, compensation for a taxable entity is the amount the taxable entity entered as total payments in Part 1, line 1, of the federal Internal Revenue Service Form 940 or 940-EZ, Employer's Annual Federal Unemployment (FUTA) Tax Return, and guaranteed payments to partners, during the period on which earned surplus is based, except that: (1) for a taxable entity that is a client company of a staff leasing services company, compensation is the amount the client company entered as total payments in Part 1, line 1, of Form 940 or 940-EZ, plus payments by the staff leasing services company to assigned employees of the client company; and (2) for a taxable entity that is a staff leasing services company, compensation is the amount the staff leasing services company entered as total payments in Part 1, line 1, of Form 940 or 940-EZ, minus payments by the staff leasing services company to assigned employees of a client company. (n) For purposes of this section, the terms "assigned employee," "client company," "license holder," and "staff leasing services company" have the meanings assigned by Section 91.001, Labor Code. SECTION 4.18. Subchapter C, Chapter 171, Tax Code, is amended by adding Sections 171.1101-171.1103 to read as follows: Sec. 171.1101. ADD-BACK OF PAYMENTS TO RELATED PARTY. (a) A taxable entity shall add back to reportable federal taxable income any payments made to a related party that is a passive entity as described by Section 171.0011(c) during the period on which earned surplus is based to the extent deducted in computing reportable federal taxable income. The safe harbors provided by Section 171.1102 do not apply to payments under this subsection. (b) Except as provided by Section 171.1102, a taxable entity shall add back to reportable federal taxable income any royalty payments, interest payments, and management fees made to a related party that is not a passive entity as described by Section 171.0011(c), during the period on which earned surplus is based to the extent deducted in computing reportable federal taxable income. Sec. 171.1102. SAFE HARBORS FOR CERTAIN PAYMENTS AND FEES. (a) A taxable entity is not required to add back royalty payments to a related party to the extent: (1) the related party 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 (2) 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 2.5 percent. (b) A taxable entity is not required to add back interest payments to a related party to the extent: (1) the interest is at or below the applicable federal rate compounded annually for debt instruments under Section 1274(d), Internal Revenue Code, that was in effect at the time of the agreement; or (2) the related party 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. (c) A taxable entity is not required to add back a royalty payment or an interest payment made to a related party, or a management fee paid to a related party, if the combined tax paid to this state, or to this state and one or more other states each of which has a tax rate equal to or greater than the rate under Section 171.002(a-1)(2), by the taxable entity and the related party exceeds the tax that would have been paid by the taxable entity if the royalty payment or interest payment had not been made. (d) A taxable entity is not required to add back a management fee paid to a related party to the extent that the transaction was done for a valid business purpose and the fee was paid at arm's length. Sec. 171.1103. ADJUSTMENT TO INCOME AND EXPENSES BY COMPTROLLER. (a) 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. (b) The comptroller shall apply the administrative and judicial interpretations of Section 482, Internal Revenue Code, in administering this section. SECTION 4.19. 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 4.20. 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)(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 4.21. 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 4.22. 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 subchapter: (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 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, as that term is defined by Section 171.133, 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 4.23. 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 4.24. 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 4.25. 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 4.26. 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 4.27. 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 4.28. 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 4.29. 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 general partnership or 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 171.0012; 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 4.30. Sections 171.202(a)-(c), (e), (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) a statement declaring the entity's election of rate under Section 171.0012 for the reporting 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. (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 4.31. Section 171.202(d), Tax Code, is amended to read as follows: (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 greatest [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)(1) [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-1)(2) [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. SECTION 4.32. 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 4.33. 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, 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. SECTION 4.34. 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 4.35. 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 4.36. 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 4.37. 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 4.38. 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 4.39. 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 4.40. The heading to Subchapter F, Chapter 171, Tax Code, is amended to read as follows:
SUBCHAPTER F. FORFEITURE OF CORPORATE AND BUSINESS PRIVILEGES
SECTION 4.41. 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 4.42. 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 4.43. 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 4.44. 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 4.45. 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 4.46. 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 4.47. 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 4.48. Section 171.401, Tax Code, is amended to read as follows: Sec. 171.401. REVENUE DEPOSITED IN FOUNDATION SCHOOL [GENERAL REVENUE] FUND. The revenue from the tax imposed by this chapter [on corporations] shall be deposited to the credit of the foundation school [general revenue] fund. SECTION 4.49. Chapter 171, Tax Code, is amended by adding Subchapter V to read as follows:
SUBCHAPTER V. TAX CREDIT FOR CERTAIN PHYSICIANS
Sec. 171.901. DEFINITION. In this subchapter, "physician" means: (1) an individual licensed to practice medicine in this state; (2) a professional association organized under the Texas Professional Association Act (Article 1528f, Vernon's Texas Civil Statutes); (3) an approved nonprofit health corporation certified under Chapter 162, Occupations Code; or (4) another person wholly owned by physicians and engaged in the practice of medicine as permitted by Subtitle B, Title 3, Occupations Code. Sec. 171.902. QUALIFICATION. (a) A physician, dentist, optometrist, or podiatrist that participates in the Medicaid program or the Children's Health Insurance Program (CHIP) as a provider of health care services is entitled to a credit in the amount provided by Subsection (b) against the taxes imposed under this chapter for the period on which earned surplus is based. (b) The amount of credit is equal to 20 percent of the total amount of payments the physician, dentist, optometrist, or podiatrist received from payments under the Medicaid or Children's Health Insurance Program (CHIP) during the period on which earned surplus is based that can be verified, if necessary. Sec. 171.903. LIMITATIONS. A physician may not receive a credit in an amount that exceeds the amount of the tax or assessment due after applying any other credits. Sec. 171.904. 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 4.50. Chapter 171, Tax Code, is amended by adding Subchapter W to read as follows:
SUBCHAPTER W. APPLICATION OF REFUNDS AND CREDITS TO NONCORPORATE TAXABLE ENTITIES
Sec. 171.921. APPLICATION OF REFUNDS AND CREDITS TO NONCORPORATE TAXABLE ENTITIES. 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. SECTION 4.51. Sections 171.110(b), (c), (g), (i), and (j), Tax Code, are repealed. SECTION 4.52. (a) Subject to other provisions of this section, this article applies to reports originally due on or after the effective date of this article. (b) For an entity becoming subject to the franchise tax under this article: (1) income or losses, and related gross receipts, occurring 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 on 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 on 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. (c) For purposes of this article, an existing partnership is considered as continuing if it is not terminated. (d) 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. (e) 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. (f) 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 4.53. If a credit under Chapter 171, Tax Code, as amended by this article, 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 the final judgment was entered by the court and an entity is not entitled to and may not apply for the credit on or after that date for any reporting period beginning before, on, or after that date. SECTION 4.54. (a) This section applies to a suit brought by an entity subject to the tax under Chapter 171, Tax Code, as amended by this article, contending that the imposition of the tax on the entity is unconstitutional. (b) The suit must be brought in a district court in Travis County. (c) The judgment of the district court may be reviewed only by direct appeal to the supreme court filed on or before the 15th day after the date the district court enters its judgment. The district court shall try the suit and the supreme court shall hear any appeal relating to the suit as expeditiously as possible. (d) If a final judgment upheld on appeal or no longer subject to appeal finds that the tax imposed under Chapter 171, Tax Code, is unconstitutional because of the requirements of Section 24, Article VIII, Texas Constitution, all taxable entities, other than a corporation or limited liability company, shall pay the tax at the rate provided by Section 171.003. SECTION 4.55. This article takes effect November 1, 2005, and applies to reports originally due on or after that date.
ARTICLE 5. SALES AND USE TAXES
PART A. STATE SALES AND USE TAX
SECTION 5A.01. Section 151.051(b), Tax Code, is amended to read as follows: (b) The sales tax rate is 6.5 [6 1/4] percent of the sales price of the taxable item sold. SECTION 5A.01A. (a) Section 151.051(b), Tax Code, is amended to read as follows: (b) The sales tax rate is 6.75 [6 1/4] percent of the sales price of the taxable item sold. (b) This section takes effect on the first anniversary of the date Section 5A.01 of this Act takes effect. SECTION 5A.02. Section 151.326(a), Tax Code, is amended to read as follows: (a) The sale of an article of clothing or footwear designed to be worn on or about the human body is exempted from the taxes imposed by this chapter if: (1) the sales price of the article is less than $100; and (2) the sale takes place during: (A) a period beginning at 12:01 a.m. on the first Friday in August and ending at 12 midnight on the following Sunday; or (B) a period beginning at 12:01 a.m. on the first Friday in December and ending at 12 midnight on the following Sunday. SECTION 5A.03. Subchapter H, Chapter 151, Tax Code, is amended by adding Section 151.327 to read as follows: Sec. 151.327. SCHOOL SUPPLIES BEFORE START OF SCHOOL. (a) The sale or storage, use, or other consumption of a school supply, including a backpack, is exempted from the taxes imposed by this chapter if the school supply is purchased: (1) for use by a student in a class in a public or private elementary or secondary school; (2) during the period described by Section 151.326(a)(2); and (3) for a sales price of less than $100 per item. (b) The comptroller shall adopt rules specifying the school supplies that are exempt from taxation under this section. (c) The exemption provided by this section does not apply to the purchase of a textbook. SECTION 5A.04. (a) Subchapter I, Chapter 151, Tax Code, is amended by adding Section 151.433 to read as follows: Sec. 151.433. TAX REIMBURSEMENT FOR FINANCIAL ASSISTANCE AND FOOD STAMP RECIPIENTS. (a) This section applies to a person who: (1) receives financial assistance under Chapter 31, Human Resources Code, or nutritional assistance under Chapter 33, Human Resources Code, through the use of an electronic benefits transfer system; or (2) is eligible to receive financial assistance under Chapter 31, Human Resources Code, through the use of an electronic benefits transfer system, but to whom that financial assistance is not paid because a sanction is applied against the person under Section 31.0032, Human Resources Code. (b) The comptroller and the executive commissioner of the Health and Human Services Commission by joint rule shall establish a program to reimburse a person to which this section applies for 20 percent of the estimated tax the person will pay under this chapter during a state fiscal year. (c) Not later than August 15 of each year, using available statistical data, the comptroller by rule shall estimate the amount of taxes a person to which this section applies will pay under this chapter during the next state fiscal year. In estimating that amount, the comptroller shall consider: (1) the amount of the individual's federal adjusted gross income, as defined by federal law; (2) the number of dependents the individual has for federal income tax purposes; and (3) any other information the comptroller considers appropriate. (d) Based on the estimations made under Subsection (c), the comptroller shall develop and adopt a table specifying by income bracket and number of dependents: (1) the estimated amount of taxes persons to which this section applies will pay under this chapter during the next state fiscal year; and (2) the amount of reimbursement the persons are eligible to receive under Subsection (b). (e) The comptroller shall provide the table to the executive commissioner of the Health and Human Services Commission as soon as possible after the date the table is adopted. Using the table, the executive commissioner shall provide to each person to which this section applies reimbursement in the form of: (1) additional monthly state money payments if the person is receiving financial assistance under Chapter 31, Human Resources Code; or (2) additional monthly nutritional assistance if the person is not receiving financial assistance under Chapter 31, Human Resources Code, but is receiving nutritional assistance under Chapter 33, Human Resources Code. (f) Reimbursement provided under Subsection (e) must be made available to the person using the electronic benefits transfer system through which the person is receiving the financial or nutritional assistance. Except as provided by Subsection (g), the amount of the monthly reimbursement is equal to one-twelfth of the amount determined under Subsection (d)(2). (g) Notwithstanding any other law, the total amount of reimbursements provided under this section may not exceed $100 million each state fiscal year. The comptroller and the executive commissioner of the Health and Human Services Commission shall take any necessary action to ensure that this limit is not exceeded, including: (1) decreasing the percentage of reimbursement of taxes paid under this chapter for which a person is otherwise eligible; (2) decreasing the amounts of the monthly state money payments or monthly nutritional assistance on a pro rata basis or by a specific amount; or (3) suspending the reimbursements. (h) Notwithstanding any other law, a person described by Subsection (a)(2) is entitled to reimbursement provided under this section to the same extent the person would be entitled to that reimbursement if a sanction were not applied against the person under Section 31.0032, Human Resources Code. (b) Subchapter B, Chapter 31, Human Resources Code, is amended by adding Section 31.0321 to read as follows: Sec. 31.0321. EXCLUSION OF CERTAIN TAX REIMBURSEMENTS. The Health and Human Services Commission may not consider any reimbursement of estimated taxes to which a person may be entitled under Section 151.433, Tax Code, in determining: (1) whether the person meets household income and resource requirements for financial assistance under this chapter; or (2) the amount of financial assistance granted to the person under this chapter for the support of dependent children. (c) Chapter 33, Human Resources Code, is amended by adding Section 33.028 to read as follows: Sec. 33.028. EXCLUSION OF CERTAIN TAX REIMBURSEMENTS. To the extent permitted by federal law, the Health and Human Services Commission may not consider any reimbursement of estimated taxes to which a person may be entitled under Section 151.433, Tax Code, in determining whether the person meets the household income and resource requirements for eligibility for food stamps. (d) If before implementing any provision of this section a state agency determines that a waiver or authorization from a federal agency is necessary for implementation of that provision, the agency affected by the provision shall request the waiver or authorization and may delay implementing that provision until the waiver or authorization is granted. SECTION 5A.05. The change in law made by this part does not affect tax liability accruing before the effective date of this part. That liability continues in effect as if this part had not been enacted, and the former law is continued in effect for the collection of taxes due and for civil and criminal enforcement of the liability of those taxes. SECTION 5A.06. Except as otherwise provided by this part, this part takes effect September 1, 2005, if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for effect on that date, this part takes effect November 1, 2005.
PART B. MOTOR VEHICLE SALES AND USE TAX
SECTION 5B.01. Section 152.002, Tax Code, is amended by adding Subsection (f) to read as follows: (f) Notwithstanding Subsection (a), the total consideration of a used motor vehicle is the amount on which the tax is computed as provided by Section 152.0412. SECTION 5B.02. Section 152.021(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.5 [6 1/4] percent of the total consideration. SECTION 5B.02A. (a) Section 152.021(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.75 [6 1/4] percent of the total consideration. (b) This section takes effect on the first anniversary of the date Section 5B.02 of this Act takes effect. SECTION 5B.03. Section 152.022(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.5 [6 1/4] percent of the total consideration. SECTION 5B.03A. (a) Section 152.022(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.75 [6 1/4] percent of the total consideration. (b) This section takes effect on the first anniversary of the date Section 5B.03 of this Act takes effect. SECTION 5B.04. Section 152.026(b), Tax Code, is amended to read as follows: (b) The tax rate is 10 percent of the gross rental receipts from the rental of a rented motor vehicle for 30 days or less and 6.5 [6 1/4] percent of the gross rental receipts from the rental of a rented motor vehicle for longer than 30 days. SECTION 5B.04A. (a) Section 152.026(b), Tax Code, is amended to read as follows: (b) The tax rate is 10 percent of the gross rental receipts from the rental of a rented motor vehicle for 30 days or less and 6.75 [6 1/4] percent of the gross rental receipts from the rental of a rented motor vehicle for longer than 30 days. (b) This section takes effect on the first anniversary of the date Section 5B.04 of this Act takes effect. SECTION 5B.05. Section 152.028(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.5 [6 1/4] percent of the total consideration. SECTION 5B.05A. (a) Section 152.028(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.75 [6 1/4] percent of the total consideration. (b) This section takes effect on the first anniversary of the date Section 5B.05 of this Act takes effect. SECTION 5B.06. Section 152.041(a), Tax Code, is amended to read as follows: (a) The tax assessor-collector of the county in which an application for registration or for a Texas certificate of title is made shall collect taxes imposed by this chapter, subject to Section 152.0412, unless another person is required by this chapter to collect the taxes. SECTION 5B.07. Subchapter C, Chapter 152, Tax Code, is amended by adding Section 152.0412 to read as follows: Sec. 152.0412. STANDARD PRESUMPTIVE VALUE; USE BY TAX ASSESSOR-COLLECTOR. (a) In this section, "standard presumptive value" means the average retail value of a motor vehicle as determined by the Texas Department of Transportation, based on a nationally recognized motor vehicle industry reporting service. (b) If the amount paid for a motor vehicle subject to the tax imposed by this chapter is equal to or greater than the standard presumptive value of the vehicle, a county tax assessor-collector shall compute the tax on the amount paid. (c) If the amount paid for a motor vehicle subject to the tax imposed by this chapter is less than the standard presumptive value of the vehicle, a county tax assessor-collector shall compute the tax on the standard presumptive value unless the purchaser establishes the retail value of the vehicle as provided by Subsection (d). (d) A county tax assessor-collector shall compute the tax imposed by this chapter on the retail value of a motor vehicle if: (1) the retail value is shown on an appraisal certified by an adjuster licensed under Chapter 4101, Insurance Code, or by a motor vehicle dealer operating under Subchapter B, Chapter 503, Transportation Code; (2) the appraisal is on a form prescribed by the comptroller for that purpose; and (3) the purchaser of the vehicle obtains the appraisal not later than the 20th day after the date of purchase. (e) On request, a motor vehicle dealer operating under Subchapter B, Chapter 503, Transportation Code, shall provide a certified appraisal of the retail value of a motor vehicle. The comptroller by rule shall establish a fee that a dealer may charge for providing the certified appraisal. The county tax assessor-collector shall retain a copy of a certified appraisal received under this section for a period prescribed by the comptroller. (f) The Texas Department of Transportation shall maintain information on the standard presumptive values of motor vehicles as part of the department's registration and title system. The department shall update the information at least quarterly each calendar year. (g) This section does not apply to a transaction described by Section 152.024 or 152.025. SECTION 5B.08. Not later than November 1, 2005, the Texas Department of Transportation shall: (1) establish standard presumptive values for motor vehicles as provided by Section 152.0412, Tax Code, as added by this part; (2) modify the department's registration and title system as needed to include that information and administer that section; and (3) make that information available through the system to all county tax assessor-collectors. SECTION 5B.09. (a) Except as provided by this part and Subsection (b) of this section, this part takes effect September 1, 2005, if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for effect on that date, this part takes effect November 1, 2005. (b) Section 152.0412, Tax Code, as added by this part, takes effect November 1, 2005.
PART C. BOAT AND MOTOR BOAT SALES AND USE TAX
SECTION 5C.01. Section 160.021(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.5 [6 1/4] percent of the total consideration. SECTION 5C.01A. (a) Section 160.021(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.75 [6 1/4] percent of the total consideration. (b) This section takes effect on the first anniversary of the date Section 5C.01 of this Act takes effect. SECTION 5C.02. Section 160.022(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.5 [6 1/4] percent of the total consideration. SECTION 5C.02A. (a) Section 160.022(b), Tax Code, is amended to read as follows: (b) The tax rate is 6.75 [6 1/4] percent of the total consideration. (b) This section takes effect on the first anniversary of the date Section 5C.02 of this Act takes effect. SECTION 5C.03. This part takes effect September 1, 2005, if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for effect on that date, this part takes effect November 1, 2005.
PART D. MOTOR FUELS TAX
SECTION 5D.01. Section 162.503, Tax Code, is amended to read as follows: Sec. 162.503. ALLOCATION OF GASOLINE TAX. (a) Except as provided by Subsection (b), on [On] or before the fifth workday after the end of each month, the comptroller, after making all deductions for refund purposes and for the amounts allocated under Sections 162.502 and 162.5025, shall allocate the net remainder of the taxes collected under Subchapter B as follows: (1) one-fourth of the tax shall be deposited to the credit of the available school fund; (2) one-half of the tax shall be deposited to the credit of the state highway fund for the construction and maintenance of the state road system under existing law; and (3) from the remaining one-fourth of the tax the comptroller shall: (A) deposit to the credit of the county and road district highway fund all the remaining tax receipts until a total of $7,300,000 has been credited to the fund each fiscal year; and (B) after the amount required to be deposited to the county and road district highway fund has been deposited, deposit to the credit of the state highway fund the remainder of the one-fourth of the tax, the amount to be provided on the basis of allocations made each month of the fiscal year, which sum shall be used by the Texas Department of Transportation for the construction, improvement, and maintenance of farm-to-market roads. (b) During the months of June, July, and August of each odd-numbered year, the comptroller may not make the allocations to the state highway fund and county and road district highway fund otherwise required by Subsections (a)(2) and (3). After September 5 and before September 11 of that year, the comptroller shall allocate and deposit to the state highway fund the total amount of revenue that would have been otherwise allocated and deposited to that fund during those months. SECTION 5D.02. Section 162.504, Tax Code, is amended to read as follows: Sec. 162.504. ALLOCATION OF DIESEL FUEL TAX. (a) Except as provided by Subsection (b), on [On] or before the fifth workday after the end of each month, the comptroller, after making deductions for refund purposes, for the administration and enforcement of this chapter, and for the amounts allocated under Section 162.5025, shall allocate the remainder of the taxes collected under Subchapter C as follows: (1) one-fourth of the taxes shall be deposited to the credit of the available school fund; and (2) three-fourths of the taxes shall be deposited to the credit of the state highway fund. (b) During the months of June, July, and August of each odd-numbered year, the comptroller may not make the allocation to the state highway fund otherwise required by Subsection (a)(2). After September 5 and before September 11 of that year, the comptroller shall allocate and deposit to the state highway fund the total amount of revenue that would have been otherwise allocated to that fund during those months. SECTION 5D.03. Section 162.505, Tax Code, is amended to read as follows: Sec. 162.505. ALLOCATION OF LIQUEFIED GAS TAX. (a) Except as provided by Subsection (b), on [On] or before the fifth workday after the end of each month, the comptroller, after making deductions for refund purposes and for the administration and enforcement of this chapter, shall allocate the remainder of the taxes collected under Subchapter D as follows: (1) one-fourth of the taxes shall be deposited to the credit of the available school fund; and (2) three-fourths of the taxes shall be deposited to the credit of the state highway fund. (b) During the months of June, July, and August of each odd-numbered year, the comptroller may not make the allocation to the state highway fund otherwise required by Subsection (a)(2). After September 5 and before September 11 of that year, the comptroller shall allocate and deposit to the state highway fund the total amount of revenue that would have been otherwise allocated to that fund during those months. SECTION 5D.04. This part takes effect August 1, 2005, if this Act receives a vote of two–thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for effect on that date, this part takes effect November 1, 2005.
PART E. HOTEL OCCUPANCY TAXES
SECTION 5E.01. Section 156.001, Tax Code, is amended to read as follows: Sec. 156.001. DEFINITION. In this chapter, "hotel" means a building in which members of the public obtain sleeping accommodations for consideration. The term includes a hotel, motel, tourist home, tourist house, tourist court, lodging house, inn, rooming house, or bed and breakfast. The term does not include: (1) a hospital, sanitarium, or nursing home; [or] (2) a dormitory or other housing facility owned or leased and operated by an institution of higher education or a private or independent institution of higher education as those terms are defined by Section 61.003, Education Code, used by the institution for the purpose of providing sleeping accommodations for persons engaged in an educational program or activity at the institution; or (3) that part of an apartment or condominium building that consists of unfurnished dwelling units that are leased to tenants, as defined by Section 92.001, Property Code. SECTION 5E.02. Section 351.002(c), Tax Code, is amended to read as follows: (c) The tax does not apply to a person who has the right to use or possess a room in a hotel for at least 30 consecutive days, so long as there is no interruption of payment for that period [is a permanent resident under Section 156.101 of this code]. SECTION 5E.03. Section 352.001(1), Tax Code, is amended to read as follows: (1) "Hotel" has the meaning assigned by Section 156.001 [156.001(1)]. SECTION 5E.04. Section 352.002(c), Tax Code, is amended to read as follows: (c) The tax does not apply to a person who has the right to use or possess a room in a hotel for at least 30 consecutive days, so long as there is no interruption of payment for that period [is a permanent resident under Section 156.101 of this code]. SECTION 5E.05. Section 156.101, Tax Code, is repealed. SECTION 5E.06. This part takes effect October 1, 2005, if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for effect on that date, this part takes effect January 1, 2006.
ARTICLE 6. TAX ON TOBACCO PRODUCTS AND ALCOHOL
PART A. CIGARETTE AND TOBACCO PRODUCTS
SECTION 6A.01. Section 154.021(b), Tax Code, is amended to read as follows: (b) The tax rates are: (1) $58 [$20.50] per thousand on cigarettes weighing three pounds or less per thousand; and (2) the rate provided by Subdivision (1) plus $2.10 per thousand on cigarettes weighing more than three pounds per thousand. SECTION 6A.02. Section 155.021(b), Tax Code, is amended to read as follows: (b) The tax rates are: (1) 1.25 cents [one cent] per 10 or fraction of 10 on cigars weighing three pounds or less per thousand; (2) $9.375 [$7.50] per thousand on cigars that: (A) weigh more than three pounds per thousand; and (B) sell at factory list price, exclusive of any trade discount, special discount, or deal, for 3.3 cents or less each; (3) $13.75 [$11] per thousand on cigars that: (A) weigh more than three pounds per thousand; (B) sell at factory list price, exclusive of any trade discount, special discount, or deal, for more than 3.3 cents each; and (C) contain no substantial amount of nontobacco ingredients; and (4) $18.75 [$15] per thousand on cigars that: (A) weigh more than three pounds per thousand; (B) sell at factory list price, exclusive of any trade discount, special discount, or deal, for more than 3.3 cents each; and (C) contain a substantial amount of nontobacco ingredients. SECTION 6A.03. Section 155.0211(b), Tax Code, is amended to read as follows: (b) The tax rate for tobacco products other than cigars is 44.02 [35.213] percent of the manufacturer's list price, exclusive of any trade discount, special discount, or deal. SECTION 6A.04. This part takes effect September 1, 2005, if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for effect on that date, this part takes effect November 1, 2005.
PART B. ALCOHOL TAXES
SECTION 6B.01. Section 201.03, Alcoholic Beverage Code, is amended to read as follows: Sec. 201.03. TAX ON DISTILLED SPIRITS. (a) A tax is imposed on the first sale of distilled spirits at the rate of $3 [$2.40] per gallon. (b) The minimum tax imposed on packages of distilled spirits containing two ounces or less is 6.25 [five] cents per package. (c) Should packages containing less than one-half pint but more than two ounces ever be legalized in this state, the minimum tax imposed on each of these packages is 15.25 cents [$0.122]. SECTION 6B.02. Section 201.04, Alcoholic Beverage Code, is amended to read as follows: Sec. 201.04. TAX ON VINOUS LIQUOR. (a) A tax is imposed on the first sale of vinous liquor that does not contain over 14 percent of alcohol by volume at the rate of 25.5 [20.4] cents per gallon. (b) A tax is imposed on vinous liquor that contains more than 14 percent of alcohol by volume at the rate of 51 [40.8] cents per gallon. (c) A tax is imposed on artificially carbonated and natural sparkling vinous liquor at the rate of 64.5 [51.6] cents per gallon. SECTION 6B.03. Section 201.42, Alcoholic Beverage Code, is amended to read as follows: Sec. 201.42. TAX ON ALE AND MALT LIQUOR. A tax is imposed on the first sale of ale and malt liquor at the rate of 24.75 cents [$0.198] per gallon. SECTION 6B.04. Section 203.01, Alcoholic Beverage Code, is amended to read as follows: Sec. 203.01. TAX ON BEER. A tax is imposed on the first sale of beer manufactured in this state or imported into this state at the rate of $7.50 [six dollars] per barrel. SECTION 6B.05. Section 183.021, Tax Code, is amended to read as follows: Sec. 183.021. TAX IMPOSED ON MIXED BEVERAGES. A tax at the rate of 17.5 [14] percent is imposed on the gross receipts of a permittee received from the sale, preparation, or service of mixed beverages or from the sale, preparation, or service of ice or nonalcoholic beverages that are sold, prepared, or served for the purpose of being mixed with an alcoholic beverage and consumed on the premises of the permittee. SECTION 6B.06. This part takes effect September 1, 2005, if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for effect on that date, this part takes effect November 1, 2005.
ARTICLE 7. TRANSFERRING CERTAIN TOBACCO SETTLEMENT PROCEEDS INTO DEDICATED GENERAL REVENUE ACCOUNTS
SECTION 7.01. Subchapter G, Chapter 403, Government Code, is amended by adding Sections 403.109 and 403.1091-403.1093 to read as follows: Sec. 403.109. SECONDARY HEALTH ACCOUNT FOR HIGHER EDUCATION. (a) In this section: (1) "Earnings account" means the account described by Subsection (d). (2) "Secondary account" means the secondary health account for higher education. (b) The secondary account and the earnings account are dedicated accounts in the general revenue fund. (c) The secondary account consists of: (1) money transferred to the account at the direction of the legislature; and (2) donations to the account. (d) The earnings account consists of the earnings received from investment of the assets in the secondary account. The comptroller shall periodically transfer those earnings from the secondary account to the earnings account. (e) Money in the secondary account may be used only for a purpose described by Subsection (d) or (f). (f) The comptroller shall manage and invest assets in the secondary account in authorized investments under Section 404.024. Any expenses incurred by the comptroller in managing and investing assets in the secondary account shall be paid from the account. (g) Money in the earnings account may be appropriated only for a purpose specified in and subject to any conditions and reporting requirements prescribed by Subchapter A, Chapter 63, Education Code, for the use of money from the permanent health fund for higher education. (h) An institution of higher education that has accepted a gift under former Subchapter I, Chapter 51, Education Code, that was conditioned on the institution's receipt of state matching funds from the eminent scholars fund may use money the institution receives under this section to provide the state matching funds and treat the money as if it were a distribution to the institution from the eminent scholars fund for purposes of the former Subchapter I. (i) An institution of higher education that receives a distribution from the earnings account shall include in the report required by Section 63.004, Education Code: (1) the total amount of money the institution received from the account; (2) the purpose for which the money was used; and (3) any other information required by the Legislative Budget Board. (j) Section 404.071 does not apply to the secondary account or the earnings account. Sec. 403.1091. SECONDARY ACCOUNTS FOR EACH INSTITUTION OF HIGHER EDUCATION. (a) In this section: (1) "Earnings account" means an account described by Subsection (e). (2) "Secondary account" means the secondary accounts described by Subsection (b). (b) In addition to the permanent endowment funds created by Section 63.101, Education Code, there is a secondary account for the benefit of each institution of higher education or group of related components of an institution of higher education listed in Section 63.101(a), Education Code. (c) Each secondary account and earnings account is a dedicated account in the general revenue fund. (d) A secondary account consists of: (1) money transferred to the account at the direction of the legislature; and (2) donations to the account. (e) An earnings account for an institution or group of related components of an institution consists of the earnings received from investment of the assets in the corresponding secondary account for the institution or group of components. The comptroller shall periodically transfer those earnings from the secondary account to the earnings account. (f) Money in a secondary account may be used only for a purpose described by Subsection (e) or (g). (g) The comptroller shall manage and invest assets in a secondary account in authorized investments under Section 404.024. Any expenses incurred by the comptroller in managing and investing assets in a secondary account shall be paid from the account. (h) Money in an earnings account may be appropriated only for a purpose specified in and subject to any conditions and reporting requirements prescribed by Subchapter B, Chapter 63, Education Code, for the use of money from the corresponding permanent endowment fund established by that subchapter. (i) An institution of higher education that has accepted a gift under former Subchapter I, Chapter 51, Education Code, that was conditioned on the institution's receipt of state matching funds from the eminent scholars fund may use money the institution receives under this section to provide the state matching funds and treat the money as if it were a distribution to the institution from the eminent scholars fund for purposes of the former Subchapter I. (j) An institution of higher education that receives an appropriation from an earnings account shall include in the report required by Section 63.103, Education Code: (1) the total amount of money the institution received from the account; (2) the purpose for which the money was used; and (3) any other information required by the Legislative Budget Board. (k) Section 404.071 does not apply to a secondary account or an earnings account. Sec. 403.1092. SECONDARY ACCOUNT FOR HIGHER EDUCATION NURSING, ALLIED HEALTH, AND OTHER HEALTH-RELATED PROGRAMS. (a) In this section: (1) "Earnings account" means the account described by Subsection (d). (2) "Secondary account" means the secondary account for higher education nursing, allied health, and other health-related programs. (b) The secondary account and the earnings account are dedicated accounts in the general revenue fund. (c) The secondary account consists of: (1) money transferred to the account at the direction of the legislature; and (2) donations to the account. (d) The earnings account consists of the earnings received from investment of the assets in the secondary account. The comptroller shall periodically transfer those earnings from the secondary account to the earnings account. (e) Money in the secondary account may be used only for a purpose described by Subsection (d) or (f). (f) The comptroller shall manage and invest assets in the secondary account in authorized investments under Section 404.024. Any expenses incurred by the comptroller in managing and investing assets in the secondary account shall be paid from the account. (g) Money in the earnings account may be appropriated only for a purpose specified in and subject to any conditions and reporting requirements prescribed by Subchapter C, Chapter 63, Education Code, for the use of money from the permanent fund for higher education nursing, allied health, and other health-related programs. (h) The Texas Higher Education Coordinating Board shall include in the report required by Section 63.203, Education Code: (1) the name of each institution that received a grant from the earnings account; (2) the purpose for which the grant was used; and (3) any additional information required by the Legislative Budget Board. (i) Section 404.071 does not apply to the secondary account or the earnings account. Sec. 403.1093. SECONDARY ACCOUNT FOR MINORITY HEALTH RESEARCH AND EDUCATION. (a) In this section: (1) "Earnings account" means the account described by Subsection (d). (2) "Secondary account" means the secondary account for minority health research and education. (b) The secondary account and the earnings account are dedicated accounts in the general revenue fund. (c) The secondary account consists of: (1) money transferred to the account at the direction of the legislature; and (2) donations to the account. (d) The earnings account consists of the earnings received from investment of the assets in the secondary account. The comptroller shall periodically transfer those earnings from the secondary account to the earnings account. (e) Money in the secondary account may be used only for a purpose described by Subsection (d) or (f). (f) The comptroller shall manage and invest assets in the secondary account in authorized investments under Section 404.024. Any expenses incurred by the comptroller in managing and investing assets in the secondary account shall be paid from the account. (g) Money in the earnings account may be appropriated only to the Texas Higher Education Coordinating Board for the purpose of providing grants as specified by Section 63.302(c), Education Code, for money from the permanent fund for minority health research and education. (h) The Texas Higher Education Coordinating Board shall report regarding the money received under this section in the manner required by Section 63.302(f), Education Code, and shall include in the report: (1) the total amount distributed under this section; (2) the name of each institution that received a grant; (3) the purpose of each grant, including a description of any partnership formed; and (4) any additional information required by the Legislative Budget Board. (i) Section 404.071 does not apply to the secondary account or the earnings account. SECTION 7.02. Section 403.1069, Government Code, is amended to read as follows: Sec. 403.1069. REPORTING REQUIREMENT. The Department of State Health Services [department] shall provide a report to the Legislative Budget Board on the permanent funds established under this subchapter from which the department may receive an appropriation of the available earnings [to the Legislative Budget Board] no later than November 1 of each year. The report shall include the total amount of money distributed from each fund, the purpose for which the money was used, and any additional information that may be requested by the Legislative Budget Board. SECTION 7.03. (a) On November 1, 2006, all amounts held in the following funds shall be transferred, in the estimated amount listed, to the accounts established under Sections 403.109, 403.1091, 403.1092, and 403.1093, Government Code, as added by this Act, as specified by this section: Fund Number Fund Name Amount 0810 Permanent Health Fund for Higher Education $376,600,000 0811 Permanent Endowment Fund for Health Related Institutions - University of Texas Health Science Center at San Antonio $215,200,000 0812 Permanent Endowment Fund for Health Related Institutions - University of Texas M.D. Anderson Cancer Center $107,600,000 0813 Permanent Endowment Fund for Health Related Institutions - University of Texas Southwestern Medical Center at Dallas $53,800,000 0814 Permanent Endowment Fund for Health Related Institutions - University of Texas Medical Branch at Galveston $26,900,000 0815 Permanent Endowment Fund for Health Related Institutions - University of Texas Health Science Center at Houston $26,900,000 0816 Permanent Endowment Fund for Health Related Institutions - University of Texas Health Science Center at Tyler $26,900,000 0817 Permanent Endowment Fund for Health Related Institutions - University of Texas at El Paso $26,900,000 0818 Permanent Endowment Fund for Health Related Institutions - Texas A&M University Health Science Center $25,600,000 0819 Permanent Endowment Fund for Health Related Institutions - University of North Texas Health Science Center at Fort Worth $25,400,000 0820 Permanent Endowment Fund for Health Related Institutions - Components of Texas Tech University Health Science Center in El Paso $26,500,000 0821 Permanent Endowment Fund for Health Related Institutions - Components of Texas Tech University Health Science Center other than El Paso $26,500,000 0822 Permanent Endowment Fund for Health Related Institutions - University of Texas Regional Academic Health Center $21,500,000 0823 Permanent Endowment Fund for Health Related Institutions - Baylor College of Medicine $24,400,000 0824 Permanent Fund for Higher Education Nursing, Allied Health and Other Health Related Programs $44,000,000 0825 Permanent Fund for Minority Health Research and Education $24,400,000 Informational Total: $1,079,100,000 (b) Amounts transferred from the Permanent Health Fund for Higher Education shall be deposited to the credit of the secondary health account for higher education established under Section 403.109, Government Code, as added by this Act. (c) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - University of Texas Health Science Center at San Antonio shall be deposited to the credit of the secondary account established for the benefit of The University of Texas Health Science Center at San Antonio under Section 403.1091, Government Code, as added by this Act. (d) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - University of Texas M. D. Anderson Cancer Center shall be deposited to the credit of the secondary account established for the benefit of The University of Texas M. D. Anderson Cancer Center under Section 403.1091, Government Code, as added by this Act. (e) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - University of Texas Southwestern Medical Center at Dallas shall be deposited to the credit of the secondary account established for the benefit of The University of Texas Southwestern Medical Center at Dallas under Section 403.1091, Government Code, as added by this Act. (f) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - University of Texas Medical Branch at Galveston shall be deposited to the credit of the secondary account established for the benefit of The University of Texas Medical Branch at Galveston under Section 403.1091, Government Code, as added by this Act. (g) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - University of Texas Health Science Center at Houston shall be deposited to the credit of the secondary account established for the benefit of The University of Texas Health Science Center at Houston under Section 403.1091, Government Code, as added by this Act. (h) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - University of Texas Health Science Center at Tyler shall be deposited to the credit of the secondary account established for the benefit of The University of Texas Health Science Center at Tyler under Section 403.1091, Government Code, as added by this Act. (i) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - University of Texas at El Paso shall be deposited to the credit of the secondary account established for the benefit of The University of Texas at El Paso under Section 403.1091, Government Code, as added by this Act. (j) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - Texas A&M University Health Science Center shall be deposited to the credit of the secondary account established for the benefit of The Texas A&M University Health Science Center under Section 403.1091, Government Code, as added by this Act. (k) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - University of North Texas Health Science Center at Fort Worth shall be deposited to the credit of the secondary account established for the benefit of the University of North Texas Health Science Center at Fort Worth under Section 403.1091, Government Code, as added by this Act. (l) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - Components of Texas Tech University Health Sciences Center in El Paso shall be deposited to the credit of the secondary account established for the benefit of the components of Texas Tech University Health Sciences Center in El Paso under Section 403.1091, Government Code, as added by this Act. (m) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - Components of Texas Tech University Health Sciences Center other than El Paso shall be deposited to the credit of the secondary account established for the benefit of the components of Texas Tech University Health Sciences Center other than El Paso under Section 403.1091, Government Code, as added by this Act. (n) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - University of Texas Regional Academic Health Center shall be deposited to the credit of the secondary account established for the benefit of The University of Texas Regional Academic Health Center under Section 403.1091, Government Code, as added by this Act. (o) Amounts transferred from the Permanent Endowment Fund for Health Related Institutions - Baylor College of Medicine shall be deposited to the credit of the secondary account established for the benefit of Baylor College of Medicine under Section 403.1091, Government Code, as added by this Act. (p) Amounts transferred from the Permanent Fund for Higher Education Nursing, Allied Health, and Other Health Related Programs shall be deposited to the credit of the secondary account for higher education nursing, allied health, and other health-related programs established under Section 403.1092, Government Code, as added by this Act. (q) Amounts transferred from the Permanent Fund for Minority Health Research and Education shall be deposited to the credit of the secondary account for minority health research and education established under Section 403.1093, Government Code, as added by this Act. SECTION 7.04. (a) The transfers to accounts in the general revenue fund made by this article may not result in a reduction in the amount available for distribution from those accounts, and the same amount that would have been distributed from the permanent funds but for the transfers made by this article shall be appropriated and distributed from the applicable accounts created by this article. If the earnings from the secondary account that are transferred to the earnings account are inadequate to make a distribution of the same amount that would have been distributed from the permanent funds, to the extent that the difference is solely the result of an investment policy other than total return, the comptroller shall transfer the difference to the applicable earnings account from the unobligated portion of general revenue. (b) The comptroller of public accounts shall determine the amount of any loss to the Permanent Health Fund for Higher Education and other funds administered by The University of Texas System as a result of the transfer to general revenue under this article. On August 31, 2007, the comptroller shall transfer from general revenue to the applicable secondary account created by this Act, an amount equal to the amount of the loss. In determining the amount of the loss, the comptroller shall consider the difference in the rate of return on investment of that secondary account and the rate of return over the preceding three years on investment of the Permanent University Fund. (c) Notwithstanding any other provision of this article, the total of distributions under sections (a) and (b) from the accounts created by this article, plus transfers under Subsection (b) of this section, may not exceed $65 million for any fiscal year. SECTION 7.05. This article takes effect November 1, 2005.
ARTICLE 8. CHARITABLE BINGO
SECTION 8.01. Section 2001.002, Occupations Code, is amended by amending Subdivision (5) and adding Subdivisions (9-a), (9-b), (9-c), (20-a), (20-b), and (26-a) to read as follows: (5) "Bingo equipment" means equipment used, made, or sold for the purpose of use in bingo. The term: (A) includes: (i) a machine or other device from which balls or other items are withdrawn to determine the letters and numbers or other symbols to be called; (ii) an electronic or mechanical cardminding device; (iii) a pull-tab dispenser; (iv) a bingo card; (v) a bingo ball; [and] (vi) an electronic monitoring terminal; (vii) a site controller; and (viii) any other device commonly used in the direct operation of a bingo game; and (B) does not include: (i) a bingo game set commonly manufactured and sold as a child's game for a retail price of $20 or less unless the set or a part of the set is used in bingo subject to regulation under this chapter; or (ii) a commonly available component part of bingo equipment such as a light bulb or fuse. (9-a) "Electronic monitoring terminal" means a computer or other electronic terminal with input capabilities and touch screen or other video monitors that may be used to play electronic pull-tab bingo. The term includes a portable, upright, or tabletop terminal. (9-b) "Electronic pull-tab bingo" means an electronic version of pull-tab bingo that is played on a card-minding device or electronic monitoring terminal using electronic pull-tab bingo tickets. (9-c) "Electronic pull-tab bingo ticket" means an electronic ticket used in electronic pull-tab bingo that is issued from a finite deal of tickets in which some of the tickets have been designated in advance as winning tickets. (20-a) "Player account card" means a plastic, magnetic stripe, paper, or smart card that may be used to: (A) enable or track the play of bingo games; (B) track and record customer account data, including electronic credits purchased, played, won, or otherwise available for participating in bingo games; or (C) redeem credits purchased, played, or won through a cashier or other point-of-sale station or redemption system. (20-b) "Point-of-sale station" includes a cashier or a terminal that accepts or dispenses player account cards, debit cards, or cash. (26-a) "Site controller" means computer hardware or software that: (A) stores and distributes electronic pull-tab bingo tickets for display on electronic monitoring terminals or card-minding devices; and (B) is located on the premises of a licensed authorized organization. SECTION 8.02. Section 2001.054, Occupations Code, is amended to read as follows: Sec. 2001.054. RULEMAKING AUTHORITY. (a) The commission may adopt rules to enforce and administer this chapter. (b) The commission has broad authority to adopt rules to administer and ensure compliance with Sections 2001.409(b) and 2001.4091-2001.4094. SECTION 8.03. Sections 2001.407(b), (d), and (f), Occupations Code, are amended to read as follows: (b) A licensed distributor may not furnish by sale, lease, or otherwise, bingo equipment or supplies to a person other than a licensed authorized organization, another licensed distributor, or a person authorized to conduct bingo under Section 2001.551(b)(3) or (4). A sale or lease of bingo equipment or supplies authorized by this section must be made on terms requiring immediate payment or payment not later than the 30th day after the date of actual delivery. (d) A licensed authorized organization may lease or purchase bingo equipment or supplies [electronic or mechanical card-minding devices, pull-tab dispensers, bingo machines, consoles, blowers, and flash boards] directly from a licensed distributor. (f) With the prior written consent of the commission, a licensed authorized organization may make an occasional sale of bingo equipment or supplies [cards or of a used bingo flash board or blower] to another licensed authorized organization. SECTION 8.04. Section 2001.408, Occupations Code, is amended to read as follows: Sec. 2001.408. OTHER METHODS FOR PLAYING BINGO. (a) Subject to the commission's rules, bingo may be played using a pull-tab bingo ticket or an electronic pull-tab bingo ticket. (b) All prize limitations and exemptions applicable to pull-tab bingo under Section 2001.420 are also applicable to electronic pull-tab bingo. SECTION 8.05. Section 2001.409, Occupations Code, is amended by amending Subsection (a) and by adding Subsection (b) to read as follows: (a) A person may use a card-minding device: (1) to account for credits purchased, played, or won by playing electronic bingo games authorized by this chapter; (2) to display and exchange credits described by Subdivision (1) for electronic bingo cards or electronic pull-tab bingo tickets that may be played by the person during a bingo occasion; (3) to read a player account card; (4) for purchasing, marketing, and playing electronic bingo games authorized by this chapter; and (5) to display graphics and animation that correspond to or represent, in an entertaining manner, the outcome of an approved electronic pull-tab bingo ticket or game. (b) The display of graphics and animation used to correspond to, display, or represent the outcome of an approved electronic pull-tab bingo ticket or electronic bingo card may not be the basis of a requirement that a card-minding device that has previously been approved for the play of electronic pull-tab bingo be retested or reapproved. [A person may not use a card-minding device: [(1) to generate or determine the random letters, numbers, or other symbols used in playing the bingo card played with the device's assistance; [(2) as a receptacle for the deposit of tokens or money in payment for playing the bingo card played with the device's assistance; or [(3) as a dispenser for the payment of a bingo prize, including coins, paper currency, or a thing of value for the bingo card played with the device's assistance.] SECTION 8.06. Subchapter I, Chapter 2001, Occupations Code, is amended by adding Sections 2001.4091-2001.4094 to read as follows: Sec. 2001.4091. SITE CONTROLLERS. (a) A site controller may be used to: (1) create, shuffle, store, and configure electronic pull-tab bingo tickets; (2) distribute electronic pull-tab bingo tickets to electronic monitoring terminals or card-minding devices; (3) account for, through a means that may include a player account card, electronic credits purchased, played, or won by playing electronic bingo games authorized by this chapter; (4) exchange credits described by Subdivision (3) for electronic bingo cards or electronic pull-tab bingo tickets that may be played by a person during a bingo occasion; or (5) play electronic bingo games authorized by this chapter. (b) The creation or distribution of electronic pull-tab bingo tickets or electronic bingo cards by or through a site controller or other method may not be the basis of a requirement that a preapproved site controller be retested or reapproved. (c) A person who sells or supplies a site controller or other equipment used to play electronic pull-tab bingo is not required to hold a system service provider license, and the functions performed by a site controller or other equipment related to electronic pull-tab bingo may not be construed as the provision of automated bingo services governed by Subchapter F. (d) A site controller used for electronic pull-tab bingo must be manufactured in accordance with the standards provided by this chapter and is subject to testing by the commission or by an independent testing facility reasonably acceptable to the commission. (e) The commission may inspect a site controller. (f) The manufacturer of a site controller shall maintain a central communications system or facility to provide the commission with the ability to review and audit electronic pull-tab bingo sales data. (g) A site controller must provide a physical and electronic means, by use of a password or other method specified by commission rule, for securing: (1) electronic pull-tab bingo tickets created, shuffled, stored, and configured by the site controller; and (2) accounting system data. (h) Nothing in this chapter requires the use of a site controller to play electronic pull-tab bingo or prohibits the use of other means of creating, shuffling, storing, configuring, or distributing electronic pull-tab bingo tickets. Sec. 2001.4092. ELECTRONIC MONITORING TERMINALS. (a) A person may use an electronic monitoring terminal: (1) to insert or read a player account card; (2) to display or exchange credits purchased, won, or otherwise available for play of electronic bingo games authorized by this chapter; or (3) as a device capable of purchasing, marketing, and playing electronic bingo games authorized by this chapter. (b) Nothing in this chapter prohibits an electronic monitoring terminal from generating or creating graphics and animation to correspond to, display, or represent, in an entertaining manner, the outcome of an approved electronic pull-tab bingo ticket or electronic bingo cards. The generation or creation of the graphics and animation may not be the basis of a requirement that a preapproved electronic monitoring terminal be retested or reapproved. Sec. 2001.4093. USE OF CARD-MINDING DEVICES OR ELECTRONIC MONITORING TERMINALS IN ELECTRONIC BINGO. (a) A card-minding device, site controller, or an electronic monitoring terminal used for electronic pull-tab bingo: (1) must be manufactured in accordance with the standards provided under this chapter; (2) is subject to testing by the commission or by an independent testing facility reasonably acceptable to the commission; and (3) must be approved by the commission prior to use. All requests for an approval of bingo equipment under this section, that are received within 30 days after the date of adoption of a rule establishing the standards for such approval and that satisfy all requirements applicable to such equipment, shall be approved on the same date, which shall be no later than 120 days after the date of adoption of such standards. Similar deadlines may be established for future approvals of new card-minding devices, site controllers, or electronic monitoring terminals. (b) The commission may audit data relating to the sale, exchange, inventory, or play of electronic pull-tab bingo tickets. (c) The commission may inspect a card-minding device or electronic monitoring terminal. Sec. 2001.4094. AUDIT AND COMPLIANCE OF ELECTRONIC PULL-TAB BINGO. (a) The commission may adopt rules governing: (1) the central communications system or facility required to be maintained by the manufacturer of a site controller to provide the commission with the ability to review and audit electronic pull-tab bingo sales data; (2) the recording and reporting of: (A) revenue generated from the play of electronic pull-tab bingo; (B) all stored but unplayed electronic pull-tab bingo tickets or prizes; and (C) all electronic pull-tab bingo tickets played and total prizes awarded; (3) if a player account card is used, the recording and tracking of player account information, including electronic credits purchased, played, won, or otherwise available for play for electronic bingo games authorized by this chapter and electronic credits redeemed for cash; and (4) the retention of data necessary for audit compliance under this chapter, including a requirement that the data be retained electronically for one year. (b) The commission may investigate a violation or alleged violation of this chapter. SECTION 8.07. Subchapter I, Chapter 2001, Occupations Code, is amended by adding Sections 2001.421 and 2001.422 to read as follows: Sec. 2001.421. PRIZE FEE, PAYOUT PERCENTAGE, AND REVENUE DEDICATION FOR ELECTRONIC PULL-TAB BINGO. (a) A licensed authorized organization shall collect from a person who wins an electronic pull-tab bingo prize of more than $5 a fee in the amount of five percent of the amount or value of the prize and shall remit a fee in the amount of five percent for all prizes awarded as a result of an electronic pull-tab bingo game. (b) The prize payout percentage for an electronic pull-tab bingo game may not be less than the prize payout percentage established for a paper pull-tab bingo game. (c) The revenue received by the state from the fee imposed by Subsection (a) shall be used to finance the public primary and secondary schools of this state or to reduce public school property taxes, or both, as provided by the General Appropriations Act or other law. Sec. 2001.422. NO EXCLUSIVE VENDOR FOR ELECTRONIC PULL-TAB BINGO. The commission may not require that electronic pull-tab bingo be provided by a single vendor. SECTION 8.08. Subchapter I, Chapter 2001, Occupations Code, is amended by adding Section 2001.423 to read as follows: Sec. 2001.423. In addition to the other provisions contained in this chapter, electronic pull-tab bingo may be allowed only under the following circumstances: (1) at a location authorized by the commission as of January 1, 2005, that is owned by a governmental agency where bingo is conducted; (2) at a location that was owned by a licensed authorized organization where bingo was authorized to be conducted on January 1, 2005; and (3) under a license held by a licensed commercial lessor whose license was in effect as of January 1, 2005, and whose license has been in effect continuously since that date. SECTION 8.09. The legislature finds and declares the following: (1) In light of the state's need to reduce school property taxes and finance the public schools, the Texas Lottery Commission must be authorized to commence implementation and authorization of electronic pull-tab bingo games in accordance with changes to Chapter 2001, Occupations Code, as amended by this article, at the earliest possible date, consistent with legislative directive. (2) The implementation of electronic pull-tab bingo described as authorized by Chapter 2001, Occupations Code, as amended by this article, may require significant time, including analysis and testing of electronic monitoring terminals, electronic pull-tab bingo tickets, site controllers, point-of-sale stations, and card-minding devices in order to establish the electronic pull-tab bingo system. (3) The state's need for school finance reform and to reduce property taxes constitutes an imminent peril to the public welfare, requiring the adoption of rules and authorization for the Texas Lottery Commission to conduct certain pre-implementation activities related to regulating electronic pull-tab bingo to ensure: (A) that the increase in state revenue from the prize fees derived from the conduct of electronic pull-tab bingo games is realized as soon as possible to further the public interest in reforming the public school finance system and property tax reduction; and (B) that bingo is fairly conducted and the proceeds derived from bingo are used for an authorized purpose and to promote and ensure the integrity, security, honesty, and fairness of the electronic pull-tab bingo system. (4) In order to commence operation of electronic pull-tab bingo, as authorized by the amendments in this article to Chapter 2001, Occupations Code, the Texas Lottery Commission may conduct limited pre-implementation acts as necessary to ensure the prompt approval of the electronic pull-tab bingo equipment after the effective date of this article. (5) Before the effective date of the changes made in this article to Chapter 2001, Occupations Code, the Texas Lottery Commission may request and receive information related to applications for licensing and testing of electronic pull-tab bingo components as authorized under Chapter 2001, Occupations Code, as amended by this article. SECTION 8.10. The Texas Lottery Commission may expend money from the commission's appropriations for the 2006-2007 biennium for purposes of conducting pre-implementation activities to implement the changes made by this article in Subchapter I, Chapter 2001, Occupations Code, including the development and approval of forms for applications for licensing and testing of electronic pull-tab bingo equipment authorized under Chapter 2001, Occupations Code, as amended by this article. SECTION 8.11. (a) Not later than December 1, 2005, the Texas Lottery Commission shall adopt rules necessary to implement the changes in law made to Chapter 2001, Occupations Code, by this article. (b) Notwithstanding any other law, the following provisions apply to the procedures for adoption of the rules required by Subsection (a): (1) The commission shall give at least 15 days' notice of its intention to adopt a rule before it adopts the rule pursuant to this section. (2) A rule adopted pursuant to this section takes effect on the date it is filed in the office of the secretary of state. (3) The commission shall notify all holders of a manufacturer's license of the adoption of a rule pursuant to this section within 10 days of adoption. (4) To the extent the provisions of this section are inconsistent with Subchapter B, Chapter 2001, Government Code, this section prevails.
ARTICLE 9. EFFECTS OF IMPLEMENTATION; EFFECTIVE DATE
SECTION 9.01. SPECIAL REPORT ON EFFECTS OF CERTAIN TAX POLICIES ON PERSONAL INCOME AND BUSINESSES. (a) The comptroller of public accounts shall prepare a report that provides a comprehensive analysis of the effects of tax policies adopted by the 79th Legislature, 1st Called Session, on the personal income of residents of this state and on businesses in this state. Not later than October 15, 2006, the comptroller shall submit the report to the governor, lieutenant governor, speaker of the house of representatives, and each other member of the legislature. (b) The report required under Subsection (a) of this section must include at least the following information with respect to business taxes enacted or significantly reformed by the 79th Legislature, 1st Called Session: (1) the total amount of the tax revenue collected from businesses between the effective date of this Act and the date of the report; (2) a profile of the businesses that paid the taxes by: (A) the number of employees; (B) the two-digit standard industrial classification; and (C) for the period described by Subdivision (1) of this subsection: (i) the total amount of wages paid and, reported separately, the total amount of taxable wages paid; (ii) the total amount of profits made and, reported separately, the total amount of taxable profits made; (iii) the total amount of taxes paid; and (iv) any credits used to reduce tax liability; (3) the percentage of the taxes that were paid by businesses with fewer than 100 employees; (4) an estimate of the number and wages of workers not covered by the taxes; and (5) an estimate of the number, two-digit standard industrial classification, and profits of, and an estimate of the wages paid by, businesses not covered by the taxes. (c) The report required under Subsection (a) of this section must also include at least the following: (1) with respect to major legislation enacted by the 79th Legislature, 1st Called Session, a tax incidence analysis, categorized by industry sector and family income level, of the effects of: (A) any reduction in school district tax rates; (B) any changes in business taxation; (C) any changes in property taxation; (D) any increase in the rate of the sales tax on the sales tax base as compared to the sales tax base that existed on January 1, 2005; (E) any repeal of a sales tax exemption or exclusion; (F) any increase in the rate of the motor vehicle sales and use tax; (G) any increase in the rate of the boat and boat motor sales and use tax; (H) any tax imposed on the sale of discretionary food and drink items; (I) any increase in rate of the cigarette, cigar, or tobacco products tax; and (J) any other changes in major state taxes; and (2) with respect to residents of this state who itemize deductions on their federal income tax returns, an analysis, categorized by income level, of: (A) the amount of state sales taxes deducted from those persons' federal income taxes; and (B) the difference between the federal income tax deductions for property taxes paid that were claimed by those persons before property tax rate reductions were enacted by the 79th Legislature, 1st Called Session, and the federal income tax deductions for property taxes paid that were claimed by those persons after those reductions were enacted. (d) Not later than October 15, 2008, the comptroller of public accounts shall: (1) update the information contained in the report submitted under this section; and (2) submit the updated report to the persons listed in Subsection (a) of this section. SECTION 9.02. (a) Except as provided by Subsections (b) and (c) of this section, this Act takes effect September 1, 2005, if this Act receives a vote of two-thirds of all the members elected to each house, as provided by Section 39, Article III, Texas Constitution. If this Act does not receive the vote necessary for effect on that date, this Act takes effect November 1, 2005. (b) If a section, part, or article of this bill provides a different effective date than provided by Subsection (a) of this section, that section, part, or article takes effect according to its terms. (c) This Act takes effect only if ____ Bill No. __, Acts of the 79th Legislature, 1st Called Session, 2005, becomes law. If that bill does not become law, this Act has no effect.