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Floor Packet Page No. 106
Amend CSHB 3 (House Committee Printing), in SECTION 2.01, by
adding the following sections to Chapter 251, Tax Code, as added by
that SECTION:
Sec. 251.0071. MAXIMUM AND MINIMUM AMOUNTS. (a)
Notwithstanding any other provision of this chapter:
(1) the maximum amount a taxable business is required
to pay under this chapter for a calendar quarter, regardless of the
amount of wages paid to all employees for a calendar quarter, is
equal to eight percent of net taxable earned surplus of the business
for the quarter; and
(2) the minimum amount a taxable business is required
to pay under this chapter for a calendar quarter, regardless of the
amount of wages paid to all employees for a calendar quarter, is the
greater of:
(1) 0.6 percent of the base amount of wages for
each employee as determined under Section 251.007; or
(2) 4.5 percent of net taxable earned surplus of
the business for the quarter.
(b) Net taxable earned surplus is computed for the purpose
of Subsection (a) as provided by Sections 251.0072 through
251.0078.
Sec. 251.0072. DETERMINATION OF GROSS RECEIPTS FROM
BUSINESS DONE IN THIS STATE FOR TAXABLE EARNED SURPLUS. (a)
Except for the gross receipts of a taxable business that are subject
to Section 251.0075, in apportioning taxable earned surplus, the
gross receipts of a taxable business from its business done in this
state is the sum of the taxable business'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 business 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 251.0076, and dividends received from a subsidiary,
associate, or affiliated entity 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 business shall include in its gross receipts
computed under Subsection (a) the taxable business's share of the
gross receipts of each partnership and joint venture of which the
taxable business is a part apportioned to this state as though the
taxable business directly earned the receipts, including receipts
from business done with the taxable business.
(d) A taxable business that is a transportation company that
transports goods or passengers by air shall include in its gross
receipts computed under Subsection (a) any intrastate portion or
leg of an interstate delivery or trip.
Sec. 251.0073. DETERMINATION OF GROSS RECEIPTS FROM ENTIRE
BUSINESS FOR TAXABLE EARNED SURPLUS. (a) Except for the gross
receipts of a taxable business that are subject to the provisions of
Section 251.0075, in apportioning taxable earned surplus, the gross
receipts of a taxable business from its entire business is the sum
of the taxable business's receipts from:
(1) each sale of the taxable business's tangible
personal property;
(2) each service, rental, or royalty;
(3) each partnership and joint venture as provided by
Subsection (d); and
(4) other business.
(b) If a taxable business sells an investment or capital
asset, the taxable business's gross receipts from its entire
business for taxable earned surplus includes only the net gain from
the sale.
(c) A taxable business 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
251.0076, and dividends received from a subsidiary, associate, or
affiliated entity 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 business shall include in its gross receipts
computed under Subsection (a) the taxable business's share of the
gross receipts of each partnership and joint venture of which the
taxable business is a part.
Sec. 251.0074. APPORTIONMENT OF TAXABLE EARNED SURPLUS TO
THIS STATE. (a) Except as provided by Subsections (b) and (c), a
taxable business's taxable earned surplus is apportioned to this
state to determine the business's maximum tax liability under
Section 251.0071(a)(1) by multiplying the taxable earned surplus by
a fraction, the numerator of which is the taxable business's gross
receipts from business done in this state, as determined under
Section 251.0072, and the denominator of which is the taxable
business's gross receipts from its entire business, as determined
under Section 251.0073.
(b) A taxable business's taxable 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 business 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 business's maximum tax liability under
Section 251.0071(a)(1) by multiplying the taxable business's total
taxable 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 business 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.
(c) A taxable business's 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 business's
maximum tax liability under Section 251.0071(a)(1) by multiplying
the taxable business's total taxable earned surplus from the sale
of services to an employee retirement plan 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. 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 governmental 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.
(d) A banking corporation shall exclude from the numerator
of the bank's apportionment factor interest earned on federal funds
and interest earned on securities sold under an agreement to
repurchase that are held in this state in a correspondent bank that
is domiciled in this state. In this subsection, "correspondent"
has the meaning assigned by 12 C.F.R. Section 206.2(c).
(e) Receipts from services that a defense readjustment
project performs in a defense economic readjustment zone are not
receipts from business done in this state.
Sec. 251.0075. ALLOCATION OF CERTAIN TAXABLE EARNED SURPLUS
TO THIS STATE. An item of income included in a taxable business'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 business's other activities conducted
within that state or country under the United States Constitution
is allocated to this state if the taxable business'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 business's taxable
earned surplus allocated to this state under this section may not be
apportioned under Section 251.0076(a)(2).
Sec. 251.0076. DETERMINATION OF NET TAXABLE EARNED SURPLUS
FOR PURPOSE OF MAXIMUM TAX. (a) The net taxable earned surplus of a
taxable business for the purpose of determining the business's
maximum tax liability under Section 251.0071(a)(1) is computed by:
(1) determining the taxable business's reportable
federal taxable income, subtracting from that amount any amount
excludable under Subsection (i), any amount included in reportable
federal taxable income under Section 78 or Sections 951-964,
Internal Revenue Code, and dividends received from a subsidiary,
associate, or affiliated corporation that does not transact a
substantial portion of its business or regularly maintain a
substantial portion of its assets in the United States, and adding
to that amount any compensation of officers or directors, or if a
bank, any compensation of directors and executive officers, to the
extent excluded in determining federal taxable income to determine
the taxable business's taxable earned surplus;
(2) apportioning the taxable business's taxable earned
surplus to this state as provided by Section 251.0074 to determine
the taxable business's apportioned taxable earned surplus;
(3) adding the taxable business's taxable earned
surplus allocated to this state as provided by Section 251.0075;
and
(4) subtracting from that amount any allowable
deductions and any business loss that is carried forward to the tax
reporting period and deductible under Subsection (e).
(b) A corporation's reportable federal taxable income is
the corporation's federal taxable income after Schedule C special
deductions and before net operating loss deductions as computed
under the Internal Revenue Code.
(c) Reportable federal taxable income for a partnership is
an amount equal to the sum of:
(1) the partnership's income as an entity as
determined under rules adopted by the commission using principles
similar to the standards applied to a corporation; and
(2) 20 percent of partner earnings.
(d) Reportable federal taxable income for an entity other
than a corporation or partnership is determined under rules adopted
by the commission using principles similar to the standards applied
to a corporation.
(e) For purposes of this section, a business loss is any
negative amount after apportionment and allocation. The business
loss shall be carried forward to the year succeeding the loss year
as a deduction to net taxable earned surplus, then successively to
the succeeding four taxable years after the loss year or until the
loss is exhausted, whichever occurs first, but for not more than
five taxable years after the loss year. A business loss can be
carried forward only by the taxable business 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 business that did not survive the merger.
(f) A taxable business 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
business used that method on its most recent federal income tax
report originally due on or before the date on which the taxable
business's franchise tax report is originally due.
(g) For purposes of this section, any person designated as
an officer is presumed to be an officer if that person:
(1) holds an office created by the board of directors
or under the corporate charter or bylaws; and
(2) has legal authority to bind the taxable business
with third parties by executing contracts or other legal documents.
(h) A taxable business may rebut the presumption described
in Subsection (g) that a person is an officer if it conclusively
shows, through the person's job description or other documentation,
that the person does not participate or have authority to
participate in significant policy-making aspects of the corporate
operations.
(i) Dividends and interest received from federal
obligations are not included in earned surplus or gross receipts
for earned surplus purposes.
(j) In this section:
(1) "Federal obligations" means:
(A) stocks and other direct obligations of, and
obligations unconditionally guaranteed by, the United States
government and United States government agencies; and
(B) direct obligations of a United States
government-sponsored agency.
(2) "Obligation" means any bond, debenture, security,
mortgage-backed security, pass-through certificate, or other
evidence of indebtedness of the issuing entity. The term does not
include a deposit, a repurchase agreement, a loan, a lease, a
participation in a loan or pool of loans, a loan collateralized by
an obligation of a United States government agency, or a loan
guaranteed by a United States government agency.
(3) "United States government" means any department or
ministry of the federal government, including a federal reserve
bank. The term does not include a state or local government, a
commercial enterprise owned wholly or partly by the United States
government, or a local governmental entity or commercial enterprise
whose obligations are guaranteed by the United States government.
(4) "United States government agency" means an
instrumentality of the United States government whose obligations
are fully and explicitly guaranteed as to the timely payment of
principal and interest by the full faith and credit of the United
States government. The term includes the Government National
Mortgage Association, the Department of Veterans Affairs, the
Federal Housing Administration, the Farmers Home Administration,
the Export-Import Bank, the Overseas Private Investment
Corporation, the Commodity Credit Corporation, the Small Business
Administration, and any successor agency.
(5) "United States government-sponsored agency" means
an agency originally established or chartered by the United States
government to serve public purposes specified by the United States
Congress but whose obligations are not explicitly guaranteed by the
full faith and credit of the United States government. The term
includes the Federal Home Loan Mortgage Corporation, the Federal
National Mortgage Association, the Farm Credit System, the Federal
Home Loan Bank System, the Student Loan Marketing Association, and
any successor agency.
Sec. 251.0077. GROSS RECEIPTS FOR TAXABLE EARNED SURPLUS.
(a) For purposes of this section, "gross receipts" means all
revenue reportable by a taxable business 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 revenue that is not included in taxable earned surplus. For
example, Schedule C special deductions and any amounts subtracted
from reportable federal taxable income under Section
251.0076(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
business shall use the same accounting methods to apportion taxable
earned surplus as used in computing reportable federal taxable
income.
(c) A taxable business 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 commission. A
change in accounting methods is not justified solely because it
results in a reduction of tax liability.
(d) A taxable business's share of a partnership's gross
receipts that is included in the taxable business's federal taxable
income must be used in computing the taxable business's gross
receipts under this section. Unless otherwise provided by this
chapter, a taxable business may not deduct costs incurred from the
taxable business's share of a partnership's gross receipts. The
gross receipts must be apportioned as though the taxable business
directly earned them.
Sec. 251.0078. UNITARY BUSINESS ENTERPRISE. (a)
Notwithstanding any other provision of this chapter, in determining
the net taxable earned surplus of a taxable business under Section
251.0071, if the taxable business is part of a unitary business
enterprise or has an ownership interest in a unitary business
enterprise, the taxable business shall file a combined report based
on the unitary business enterprise.
(b) The combined report must determine the net taxable
earned surplus of the unitary business enterprise as if it were a
single business entity.
(c) The taxable earned surplus shall be apportioned as
otherwise provided under Section 251.0074, except that gross
receipts shall be determined on the basis of the unitary business
enterprise. Each taxable business that is part of the unitary
business enterprise shall be jointly and severally liable for the
net taxable earned surplus of the unitary business as so determined
and apportioned.
(d) In this section, "unitary business enterprise" means a
single economic enterprise that is made up of a commonly controlled
group of business entities that are sufficiently interdependent,
integrated, and interrelated through their activities so as to
provide a synergy and mutual benefit that produces a sharing or
exchange of value among them and a significant flow of value to the
separate parts.
(e) The comptroller shall adopt rules to implement this
section.