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Amend CSHB 3 as follows:
(1) Strike SECTION 2.01 (page 15, line 4, through page 22, line 12) and substitute a new SECTION 2.01 as follows:
SECTION 2.01. Title 2, Tax Code, is amended by adding
Subtitle K to read as follows:
SUBTITLE K. REFORMED FRANCHISE TAX
CHAPTER 251. REFORMED FRANCHISE TAX
Sec. 251.001. DEFINITIONS. In this chapter:
(1) "Business" means an entity that employs an
individual to perform services and includes a sole proprietorship
with one or more employees.
(2) "Calendar quarter," "commission," "compensation
fund," and "contribution" have the meanings assigned those terms by
Section 201.011, Labor Code.
(3) "Employer" has the meaning assigned by Subchapter
C, Chapter 201, Labor Code.
(4) "Taxable business" means a business to which this
chapter applies.
(5) "Wages" means wages, as defined under Subchapter
F, Chapter 201, Labor Code, paid by a taxable business and includes
the amounts excluded by Sections 201.082(1) and (9), Labor Code.
Sec. 251.002. RULES. The comptroller may adopt rules to
implement and administer this chapter.
Sec. 251.0025. RULES: AVOIDANCE OF DOUBLE TAXATION. (a)
The comptroller shall adopt rules that shall work in conjunction
with the rules adopted under Section 171.0013, so that when a
taxable business entity is owned through an ownership chain,
whether or not each entity in the chain is subject to taxation under
this chapter, the direct and indirect owners of the taxable
business entity are not subject to taxation with respect to the same
wages.
(b) The avoidance of double taxation rules adopted under
this section shall apply regardless of whether the direct or
indirect owner itself elects to be subject to the tax under this
chapter, is subject to the tax under Chapter 171, or is exempt from
taxation under this chapter or Chapter 171.
Sec. 251.003. LOCATION OF SERVICE. (a) The tax imposed by
this chapter applies to 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) The tax imposed by this chapter applies to 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) The tax imposed by this chapter applies to 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. 251.004. TAXABLE BUSINESS. Subject to Section
251.007, the tax imposed by this chapter applies only to a business
that is an employer that pays or is required to pay a contribution
under Subtitle A, Title 4, Labor Code.
Sec. 251.005. ELECTION OF TAXES. (a) Except as otherwise
provided by this section, a business may elect to pay the tax
imposed under this chapter or the tax imposed under Chapter 171.
(b) A business that is wholly or partially in the business
of leasing employees, including but not limited to leasing between
members of an affiliated group, shall pay the tax under this
chapter, and for the purposes of this chapter and Chapter 171, the
business is considered to have elected the tax under this chapter.
(c) A business that does not have any employees in this
state may not elect to pay the tax under this chapter.
(d) The comptroller shall promulgate a form for a business
to use to make an election under this section.
(e) The election cannot be changed until after the third
anniversary of the date the election is made.
Sec. 251.006. TAX IMPOSED. If a business elects to pay the
tax under this chapter, the tax is imposed on the business for each
employee for whom the business pays or is required to pay a
contribution for a calendar quarter without regard to whether:
(1) the employee is full-time or part-time; or
(2) the wages paid were for the entire calendar
quarter or a portion of the calendar quarter.
Sec. 251.007. TAX IMPOSED ON EMPLOYERS. (a)
Notwithstanding Section 251.006, if a business elects to pay the
tax under this chapter, the tax is imposed on the business for each
individual who performs a service for the business for
compensation, without regard to whether the business pays a
contribution for a calendar quarter for the individual, if the
individual is an employee of the business as provided by this
section for all or a part of the calendar quarter.
(b) An individual is an employee of a business for purposes
of this section if the business has a right to direct and control
how the individual performs the service for which the individual is
provided compensation, indicated by factors that include, but are
not limited to:
(1) whether the individual is subject to the
business'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, 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
business;
(8) whether a written contract between the individual
and the business provides that the individual is or is not an
employee;
(9) whether the business 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 business 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 business.
Sec. 251.008. BASE AMOUNT OF WAGES. The base amount of
wages for each employee is the total amount of wages paid to the
employee during the calendar quarter.
Sec. 251.009. RATE. (a) Except as provided by Subsection
(b), the rate of the tax for a business that elects to pay the tax
under this chapter is equal to 1.15 percent of the base amount of
wages for each employee as determined under Section 251.008.
(b) For a corporation that elects to pay the tax under this
chapter and that had no employees in this state at any time between
January 1, 2004, and January 1, 2005, but currently has employees in
this state, the rate of the tax is equal to the greater of:
(1) 1.15 percent of the base amount of wages for each
employee as determined under Section 251.008; or
(2) the amount of the franchise tax paid by the
corporation in the previous report year.
(c) Subsection (b) expires December 31, 2008.
Sec. 251.010. EXEMPTION FOR GOVERNMENTAL ENTITIES. The tax
imposed under this chapter does not apply to a governmental entity.
Sec. 251.011. EXEMPTION FOR SMALL BUSINESS. A business
whose gross receipts in this state as determined under Section
171.1032 for the applicable calendar year are less than or equal to
$150,000 is exempt from the taxes imposed under this chapter for
that year.
Sec. 251.012. EXEMPTION FOR CERTAIN CHARITIES. (a) The tax
imposed under this chapter does not apply to an organization exempt
from federal income tax under Section 501(a) of the Internal
Revenue Code of 1986 by being listed as an exempt organization in
Section 501(c)(3) of that code.
(b) An organization exempt from federal income tax under
Section 501(a) of the Internal Revenue Code of 1986 by being listed
as an exempt organization under a provision of Section 501(c) other
than Section 501(c)(3) may elect to pay the tax under this chapter
or to pay the tax under Chapter 171. If the organization elects to
pay the tax under Chapter 171, and Chapter 171 provides that the
organization is exempt from taxation under that chapter, the
organization may claim or continue to claim that exemption in the
manner provided by Chapter 171.
Sec. 251.013. TAX NOT DEDUCTED FROM WAGES. A taxable
business may not deduct the tax imposed under this chapter from any
wages of the taxable business's employees.
Sec. 251.014. CRIMINAL PENALTY. (a) A person who violates
Section 251.013 commits an offense.
(b) An offense under this section is a Class A misdemeanor.
Sec. 251.015. CIVIL PENALTY. (a) A person who violates
Section 251.013 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) A person who does not pay the tax imposed by this chapter
on wages paid to an individual who performs services for the person
because the person determines that the individual is not an
employee for purposes of this chapter is liable to the state for a
civil penalty equal to twice the amount of tax owed under this
chapter in relation to the individual unless the person can
demonstrate that there was a reasonable basis for the
determination.
(c) On request of the comptroller, the attorney general
shall file suit to collect a penalty under this section.
Sec. 251.016. REPORTS AND PAYMENT. (a) Each taxable
business shall, on or before the last day of the month immediately
following each calendar quarter, file a report on wages in a form
prescribed by the commission.
(b) The tax imposed under this chapter is due at the same
time, collected in the same manner, and subject to the same
penalties and interest as contributions assessed under Subtitle A,
Title 4, Labor Code.
(c) To the extent practicable, the commission shall combine
the reporting and payment of contributions and the reporting and
payment of the tax imposed under this chapter.
Sec. 251.017. ENFORCEMENT. The comptroller may enforce the
collection of the tax under this chapter as provided by Subtitles A
and B.
Sec. 251.018. DISPOSITION OF PROCEEDS. All proceeds from
the collection of the taxes imposed under this chapter shall be
deposited to the credit of the general revenue fund.
Sec. 251.019. CREDITS AGAINST INSURANCE PREMIUM TAXES. (a)
Subject to Subsection (b), a business that pays insurance premium
taxes under Subtitle B, Title 3, Insurance Code, and elects to pay
the tax under this chapter is entitled to a credit of the entire
amount of tax paid under this chapter against any premium tax that
the business may owe.
(b) The business may not receive a credit in an amount that
exceeds the amount of the tax or assessment due after applying any
other credits. The business may carry any unused credit forward for
not more than five years but it may not, at any time, receive a
credit in an amount that exceeds the amount of the tax or assessment
due, after applying any other credits.
(c) The business may not convey, assign, or transfer the
credit allowed under this section to another entity unless all of
the assets of the business are conveyed, assigned, or transferred
in the same transaction.
(d) The comptroller shall adopt rules to implement this
section.
Sec. 251.020. CREDITS FOR CERTAIN PROVIDERS OF HEALTH CARE
SERVICES. (a) Except as provided by Subsection (f), a taxable
business that participates in either the Medicaid program or the
Medicare program as a provider of health care services and that
receives not less than 15 percent of the business's revenue during a
calendar quarter from payments received under the Medicaid or
Medicare program, or both, is entitled to a credit in the amount
provided by Subsection (b) against the taxes imposed under this
chapter for that calendar quarter.
(b) The amount of the credit is equal to 40 percent of the
total amount of payments the taxable business received from
payments under the Medicaid and Medicare programs during that
calendar quarter that can be verified, if necessary.
(c) A taxable business may not receive a credit in an amount
that exceeds the amount of the tax or assessment due after applying
any other credits.
(d) A taxable business may not convey, assign, or transfer
the credit allowed under this section to another entity unless all
of the assets of the business are conveyed, assigned, or
transferred in the same transaction.
(e) The comptroller shall adopt rules to implement this
section. The Health and Human Services Commission shall assist the
comptroller in the formulation and adoption of the rules.
(f) A taxable business that participates in the Medicaid or
Medicare program as a provider of durable medical equipment or as a
vendor of pharmaceuticals may not count payments for those services
for purposes of qualifying for the exemption under this section.
(2) Strike SECTIONS 2.02 and 2.03 (page 22, line 13, through
page 24, line 26) and substitute new SECTIONS 2.02–2.06 as follows,
renumbering subsequent SECTIONS appropriately:
SECTION 2.02. Section 171.001(a), Tax Code, is amended to
read as follows:
(a) Subject to Section 171.0012, a [A] franchise tax is
imposed on:
(1) each corporation that does business in this state
or that is chartered 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 2.03. Section 171.001(b)(3), Tax Code, is amended
to read as follows:
(3) "Corporation":
(A) includes:
(i) [(A)] a limited liability company, as
defined under the Texas Limited Liability Company Act;
(ii) [(B)] a savings and loan association;
[and]
(iii) [(C)] a banking corporation;
(iv) a sole proprietorship with one or more
employees;
(v) a partnership owned solely by natural
persons with one or more employees;
(vi) a form of business, with or without
employees, that is operating, organized, or registered under the
laws of this state in a manner that provides liability limitations
for a person who holds an ownership interest in the business; and
(vii) a partnership or joint venture owned
at least in part by another form of business and with one or more
employees; and
(B) does not include:
(i) a trust, estate, or escrow;
(ii) a real estate investment trust and its
subsidiary entities;
(iii) a master limited partnership;
(iv) a family limited partnership;
(v) a regulated investment company;
(vi) a real estate mortgage investment
conduit;
(vii) an investment partnership;
(viii) a sole proprietorship without any
employees;
(ix) a partnership without any employees;
or
(x) an entity, arrangement, or investment
vehicle without any employees that is used solely for a finance,
securitization, or monetization purpose, or any partner,
beneficiary, or member of such entity.
SECTION 2.04. Section 171.001, Tax Code, is amended by
adding Subsection (d) to read as follows:
(d) For purposes of Subsection (a), a corporation does
business in this state if the corporation is a foreign corporation
and is:
(1) holding a partnership interest, including an
interest as an assignee, as a general partner in a general
partnership that is doing business in this state;
(2) holding a partnership interest, including an
interest as an assignee, as a general partner in a limited
partnership that is doing business in this state; or
(3) holding a partnership interest, including an
interest as an assignee, as a limited partner in a limited
partnership that is doing business in this state.
SECTION 2.05. Subchapter A, Chapter 171, Tax Code, is
amended by adding Sections 171.0012 and 171.0013 to read as
follows:
Sec. 171.0012. ELECTION OF TAXES. (a) Except as provided
by Subsection (b), a corporation may elect to pay the tax imposed
under this chapter or the tax imposed under Chapter 251.
(b) A business that is in the business of leasing employees
may not elect to pay the tax imposed under this chapter and shall
pay the tax imposed under Chapter 251.
(c) The comptroller shall promulgate a form for a
corporation to use to make an election under this section. If the
corporation is an entity described in Sections
171.001(b)(3)(A)(iv)-(vii) and any interests in the corporation
are owned by natural persons, the election form must be signed by
each of those natural persons and by an authorized officer of the
business. The election form shall provide that the business and
those natural persons agree that the taxable earned surplus of the
business shall be calculated pursuant to this chapter without
regard to any exclusion, exemption, or prohibition in Section 24,
Article VIII, Texas Constitution.
(d) The election cannot be changed until after the third
anniversary of the date the election is made.
Sec. 171.0013. RULES: AVOIDANCE OF DOUBLE TAXATION. (a)
The comptroller shall adopt rules that shall work in conjunction
with the rules adopted under Section 251.0025, so that when a
corporation is owned through an ownership chain, whether or not
each entity in the chain is subject to taxation under this chapter,
the direct and indirect owners of the corporation are not subject to
taxation with respect to the same taxable earned surplus.
(b) The avoidance of double taxation rules adopted under
this section shall apply regardless of whether the direct or
indirect owner itself elects to be subject to the tax under Chapter
251, is subject to the tax under this chapter, or is exempt from
taxation under this chapter or Chapter 251.
SECTION 2.06. Section 171.110, Tax Code, is amended by
adding Subsections (m)-(o) to read as follows:
(m) Notwithstanding any other provision of this chapter, in
determining net taxable earned surplus, payments to related
entities for the following purposes are disallowed to the extent
they exceed arm's-length rates and terms:
(1) intangible expenses;
(2) interest charges; or
(3) management fees.
(n) For the purpose of Subsection (m), the comptroller has
the same power as the Internal Revenue Service under Section 482,
Internal Revenue Code of 1986, as effective January 1, 2006.
(o) For purposes of Subsections (m) and (n), "arm's-length
rates and terms" means that:
(1) two or more related members enter into a written
agreement for the transaction;
(2) such agreement is of a duration and contains rates
and payment terms substantially similar to those that the related
member would be able to obtain from an unrelated entity; and
(3) the borrower or payor substantially adheres to the
payment terms of the agreement governing the transaction or any
amendments to it, provided that there is a presumption that an
interest rate does not exceed arm's-length rates and terms if the
rate conforms to Sections 482 and 1274, Internal Revenue Code of
1986, as effective January 1, 2006.