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Amend CSHB 3 (Senate committee report) as follows:
(1) Strike SECTIONS 4.04, 4.05, and 4.06 of the bill (page
23, line 47, through page 24, line 64) and substitute:
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.
(2) Strike Section 171.110(a), Tax Code, as amended by
SECTION 4.19 of the bill (page 31, lines 6-46) and substitute:
(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).
(3) Strike SECTION 4.19A of the bill (page 32, line 41,
through page 33, line 20).
(4) In Section 171.1101(a), Tax Code, as added by SECTION
4.20 of the bill (page 33, line 26), strike "171.0013(c)" and
substitute "171.0011(c)".
(5) In Section 171.1101(b), Tax Code, as added by SECTION
4.20 of the bill (page 33, line 34), strike "171.0013(c)" and
substitute "171.0011(c)".
(6) In Section 171.1102(a), Tax Code, as added by SECTION
4.20 of the bill (page 33, line 48), strike "four" and substitute
"2.5".
(7) In Section 171.1102(c), Tax Code, as added by SECTION
4.20 of the bill (page 33, line 65), strike "171.002(a)(2)" and
substitute "171.002(a-1)(2)".
(8) Insert a new appropriately numbered SECTION (page 35,
between lines 47 and 48) and renumber subsequent SECTIONS
accordingly:
SECTION 4.__. 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.
(9) Insert a new appropriately numbered SECTION (page 36,
between lines 55 and 56) and renumber subsequent SECTIONS
accordingly:
SECTION 4.__. 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.
(10) In Section 171.201, Tax Code, as amended by SECTION
4.29 of the bill, strike Subsection (a)(4) (page 37, line 13) and
substitute:
(4) a statement declaring the entity's election of
rate required under Section 171.0012; and
(5) other information required by the comptroller.
(11) In Section 171.202, Tax Code, as amended by SECTION
4.30 of the bill, strike Subsection (a) (page 37, lines 19-28) and
substitute:
(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.
(12) Insert a new appropriately numbered SECTION (page 38,
between lines 5 and 6) and renumber subsequent SECTIONS
accordingly:
SECTION 4.__. 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.
(13) In Section 171.204(b), Tax Code, as amended by SECTION
4.32 of the bill (page 38, line 27), strike "171.002(d)(2)" and
substitute "171.004(2) [171.002(d)(2)]".
(14) Insert a new appropriately numbered SECTION (page 39,
between lines 13 and 14) and renumber subsequent SECTIONS
accordingly:
SECTION 4.__. 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.
(15) Insert a new appropriately numbered SECTION (page 40,
between lines 18 and 19) and renumber subsequent SECTIONS
accordingly:
SECTION 4.__. 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.
(16) Strike SECTIONS 4.48 and 4.49 of the bill (page 41,
lines 2-31).
(17) Strike SECTION 4.53 of the bill (page 42, lines 24-53).
(18) Renumber SECTIONS as appropriate.