79R299 DAK-D
By: Eissler H.B. No. 28
A BILL TO BE ENTITLED
AN ACT
relating to state taxes; imposing penalties.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
ARTICLE 1. TEXAS EDUCATION BUSINESS ACTIVITY TAX
SECTION 1.01. Subtitle F, Title 2, Tax Code, is amended by
adding Chapter 172 to read as follows:
CHAPTER 172. TEXAS EDUCATION BUSINESS ACTIVITY TAX
SUBCHAPTER A. DEFINITIONS
Sec. 172.001. AFFILIATED GROUP. "Affiliated group" means
two or more corporations, one of which owns or controls, directly or
indirectly, 80 percent or more of the capital stock with voting
rights of the other corporation or corporations.
Sec. 172.002. BUSINESS ACTIVITY. (a) "Business activity"
means an activity:
(1) that is:
(A) a transfer of legal or equitable ownership of
or the right of possession of property; or
(B) the performance of services; and
(2) that occurs in this state, without regard to
whether the activity is in interstate or foreign commerce.
(b) The term does not include:
(1) an activity by an individual that is not for the
economic gain, benefit, or advantage of the individual or others;
(2) a service rendered by an employee to an employer;
(3) a service as a director of a corporation;
(4) income derived from individual investment; or
(5) a casual transaction.
(c) A transaction that otherwise is excluded under
Subsection (b), but that is made or engaged in by a person and that
is incidental to the person's regular business activity, is a
business activity.
Sec. 172.003. CASUAL TRANSACTION. "Casual transaction"
means a transaction made or engaged in other than in the ordinary
course of repeated and successive transactions of a like character,
except that a transaction made or engaged in by a person that is
incidental to that person's regular business activity is considered
to be a business activity.
Sec. 172.004. EMPLOYEE. (a) "Employee" means an employee
as defined in Section 3401(c), Internal Revenue Code.
(b) A person from whom an employer is required to withhold
for federal income tax purposes is presumed to be an employee.
Sec. 172.005. EMPLOYER. (a) "Employer" means an employer
as defined in Section 3401(d), Internal Revenue Code.
(b) A person required to withhold for federal income tax
purposes is presumed to be an employer.
Sec. 172.006. FEDERAL TAXABLE INCOME. "Federal taxable
income" means taxable income as defined in Section 63, Internal
Revenue Code.
Sec. 172.007. FINANCIAL ORGANIZATION. "Financial
organization" means a bank, industrial bank, trust company, bank
holding company as defined in 12 U.S.C. Section 1841, credit union,
safety and collateral deposit company, regulated investment
company as defined in the Internal Revenue Code, or any other joint
stock company or corporation at least 90 percent of whose assets
consist of intangible personal property and at least 90 percent of
whose gross receipts income consists of dividends or interest or
other charges resulting from the use of money or credit.
Sec. 172.008. GROSS RECEIPTS. (a) "Gross receipts" means
the sum of the gross receipts from sales and from the rental of
property.
(b) The term does not include:
(1) a payment from an insurance carrier to an insured
for property damage or personal injury; or
(2) an amount received in an agency or other
representative capacity solely on behalf of another.
(c) The term includes an amount received by a person having
the power or authority to expend or otherwise appropriate the
amount in payment for or in consideration of sales or services made
or rendered by the person or by another acting under the person's
direction and control or by a fiduciary, including a guardian,
executor, administrator, receiver, conservator, or trustee, other
than a trustee of taxes received or collected from others under
direction of the laws of the federal government or of any foreign,
state, or local government.
Sec. 172.009. INDIVIDUAL INVESTMENT. "Individual
investment" means investment by an individual:
(1) of funds owned by the individual solely for the
benefit of the individual if the investment is not made in
connection with another activity that is a business activity; or
(2) of funds owned by the individual's relative within
the third degree of consanguinity or the second degree of affinity,
as those relationships are described by Subchapter B, Chapter 573,
Government Code, on behalf of and solely for the benefit of the
owner of the funds if the investment is not made in connection with
another activity that is a business activity.
Sec. 172.010. INTERNAL REVENUE CODE. "Internal Revenue
Code" means the Internal Revenue Code of 1986 in effect on January
1, 2004.
Sec. 172.011. RENT. "Rent" includes a lease payment or
other payment for the use of any property to which the taxpayer does
not otherwise have legal or equitable title.
Sec. 172.012. SALE. "Sale" means a transaction from which
the gross receipts constitute consideration:
(1) for the transfer of title to, or possession of,
property:
(A) that is stock in trade;
(B) that is of a kind that would properly be
included in the inventory of the taxpayer if on hand at the close of
the tax period; or
(C) that is held by the taxpayer primarily for
sale to customers in the ordinary course of its trade or business;
(2) for the performance of services that constitute
business activities other than those included in Subdivision (1);
or
(3) from any combination of gross receipts included in
Subdivision (1) or (2).
Sec. 172.013. STATE. "State" means any state of the United
States, the District of Columbia, the Commonwealth of Puerto Rico,
any territory or possession of the United States, and any foreign
country, or a political subdivision of any of those entities.
Sec. 172.014. TANGIBLE ASSETS. "Tangible assets" means
tangible assets of a type that are, or, under the Internal Revenue
Code, will become, eligible for depreciation or amortization for
federal income tax purposes.
Sec. 172.015. TAX. "Tax" includes interest and penalties
unless the intention to give it a more limited meaning is indicated
by its context.
Sec. 172.016. TAXPAYER. "Taxpayer" means a person liable
for a tax, interest, or a penalty under this chapter. The term
refers to the individuals who own an interest in an unincorporated
association, joint venture, partnership, or other entity not having
the legal status of a person.
Sec. 172.017. TAX YEAR. (a) "Tax year" means the calendar
year or the fiscal year ending during the calendar year for which
the tax base is computed under this chapter.
(b) If a return is made for a fractional part of a year, the
term means the period for which the return is made.
(c) Except for the first return required by this chapter, a
taxpayer's tax year is the same period as that covered by the
taxpayer's federal income tax return.
Sec. 172.018. UNRELATED BUSINESS ACTIVITY. "Unrelated
business activity" means any business activity that gives rise to
unrelated taxable income as defined in the Internal Revenue Code.
[Sections 172.019-172.100 reserved for expansion]
SUBCHAPTER B. IMPOSITION OF TAX
Sec. 172.101. TAX IMPOSED. There is imposed a tax on every
person having a business activity in this state that is allocated or
apportioned to this state.
Sec. 172.102. TAX RATE. The tax imposed by this chapter is
at the rate of one percent of the taxpayer's adjusted tax base.
Sec. 172.103. DETERMINATION OF TAX BASE. (a) A taxpayer
determines the tax base by computing the amount of total revenue
received by the taxpayer during the tax year, which is the sum of
revenue from:
(1) gross receipts;
(2) interest;
(3) dividends derived from obligations or securities;
(4) royalties; and
(5) the sale or other disposition of tangible assets
that are physically located in this state.
(b) A financial organization shall:
(1) in determining the interest component of its tax
base under Subsection (a)(2), include only net interest earned; and
(2) in determining the sale or other disposition of
tangible assets under Subsection (a)(5), include only those assets
directly used to provide financial services.
Sec. 172.104. DETERMINATION OF ADJUSTED TAX BASE. (a) A
taxpayer determines the adjusted tax base by determining the tax
base as provided in Section 172.103 and making adjustments in the
following order:
(1) deducting any income derived from a nonbusiness
activity listed in Section 172.002(b);
(2) deducting the cost of the purchase of any property
of a kind that would properly be included in the inventory of the
taxpayer during the tax year;
(3) deducting the cost of services purchased during
the tax year for the performance of the taxpayer's business
activities;
(4) apportioning the tax base as provided in
Subchapter C; and
(5) deducting the cost, including the cost of
fabrication and installation, paid or accrued in the tax year of
tangible assets that are physically located in this state.
(b) A financial organization shall deduct the cost paid or
accrued in the tax year of a tangible asset that is physically
located in this state only if the tangible asset is directly used
to provide financial services.
[Sections 172.105-172.200 reserved for expansion]
SUBCHAPTER C. ALLOCATION AND APPORTIONMENT OF TAX BASE
Sec. 172.201. BUSINESS ACTIVITIES CONFINED TO TEXAS. The
entire tax base of a taxpayer whose business activity is confined
solely to this state is allocated to this state.
Sec. 172.202. BUSINESS ACTIVITIES IN TEXAS AND ELSEWHERE.
A taxpayer whose business activity is taxable both in and outside
this state shall apportion the taxpayer's tax base as provided by
this subchapter.
Sec. 172.203. TAXABLE IN ANOTHER STATE. For purposes of
apportionment of the tax base from business activity under this
subchapter, a taxpayer is taxable in another state if:
(1) in that state the taxpayer is subject to a business
privilege tax, net income tax, franchise tax measured by net
income, franchise tax for the privilege of doing business,
corporate stock tax, or tax of the type imposed by this chapter; or
(2) that state has jurisdiction to subject the
taxpayer to one or more of the taxes without regard to whether the
state does so.
Sec. 172.204. APPORTIONMENT FACTOR. All of the tax base,
other than the tax base derived principally from financial services
or specifically allocated, is apportioned to this state by
multiplying the tax base by the sales factor.
Sec. 172.205. SALES FACTOR. (a) The sales factor is a
fraction, the numerator of which is the total sales of the taxpayer
in this state during the tax year, and the denominator of which is
the total sales of the taxpayer during the tax year.
(b) A sale of tangible personal property is in this state
if:
(1) the property is shipped or delivered to a
purchaser, other than the United States government, in this state
without regard to the free-on-board point or other conditions of
the sale; or
(2) the property is shipped from an office, store,
warehouse, factory, or other place of storage in this state and the
purchaser is the United States government or the taxpayer is not
taxable in the state of the purchaser.
(c) For the purposes of Subsection (b)(2) only, "state" does
not include a foreign country.
(d) A sale, other than a sale of tangible personal property,
is in this state if:
(1) the business activity is performed in this state;
or
(2) the business activity is performed both in and
outside this state and, based on costs of performance, a greater
proportion of the business activity is performed in this state than
is performed outside this state.
(e) Receipts derived from a service performed for planning,
design, or construction activities in this state are considered
receipts from a sale of service in this state.
Sec. 172.206. APPORTIONMENT: FINANCIAL ORGANIZATIONS. (a)
The tax base of a financial organization attributable to sources in
this state is:
(1) the entire tax base of a taxpayer whose business
activities are confined solely to this state; or
(2) for a taxpayer whose business activities are
conducted partially in and partially outside this state, a
percentage of its tax base equal to the percentage of its gross
business during the period covered by its return that is done in
this state.
(b) Gross business includes the sum of:
(1) fees, commissions, or other compensation for
financial services;
(2) gross profits from trading in stocks, bonds, or
other securities;
(3) interest charged to customers for carrying debit
balances of margin accounts, without deduction of any costs
incurred in carrying the accounts;
(4) interest and dividends received; and
(5) any other gross income resulting from the
operation as a financial organization.
[Sections 172.207-172.250 reserved for expansion]
SUBCHAPTER D. EXEMPTIONS
Sec. 172.251. EXEMPTION: GOVERNMENTAL ENTITIES. There are
exempted from the taxes imposed by this chapter the United States,
this state and other states, and agencies, political subdivisions,
and enterprises of the United States, this state, and other states.
Sec. 172.252. EXEMPTION: NONPROFIT ENTITIES. There is
exempted from the taxes imposed by this chapter any entity that is
exempt from federal income tax under Section 501(a), Internal
Revenue Code, by being listed as an exempt organization in Section
501(c)(3) or 501(c)(4) of the code.
[Sections 172.253-172.300 reserved for expansion]
SUBCHAPTER E. TAX RETURNS AND PAYMENTS
Sec. 172.301. ESTIMATED TAX RETURNS. (a) A taxpayer who
reasonably expects liability for the tax year to exceed $500 shall
file an estimated return and pay an estimated tax for each quarter
of the taxpayer's tax year.
(b) For a taxpayer whose tax year is the calendar year, the
quarterly returns and estimated payments shall be made on or before
April 30, July 31, October 31, and January 31. A taxpayer whose tax
year is not the calendar year shall file quarterly returns and make
estimated payments on or before the due dates that in the taxpayer's
fiscal year correspond to the calendar year dates provided by this
subsection.
(c) The estimated payment made with each quarterly return of
each tax year is for the estimated tax base for the quarter or
one-fourth of the estimated annual liability. The second, third,
and fourth estimated payments in each tax year shall include
adjustments, if necessary, to correct underpayments or
overpayments from previous quarterly payments in the tax year to a
revised estimate of the annual tax liability.
(d) The comptroller may not assess interest for tax that is
delinquent if:
(1) the sum of the estimated payments equals at least
85 percent of the liability or one percent of the gross receipts for
the tax year and the amount of each estimated payment reasonably
approximates the tax liability incurred during the quarter for
which the estimated payment was made; or
(2) the preceding year's tax liability was $10,000 or
less and the taxpayer submitted four equal installments the sum of
which equals the previous year's tax liability.
(e) A taxpayer shall make each estimated return on a form
prescribed by the comptroller and shall include an estimate of the
annual tax liability and other information required by the
comptroller. The form may be combined with any other tax reporting
form prescribed by the comptroller.
(f) A taxpayer who files an estimated tax return for the
taxpayer's first tax year of less than 12 months shall pay amounts
with each return that are proportional to the number of payments
made in the first tax year.
(g) Payments made under this section are a credit against
the payment required with the annual tax return.
(h) The comptroller may require filing of the returns and
payment of the tax for other than quarterly or annual periods if the
comptroller considers it necessary to ensure payment of the tax or
to provide a more efficient administration of the tax.
(i) A taxpayer who elects under the Internal Revenue Code to
file an annual federal income tax return by March 1 in the year
following the taxpayer's tax year and does not make a quarterly
estimate or payment, or does not make a quarterly estimate or
payment and files a tentative annual return with a tentative
payment by January 15 in the year following the taxpayer's tax year
and a final return by April 15 in the year following the taxpayer's
tax year, has the same option in filing the estimated and annual
returns required by this chapter.
(j) Instead of the quarterly return prescribed by
Subsections (a) and (b), the taxpayer may elect either of the
following options:
(1) to file and pay before the 16th day of each month
an estimated return computed at the rate of one percent of the gross
receipts for the preceding month; or
(2) to file and pay before the 16th day of the months
specified by Subsection (b) an estimated return computed at the
rate of one percent of the gross receipts for the preceding quarter.
Sec. 172.302. RETURN FOR FIRST TAX YEAR. A taxpayer may
elect to compute the tax for the first tax year, if less than 12
months, in accordance with one of the following:
(1) the taxpayer may determine the amount of the tax as
if this chapter were effective on the first day of the taxpayer's
annual accounting period and multiply the amount by a fraction, the
numerator of which is the number of months in the taxpayer's first
tax year, and the denominator of which is 12; or
(2) the taxpayer may determine the amount of the tax by
determining the tax base in the first tax year in accordance with an
accounting method, satisfactory to the comptroller, that reflects
the actual tax base attributable to the period.
Sec. 172.303. ANNUAL TAX RETURN. (a) A taxpayer shall file
an annual or final return with the comptroller, in the form and
content prescribed by the comptroller, on or before the last day of
the fourth month after the end of the taxpayer's tax year. A
taxpayer shall pay any final tax liability with the return.
(b) The comptroller, on application of the taxpayer and for
good cause shown, may extend the date for filing the annual return.
Interest at the rate that applies to delinquent taxes under Section
111.060 shall be added to the amount of the tax unpaid for the
period of the extension. The comptroller shall require a
preliminary return and payment of the estimated tax.
Sec. 172.304. FILING OF FEDERAL TAX RETURNS. A taxpayer
required to file a return under this chapter may be required to
furnish a copy of any return or portion of any return that the
taxpayer has filed under the Internal Revenue Code.
Sec. 172.305. RETURNS OF ENTITIES OTHER THAN CORPORATIONS
OR LIMITED LIABILITY COMPANIES. (a) A taxpayer who does not report
as a corporation or a limited liability company shall report as an
individual in a single report under this chapter and pay the tax for
each separately identifiable business activity or business entity
in which the person is engaged, showing the person's distributive
share of revenue described by Section 172.103, adjustments to that
revenue, adjusted tax base, and tax for each separate activity and
entity.
(b) Each owner of an entity or a business activity in which
general liability is not otherwise limited by law is jointly and
severally liable for the amount of the taxes imposed by this chapter
on the entity or business activity. An entity may withhold payment
of dividends, profits, or other distributions to an owner,
including an owner whose general liability is otherwise limited,
who has not paid the taxes due under this chapter before the date
the tax is delinquent in an amount equal to the delinquency,
including penalties and interest, and may pay the tax for that
individual in satisfaction of any tax obligation arising from the
business activity.
(c) The distributive share of ownership of an owner of a
business activity or entity for this section is the share to which,
under the agreement of the owners of the business activity or
entity, the individual is entitled. In the absence of sufficient
evidence to establish ownership under an agreement, the share of
ownership of an owner is presumed to be, at the election of the
comptroller:
(1) equal to the share of that owner's contribution of
capital to the activity or entity; or
(2) a share equal to each other owner's.
Sec. 172.306. CONSOLIDATED OR COMBINED RETURNS. (a) The
comptroller may require or permit the filing of a consolidated or
combined return by an affiliated group of corporations if:
(1) all members of the affiliated group are taxpayers
or have business activity in this state;
(2) each member of the affiliated group maintains a
relationship with one or more members of the group that includes
intercorporate transactions of a substantial nature other than
control, ownership, or financing arrangements, or any combination
of these; and
(3) the business activities of each member of the
affiliated group are subject to apportionment by a specific
apportionment formula provided by this chapter that also applies to
all other members of the affiliated group and would be applicable to
each member even if it were not a member of the affiliated group.
(b) Except as expressly provided by this section, this
subchapter does not permit or require the filing of a consolidated
or combined return or a consolidation or combination of the tax base
or apportionment factors of two or more entities.
Sec. 172.307. INFORMATION RETURNS. The comptroller by rule
may require, at the time and in the manner specified by rule, the
filing of an information return of any person who has business
activity in or allocated to this state.
[Sections 172.308-172.350 reserved for expansion]
SUBCHAPTER F. ADMINISTRATION, COLLECTION, AND ENFORCEMENT
Sec. 172.351. RECORDS; CRIMINAL PENALTY. (a) A person
liable for a tax imposed by this chapter shall keep and maintain
accurate records in a form that makes it possible to determine the
tax due under this chapter.
(b) The records must be open for examination by the
comptroller at any time during regular business hours of the
taxpayer.
(c) A person who intentionally or knowingly violates this
section commits an offense. An offense under this section is a
Class B misdemeanor.
Sec. 172.352. FAILURE TO MAKE RETURN; CRIMINAL PENALTY.
(a) A person who knowingly fails or refuses to make a return
required by this chapter commits an offense.
(b) An offense under this section is a felony of the third
degree.
Sec. 172.353. DISSOLUTION OF CORPORATION AND SALE OF
BUSINESS. (a) The secretary of state shall withhold the issuance
of any certificate of dissolution or withdrawal in the case of any
corporation organized under the laws of this state or organized
under the laws of another state and admitted to do business in this
state until notified by the comptroller that all taxes imposed by
this chapter against the corporation are paid, or until notified by
the comptroller that the applicant is not indebted for any taxes by
reason of payment or indemnification.
(b) If a person liable for a tax imposed by this chapter
sells out the person's business or stock of goods or ceases business
activity, the person's successor or succeeding successors shall
withhold an amount of the purchase money sufficient to satisfy the
amount of tax that may be due and unpaid until the former owner
produces a certificate from the comptroller stating that a tax is
not due. A successor who fails to withhold purchase money is
personally liable for any tax accruing because of the business of
the former owner.
Sec. 172.354. RECIPROCAL AGREEMENTS. The comptroller may
enter into reciprocal agreements with the United States Department
of the Treasury or taxing officials of other states or nations for
the enforcement, collection, and exchange of data in connection
with the administration of this chapter.
[Sections 172.355-172.400 reserved for expansion]
SUBCHAPTER G. DISPOSITION OF REVENUE
Sec. 172.401. TEXAS SCHOOL TRUST FUND. The revenue from the
tax imposed by this chapter shall be deposited to the credit of the
Texas school trust fund.
[Sections 172.402-172.450 reserved for expansion]
SUBCHAPTER H. PASS-THROUGH
Sec. 172.451. DEFINITIONS. In this subchapter, "sale" and
"taxable item" have the meanings assigned those terms by Subchapter
A, Chapter 151.
Sec. 172.452. PASS-THROUGH. A taxpayer that has gross
receipts from the sale of a taxable item may pass through the tax
under this chapter to the consumer of the taxable item as a sales
tax in the manner provided by this subchapter.
Sec. 172.453. AMOUNT OF PASS-THROUGH TAX. (a) The amount
of the pass-through tax is one percent of the sales price of the
taxable item.
(b) The tax under this section is in addition to any other
tax under this code.
(c) Notwithstanding any other provision of this chapter,
the amount of the pass-through tax may not exceed the amount of the
tax that the taxpayer would be liable for under this chapter if the
taxpayer did not use the pass-through tax. The comptroller shall
adopt rules to implement this subsection, including the
implementation of a rate for the pass-through tax that is less than
one percent.
Sec. 172.454. COLLECTION, ADMINISTRATION, AND ENFORCEMENT.
For purposes of collection, administration, and enforcement of the
tax under this subchapter, the tax is the same as a sales tax
imposed under Chapter 151.
Sec. 172.455. GROSS RECEIPTS ADJUSTMENT. (a) A taxpayer
that passes through the tax on taxable items in the manner provided
by this subchapter may deduct the gross receipts from the sale of
those taxable items from the gross receipts the taxpayer uses to
compute its tax base under Section 172.103.
(b) The taxpayer may not deduct gross receipts from the sale
of any item:
(1) other than a taxable item described in Subsection
(a); or
(2) sold at the same time as a taxable item described
in Subsection (a) and appearing on the same invoice or receipt as
the taxable item but that is not a taxable item.
Sec. 172.456. IDENTIFICATION OF PASS-THROUGH TAX. The
taxpayer may separately identify the pass-through tax paid by a
consumer on a taxable item on the invoice or receipt given to the
consumer, including as the "Texas Education Business Activity Tax."
SECTION 1.02. This article takes effect January 1, 2006.
ARTICLE 2. REPEAL OF FRANCHISE TAX
SECTION 2.01. (a) Chapter 171, Tax Code, is repealed
January 1, 2006.
(b) Chapter 171, Tax Code, and Subtitle B, Title 2, Tax
Code, continue to apply to audits, deficiencies, redeterminations,
and refunds of any tax due or collected under Chapter 171 until
barred by limitations.
(c) The repeal of Chapter 171, Tax Code, does not affect:
(1) the status of a corporation that has had its
corporate privileges, certificate of authority, or corporate
charter revoked, suit filed against it, or a receiver appointed
under Subchapter F, G, or H of that chapter;
(2) the ability of the comptroller, secretary of
state, or attorney general to take action against a corporation
under Subchapter F, G, or H of that chapter for actions that took
place before the repeal; or
(3) the right of a corporation to contest a
forfeiture, revocation, lawsuit, or appointment of a receiver under
Subchapter F, G, or H of that chapter.
(d) Any corporation that is subject to the franchise tax
imposed by Chapter 171, Tax Code, before the date of its repeal
shall pay an additional tax equal to 4.5 percent of the
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, Tax
Code, and ending on December 31, 2005. The comptroller by rule shall
provide for the payment of tax due for an initial or second period
that does not expire before January 1, 2006. A franchise tax return
is not required for any initial or second period as described by
Chapter 171, Tax Code, that begins on or after January 1, 2006.
ARTICLE 3. SALES TAX
SECTION 3.01. Section 151.051(b), Tax Code, is amended to
read as follows:
(b) The sales tax rate is 7.25 [6 1/4] percent of the sales
price of the taxable item sold.
SECTION 3.02. This article takes effect January 1, 2006.
ARTICLE 4. EFFECTIVE DATE
SECTION 4.01. Except as otherwise provided by this Act,
this Act takes effect January 1, 2006.