BILL ANALYSIS
C.S.H.B. 512
By:
Farabee
Ways & Means
Committee Report (Substituted)
BACKGROUND AND PURPOSE
Before January 1, 2005, companies
and businesses designated as enterprise projects were eligible for franchise
tax credits. Numerous companies began economic development projects with the
expectations of receiving these credits and budgeted as such. However, after
January 1, 2005, the credits were no longer available, even for those companies
and businesses that began projects under the provisions of the statute. CSHB 512
makes the franchise tax credits retroactive for companies approved as
enterprise zone projects before January 1, 2005. The bill does not allow for
any additional benefits, it only restores the tax credits pledged to the companies
when they started their projects.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is
expressly granted to the comptroller in SECTION 2 and SECTION 3 of this bill.
ANALYSIS
Section 1
Amends current law to provide that enterprise projects are
eligible for certain new state franchise tax credits, as described in
Subchapter Q1, Chapter 171, Tax Code.
Section 2
Amends Chapter 171, Tax Code, by adding a new subchapter,
Subchapter Q-1 Tax Credits for Enterprise Projects for Certain Capital
Investments. The new subchapter:
- Defines “enterprise project,” “enterprise zone,”
“qualified business,” and “qualified capital investment.” The definition
of enterprise projects include those projects designated by either the
Texas Department of Economic Development or the Texas Economic Development
Bank prior to January 1, 2005. The definition of the term “qualified
capital investment” describes the type of expenditures that may be claimed
as part of the franchise tax credit authorized by this new subchapter when
first placed in service in an enterprise zone by a qualified business.
According to the bill, “qualified capital investment” may include tangible
personal property including engines, machinery, tools, and implements used
in a trade or business or held for investment and subject to an allowance
for depreciation, cost recovery under the accelerated cost recovery
system, or amortization. The term does not include real property or
buildings and their structural components or property that is leased under
an operating lease (property under a capitalized lease is allowable).
- Specifies that a qualified capital investment is
determined to be placed in service in an enterprise zone by a qualified
business when the tangible personal property is identified by a purchase
order, invoice, billing sales slip, or contract, purchased for placement
in an improvement that was under construction or other physical
preparation and is physically present and in use by the enterprise project
in the enterprise zone when the credit is taken.
- Specifies that only a qualified business is eligible to
claim a credit and that the credit may be taken even if the enterprise
zone where the qualifying capital investment was made subsequently loses
its designation as an enterprise zone. CSHB 512 specifies that an
enterprise project is not eligible for a credit under this new subchapter
if the enterprise project claimed a credit under Subchapter Q, Chapter
171, Tax Code before its repeal on January 1, 2008. Additionally, CSHB 512
specifies that an enterprise project is only eligible to take a credit
under this new subchapter if the enterprise project was a taxable entity
under Chapter 171, Tax Code, as that chapter existed on May 1, 2006.
- Authorizes an enterprise project that is eligible for
credit under this subchapter to, on or after the later of January 1, 2008,
or the date the project was designated, to establish a credit equal to
7.5 percent of the qualified capital investment made on or after
January 1, 2005, and before January 1, 2007. The enterprise project may
claim the established credit on a tax report due on or after January 1,
2008 and before January 1, 2009.
- Limits the total credit, including carryforward credits,
to 50% of the tax due for the report before other applicable
credits.
- Authorizes an enterprise project to carryforward any
unused credit for not more than five consecutive reports. This provision
applies to an enterprise project eligible for a credit that exceeds the
limitation limiting the total credit to 50 % of the tax due.
- Requires an enterprise project to annually certify its
eligibility for the credits authorized under this Subchapter on a form
provided by the Comptroller of Public Accounts.
- Prohibits an enterprise project from conveying, assigning,
or transferring the credit allowed under this subchapter to another entity
unless all of the assets of the enterprise project are conveyed, assigned,
or transferred in the same transaction.
- Requires the Comptroller to compile and distribute a
comprehensive report on the tax credits authorized by this subchapter.
- Grants the Comptroller rule-making authority to adopt
rules and forms necessary to carryout its duties under this program.
- Provides that this subchapter expires December 31, 2009,
but does not affect the carryforward of previously claimed credits.
Section 3
- Authorizes a taxable entity to claim a credit under
Subchapters Q1 on a franchise tax report originally due on or after
January 1, 2008 for qualified capital investments made on or after January
1, 2005 and before January 1, 2007.
- Requires the comptroller to prescribe by rule the manner
in which a taxable entity may claim a credit for qualified capital
investments made on or after January 1, 2005, and before January 1, 2007.
- Provide that the changes in law made by this Act do not
affect taxes imposed before January 1, 2008, and the law in effect before
that date is continued in effect for purposes of the liability for and
collection of those taxes.
Section 5
Effective date January 1, 2008
EFFECTIVE DATE
January 1, 2008
COMPARISON OF ORIGINAL TO SUBSTITUTE
C.S.H.B. 512 modifies the original H.B. 512 by removing the
proposed Subchapter P, Tax Credits for Enterprise Projects and Defense
Readjustment Projects for Certain Job Creation Activities and all references to
defense readjustment projects. As result, only qualified businesses making a
qualified capital investment in an enterprise zone would be eligible to
establish a tax credit.
C.S.H.B. 512 limits the new Subchapter Q capital investment
tax credit to enterprise projects that were nominated before January 1, 2005.
The original H.B. 512 allowed all enterprise projects nominated after January
1, 2003 to qualify for the tax credit. Thus, C.S.H.B. 512 would limit the
availability of the credit to those projects that were nominated before the
original tax credit expired in January 1, 2005.
C.S.H.B. 512 clarifies that an enterprise project is
eligible for the credit only if the enterprise project had not claimed a credit
under Subchapter Q, Chapter 171, Tax Code before the repeal of that subchapter
on January 1, 2008. The original H.B. 512 did not contain a similar
prohibition.
C.S.H.B. 512 specifies that an enterprise project is
eligible for the capital investment tax credit if the enterprise project was a
taxable entity under the Franchise Tax (Chapter 171, Tax Code) prior May 1,
2006. Thus, to qualify to take a credit under this bill, an enterprise project
must have been a taxable entity prior to changes implemented in the Franchise
Tax during the 79th Legislature, 3rd Called Special
Session by H.B. 3.
C.S.H.B. 512 modifies the original H.B. 512 by limiting the
period in which a qualified capital investment must have been made to qualify
for the credit to the time period beginning on or after January 1, 2005 and
ending before January 1, 2007. The time period in the original H.B. 512 began
on or after January 1, 2005 and ended before January 1, 2010. Additionally,
C.S.H.B. 512 requires that the entire credit earned by the enterprise project
be claimed on a report originally due on or after January 1, 2008 and before
January 1, 2009. The original language in H.B. 512 required that the credit
earned by the enterprise project be claimed on a report originally due on or
after September 1, 2007, and before January 1, 2011. Thus, the time period in
which a qualified capital investment could be made in an enterprise zone was
shortened to a two year period from the original five year period.
Additionally, the credit, notwithstanding the carryforwards, may only be
claimed on one report, the report originally due on or after January 1, 2008
and before January 1, 2009. Under the original language, the credit, not
withstanding the carryforwards, could be taken on one of the returns originally
due on or after September 1, 2007, and before January 1, 2011.