80R15303 KLA-D

By: Farabee H.B. No. 512

Substitute the following for H.B. No. 512:

By: Ritter C.S.H.B. No. 512

A BILL TO BE ENTITLED

AN ACT

relating to a franchise tax credit for enterprise projects for capital investments.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 2303.504, Government Code, is amended to read as follows:

Sec. 2303.504. STATE TAX REFUNDS AND CREDITS; REPORT. (a) Subject to Section 2303.516, an enterprise project is entitled to:

(1) a refund of state taxes under Section 151.429, Tax Code; and

(2) a franchise tax credit under Subchapter Q-1, Chapter 171, Tax Code.

(b) At the time of receipt of any tax benefit available as a result of participating in the enterprise zone program, including a state sales and use tax refund or franchise tax credit, three percent of the amount of the tax benefit shall be transferred to the Texas economic development bank fund under Subchapter B, Chapter 489, to defray the cost of administering this chapter.

(c) Not later than the 60th day after the last day of each fiscal year, the comptroller shall report to the bank the statewide total of actual jobs created, actual jobs retained, and the tax refunds and credits made under this section during that fiscal year.

SECTION 2. Chapter 171, Tax Code, is amended by adding Subchapter Q-1 to read as follows: SUBCHAPTER Q-1. TAX CREDITS FOR ENTERPRISE PROJECTS FOR CERTAIN CAPITAL INVESTMENTS

Sec. 171.815. DEFINITIONS. In this subchapter:

(1) "Enterprise project" means:

(A) a person designated by the Texas Department of Economic Development as an enterprise project under Chapter 2303, Government Code, on or after September 1, 2001, but before September 1, 2003; and

(B) a person designated by the Texas Economic Development Bank as an enterprise project under Chapter 2303, Government Code, on or after September 1, 2003, but before January 1, 2005.

(2) "Enterprise zone" has the meaning assigned by Section 2303.003, Government Code.

(3) "Qualified business" means a person certified as a qualified business under Section 2303.402, Government Code.

(4) "Qualified capital investment" means tangible personal property that is first placed in service in an enterprise zone by a qualified business that has been designated as an enterprise project and that is described in Section 1245(a), Internal Revenue Code, such as 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. Property that is leased under a capitalized lease is considered a qualified capital investment, but property that is leased under an operating lease is not considered a qualified capital investment. Property expensed under Section 179, Internal Revenue Code, is not considered a qualified capital investment.

Sec. 171.816. TANGIBLE PERSONAL PROPERTY FIRST PLACED IN SERVICE IN AN ENTERPRISE ZONE. For purposes of determining whether an investment is a qualified capital investment under Section 171.815, "tangible personal property first placed in service in an enterprise zone" includes tangible personal property:

(1) purchased by an enterprise project for placement in an improvement that was under active construction or other physical preparation;

(2) identified by a purchase order, invoice, billing, sales slip, or contract; and

(3) physically present at the enterprise project's qualified business site, as defined by Section 2303.003, Government Code, and in use by the enterprise project on the original due date of the report on which the credit is taken.

Sec. 171.817. ELIGIBILITY. (a) Subject to Subsection (b), an enterprise project is eligible for a credit against the tax imposed under this chapter in the amount and under the conditions and limitations provided by this subchapter if the enterprise project is a qualified business.

(b) An enterprise project is not eligible for a credit under this subchapter if the enterprise project claimed a credit under Subchapter Q before the repeal of that subchapter on January 1, 2008.

(c) An enterprise project that is eligible for a credit under this subchapter may claim a credit or take a carryforward credit without regard to whether the enterprise zone in which it made the qualified capital investment subsequently loses its designation as an enterprise zone.

(d) A taxable entity, other than a combined group, may not claim the credit under this subchapter unless the taxable entity was, on May 1, 2006, subject to the tax imposed by this chapter as this chapter existed on that date. A taxable entity that is a combined group may claim the credit for each member entity that was, on May 1, 2006, subject to the tax imposed by this chapter as this chapter existed on that date and shall compute the amount of the credit for that member as provided by this subchapter.

Sec. 171.818. CALCULATION OF CREDIT. (a) An enterprise project that is eligible for a credit under this subchapter may, on or after the later of January 1, 2008, or the date the project was designated, 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.

(b) The enterprise project may claim the entire credit earned on a report originally due on or after January 1, 2008, and before January 1, 2009, subject to Section 171.819.

Sec. 171.819. LIMITATIONS. The total credit claimed under this subchapter for a report, including the amount of any carryforward credit under Section 171.820, may not exceed 50 percent of the amount of franchise tax due for the report before any other applicable tax credits.

Sec. 171.820. CARRYFORWARD. If an enterprise project is eligible for a credit that exceeds the limitation under Section 171.819, the enterprise project may carry the unused credit forward for not more than five consecutive reports.

Sec. 171.821. CERTIFICATION OF ELIGIBILITY. (a) For the initial and each succeeding report in which a credit is claimed under this subchapter, the enterprise project shall file with its report, on a form provided by the comptroller, information that sufficiently demonstrates that the enterprise project is eligible for the credit.

(b) The burden of establishing entitlement to and the value of the credit is on the enterprise project.

Sec. 171.822. ASSIGNMENT PROHIBITED. An enterprise project may not convey, assign, or transfer 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.

Sec. 171.823. BIENNIAL REPORT BY COMPTROLLER. (a) Before the beginning of each regular session of the legislature, the comptroller shall submit to the governor, the lieutenant governor, and the speaker of the house of representatives a report that states:

(1) the total amount of qualified capital investments made by enterprise projects that claim a credit under this subchapter and the average and median wages paid by those enterprise projects;

(2) the total amount of credits applied against the tax under this chapter and the amount of unused credits, including:

(A) the total amount of franchise tax due by enterprise projects claiming a credit under this subchapter before and after the application of the credit;

(B) the average percentage reduction in franchise tax due by enterprise projects claiming a credit under this subchapter;

(C) the percentage of tax credits that were awarded to enterprise projects with fewer than 100 employees; and

(D) the two-digit standard industrial classification of enterprise projects claiming a credit under this subchapter;

(3) the geographical distribution of the qualified capital investments on which tax credit claims are made under this subchapter; and

(4) the impact of the credit provided under this subchapter on employment, capital investment, personal income, and state tax revenues.

(b) The final report issued before the expiration of this subchapter must include historical information on the credit authorized under this subchapter.

(c) The comptroller may not include in the report information that is confidential by law.

(d) For purposes of this section, the comptroller may require an enterprise project that claims a credit under this subchapter to submit information, on a form provided by the comptroller, on the location of the enterprise project's capital investment in this state and any other information necessary to complete the report required under this section.

(e) The comptroller shall provide notice to the members of the legislature that the report required under this section is available on request.

Sec. 171.824. COMPTROLLER POWERS AND DUTIES. The comptroller shall adopt rules and forms necessary to implement this subchapter.

Sec. 171.825. EXPIRATION. (a) This subchapter expires December 31, 2009.

(b) The expiration of this subchapter does not affect the carryforward of a credit under Section 171.820 or those credits for which an enterprise project is eligible before the date this subchapter expires.

SECTION 3. (a) A taxable entity may claim a credit under Subchapter Q-1, Chapter 171, Tax Code, as added by this Act, only:

(1) on a franchise tax report originally due on or after January 1, 2008; and

(2) notwithstanding any other law, for qualified capital investments made on or after January 1, 2005, and before January 1, 2007.

(b) The comptroller by rule shall prescribe 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.

(c) 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 4. This Act takes effect January 1, 2008.