80R45 KLA-D

By: Farabee H.B. No. 512

A BILL TO BE ENTITLED

AN ACT

relating to a franchise tax credit for enterprise projects and defense readjustment projects for job creation activities and 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 P1 or Q1, 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. Section 2310.404(a), Government Code, is amended to read as follows:

(a) Subject to Section 2310.413, a defense readjustment project is eligible for:

(1) a refund of state taxes under Section 151.4291, Tax Code;

(2) a franchise tax credit under Subchapter P1 [P] or Q1 [Q], Chapter 171, Tax Code; and

(3) the exclusion of receipts from service performed in a readjustment zone in the determination of gross receipts from business done in this state under Section [Sections] 171.103 [and 171.1032], Tax Code.

SECTION 3. Chapter 171, Tax Code, is amended by adding Subchapters P1 and Q1 to read as follows: SUBCHAPTER P1. TAX CREDITS FOR ENTERPRISE PROJECTS AND DEFENSE READJUSTMENT PROJECTS FOR CERTAIN JOB CREATION ACTIVITIES

Sec. 171.781. DEFINITIONS. In this subchapter:

(1) "Defense readjustment project" means:

(A) a person designated by the Texas Department of Economic Development as a defense readjustment project under Chapter 2310, 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 a defense readjustment project under Chapter 2310, Government Code, on or after September 1, 2003.

(2) "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.

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

(4) "Qualified business" means a person certified as a qualified business under Section 2303.402 or 2310.302, Government Code.

(5) "Qualifying job" means a new permanent full-time job that is:

(A) located in an enterprise zone and is created by a qualified business that has been designated as an enterprise project; or

(B) located in a readjustment zone and is created by a qualified business that has been designated as a defense readjustment project.

(6) "Readjustment zone" has the meaning assigned by Section 2310.001, Government Code.

Sec. 171.782. ELIGIBILITY. (a) An enterprise project or a defense readjustment project is eligible for a credit against the tax imposed under this chapter if the enterprise project or defense readjustment project is a qualified business as defined in Section 171.781.

(b) An enterprise project or defense readjustment 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 or readjustment zone in which it created the qualifying jobs subsequently loses its designation as an enterprise zone or readjustment zone.

Sec. 171.783. CALCULATION OF CREDIT. (a) An enterprise project or defense readjustment 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 is designated, establish a credit equal to 25 percent of the total wages and salaries paid on or after January 1, 2005, and before January 1, 2010, by the enterprise project or defense readjustment project for qualifying jobs.

(b) Subject to Sections 171.784 and 171.785, the enterprise project or defense readjustment project may claim the entire amount of the credit established under Subsection (a) on a report originally due on or after September 1, 2007, and before January 1, 2011.

Sec. 171.784. LIMITATIONS. (a) The total credit claimed under this subchapter for a report, including the amount of any carryforward credit under Section 171.785, may not exceed 50 percent of the amount of franchise tax due for the report before any other applicable tax credits.

(b) The total credit claimed under this subchapter and Subchapter Q1 for a report, including the amount of any carryforward credits, may not exceed the amount of franchise tax due for the report after any other applicable credits.

Sec. 171.785. CARRYFORWARD. (a) If an enterprise project or a defense readjustment project is eligible for a credit that exceeds the limitations under Section 171.784, the enterprise project or defense readjustment project may carry the unused credit forward for not more than five consecutive reports.

(b) A carryforward is considered the remaining portion of a credit that cannot be claimed in the current year because of a tax limitation under Section 171.784. A carryforward is added to the next year's credit in determining the tax limitation for that year. A credit carryforward from a previous report is considered to be used before the current year credit.

Sec. 171.786. CERTIFICATION OF ELIGIBILITY. (a) For the initial and each succeeding report in which a credit is claimed under this subchapter, the enterprise project or defense readjustment project shall file with its report, on a form provided by the comptroller, information that sufficiently demonstrates that the enterprise project or defense readjustment project is eligible for the credit and is in compliance with Section 171.782.

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

Sec. 171.787. ASSIGNMENT PROHIBITED. An enterprise project or a defense readjustment 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 or defense readjustment project are conveyed, assigned, or transferred in the same transaction.

Sec. 171.788. 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 number of jobs created by enterprise projects and defense readjustment projects that claim a credit under this subchapter and the average and median annual wages of those jobs;

(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 and defense readjustment 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 and defense readjustment projects claiming a credit under this subchapter; and

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

(3) a breakdown of the two-digit standard industrial classification of enterprise projects and defense readjustment projects claiming a credit under this subchapter;

(4) the geographical distribution of the credits claimed under this subchapter; and

(5) the impact of the credit provided under this subchapter on employment, personal income, and capital investment in this state and on 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 or defense readjustment 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 or defense readjustment project's job creation 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. 171.789. COMPTROLLER POWERS AND DUTIES. The comptroller shall adopt rules and forms necessary to implement this subchapter.

Sec. 171.790. EXPIRATION. (a) This subchapter expires December 31, 2009.

(b) The expiration of this subchapter does not affect the carryforward of a credit under Section 171.785 or those credits for which an enterprise project or a defense readjustment project is eligible before the date this subchapter expires. SUBCHAPTER Q1. TAX CREDITS FOR ENTERPRISE PROJECTS AND DEFENSE READJUSTMENT PROJECTS FOR CERTAIN CAPITAL INVESTMENTS

Sec. 171.815. DEFINITIONS. In this subchapter:

(1) "Defense readjustment project," "enterprise project," "enterprise zone," "qualified business," and "readjustment zone" have the meanings assigned by Section 171.781.

(2) "Qualified capital investment" means tangible personal property that is first placed in service in an enterprise zone or a readjustment zone by a qualified business that has been designated as an enterprise project or a defense readjustment project, as applicable, 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 incomplete improvement that is 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) An enterprise project or a defense readjustment 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 or defense readjustment project is a qualified business.

(b) An enterprise project or defense readjustment 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 or readjustment zone in which it made the qualified capital investment subsequently loses its designation as an enterprise zone or readjustment zone.

Sec. 171.818. CALCULATION OF CREDIT. (a) An enterprise project or defense readjustment 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, 2010.

(b) The enterprise project or defense readjustment project may claim the entire credit earned on a report originally due on or after September 1, 2007, and before January 1, 2011, subject to Section 171.819.

Sec. 171.819. LIMITATIONS. (a) 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.

(b) The total credit claimed under this subchapter and Subchapter P1 for a report, including the amount of any carryforward credits, may not exceed the amount of franchise tax due for the report after any other applicable tax credits.

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

(b) A carryforward is considered the remaining portion of an installment that cannot be claimed in the current year because of a tax limitation under Section 171.819. A carryforward is added to the next year's installment of the credit in determining the tax limitation for that year. A credit carryforward from a previous report is considered to be used before the current year installment.

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 or defense readjustment project shall file with its report, on a form provided by the comptroller, information that sufficiently demonstrates that the enterprise project or defense readjustment project is eligible for the credit.

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

Sec. 171.822. ASSIGNMENT PROHIBITED. An enterprise project or a defense readjustment 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 or defense readjustment 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 and defense readjustment projects that claim a credit under this subchapter and the average and median wages paid by those enterprise projects and defense readjustment 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 and defense readjustment 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 and defense readjustment projects claiming a credit under this subchapter;

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

(D) the two-digit standard industrial classification of enterprise projects and defense readjustment 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 or defense readjustment 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 or defense readjustment 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 or a defense readjustment project is eligible before the date this subchapter expires.

SECTION 4. (a) A taxable entity may claim a credit under Subchapter P1 or Q1, 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 wages and salaries paid or qualified capital investments made on or after January 1, 2005.

(b) The comptroller by rule shall prescribe the manner in which a taxable entity may claim a credit for wages and salaries paid or qualified capital investments made on or after January 1, 2005, and before January 1, 2008.

(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 5. This Act takes effect January 1, 2008.