| TO: | Honorable Jim Keffer, Chair, House Committee on Ways & Means |
| FROM: | John S. O'Brien, Director, Legislative Budget Board |
| IN RE: | HB1336 by Geren (Relating to a deduction under the franchise tax for certain contracts with the federal government.), As Introduced |
| Fiscal Year | Probable Net Positive/(Negative) Impact to General Revenue Related Funds |
|---|---|
| 2008 | $0 |
| 2009 | $0 |
| 2010 | $0 |
| 2011 | $0 |
| 2012 | $0 |
| Fiscal Year | Probable Revenue Gain/(Loss) from Property Tax Relief Fund 304 |
|---|---|
| 2008 | ($21,756,000) |
| 2009 | ($22,352,000) |
| 2010 | ($23,650,000) |
| 2011 | ($25,022,000) |
| 2012 | ($26,248,000) |
The bill would amend Chapter 171 of the Tax Code, relating to the franchise tax, to permit taxpayers subtracting the cost of goods or compensation from total revenue to subtract additional costs that are properly allocable to contracts or subcontracts for the sale of goods or services to the federal government.
To be eligible, the contract with the federal government would have to be subject to the Federal Acquisition Regulation (48 C.F.R. Part I, or a successor regulation). Costs allocable to a contract for sale of goods or services to the federal government may include both material costs and service labor costs.
The bill would allow compensation paid for service labor costs to be subtracted by a taxpayer selecting to subtract cost of goods; and it would allow material costs to be subtracted by a taxpayer selecting to subtract compensation for the calculation of taxable margin.
The bill would take effect on January 1, 2008, and it would apply to franchise tax reports due on or after January 1, 2008.
This estimate is based upon analyses provided by the Comptroller's Office.
The estimate assumes that additional costs would be available to certain taxable entities that sell goods and services to the federal government. The amount of additional costs were estimated from data in the Comptroller's francise tax files and information on defense contracts. Additional adjustments were made to account for the costs permitted to be subtracted under current law.
Note: House Bill 2, 79th Legislature, Third Called Session (2006) dedicates to the Property Tax Relief Fund 0304 all revenues collected under Chapter 171 in excess of the amount that would have been collected under the chapter as it existed on August 31, 2007. The fiscal impact table reflects that dedication. The General Revenue Fund will be obliged to compensate for the portion of property tax relief not funded by the revenues in the Property Tax Relief Fund.
| Source Agencies: | 304 Comptroller of Public Accounts
|
| LBB Staff: | JOB, CT, SD, SM
|