| TO: | Honorable Steve Ogden, Chair, Senate Committee on Finance |
| FROM: | John S. O'Brien, Director, Legislative Budget Board |
| IN RE: | HB3928 by Keffer, Jim (Relating to technical changes to the franchise tax.), Committee Report 2nd House, Substituted |
| 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 | ($2,967,000) |
| 2009 | $4,145,000 |
| 2010 | ($4,416,000) |
| 2011 | $7,183,000 |
| 2012 | ($2,360,000) |
The bill would amend Chapter 171 and create Chapter 172 of the Tax Code relating to the franchise tax. The bill would rename Chapter 171 as "Elective Franchise Tax."
For Chapter 171, the bill would modify the calculation of tax for taxable entities with total revenue between $300,000 and $900,000 by applying a sliding discount scale ranging from 80 percent for taxable entities with total revenue less than $400,000 to 20 percent for taxable entities with total revenue greater than $700,000 but less than $900,000. Under current law, taxable entities with total revenue of less than $300,000 owe no tax.
The bill would provide an additional compensation deduction for a small employer, as defined in the Insurance Code, for initiating health care coverage for employees during the first and second year of provided coverage. For the first year the extra deduction is 50 percent of the employers cost and 25 percent for the second year.
The bill would shift forward by one year to 2010 the initial date to begin inflation-indexing the receipt levels for discount amounts and the compensation limit amount. The index would be updated in even-numbered years.
The bill would require taxable partnerships to include gross rental income instead of net rental income for determining total revenue.
The bill would provide that the gross proceeds from the sale of a loan or security treated as inventory of the seller for federal income tax purposes would be considered gross receipts for apportionment.
The bill would amend the temporary credit provisions to base the credit on business loss carryforwards that existed before January 1, 2008. The bill would specify the maximum amount of usable business loss carryforwards available in any year. The bill would make the maximum credit available to a taxable entity, the annual available business loss carryforwards multiplied by 4.5 percent. The credit amount would be limited to the liability of the taxable entity claiming the credit.
The bill would reduce the amount of control required for inclusion of a related entity in a combined group to "more than 50 percent," from 80 percent.
The bill would expand the definition of "client company" to include a client of a temporary employment service.
The bill would provide that "capital" gains from the sale of real property are included in the income that is subject to the 90 percent test for a passive entity.
The bill would create Chapter 172, which would be titled "Franchise Tax." The terms used in Chapter 172 would have the same meaning as in Chapter 171. Chapter 172 would impose a tax on each taxable entity doing business in the state. The amount of tax would be 0.675 percent of total revenue apportioned to Texas in the same manner as under Chapter 171. A taxable entity that elected to pay the franchise tax under Chapter 171 would have no liability under Chapter 172.
With one exception, this bill would take effect January 1, 2008. SECTION 36, which would clarify the reporting responsibility of a newly taxable entity, would take effect immediately upon enactment, assuming that the bill received the requisite two-thirds majority votes in both houses of the Legislature. Otherwise, SECTION 36 would take effect September 1, 2007.
| Source Agencies: | 304 Comptroller of Public Accounts
|
| LBB Staff: | JOB, SD, SM
|