LEGISLATIVE BUDGET BOARD

Austin, Texas

FISCAL NOTE, 81ST LEGISLATIVE REGULAR SESSION

May 21, 2009

TO:	Honorable Steve Ogden, Chair, Senate Committee on Finance
FROM:	John S. O'Brien, Director, Legislative Budget Board
IN RE:	HB4265 by Howard, Charlie (Relating to the definition of controlling interest for purposes of the franchise tax and to the imposition of the tax on certain combined groups.), As Engrossed

The bill will have a direct impact of a revenue loss to the Property Tax Relief Fund of $6,079,000 for the 2010-11 biennium.  Any loss to the Property Tax Relief Fund will have to be made up with General Revenue of the same amount to fund property tax relief.

General Revenue-Related Funds, Five-Year Impact:

Fiscal Year	Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2010	$0
2011	$0
2012	$0
2013	$0
2014	$0

All Funds, Five-Year Impact:

Fiscal Year	Probable Revenue Gain/(Loss) from Property Tax Relief Fund 304
2010	($3,000,000)
2011	($3,079,000)
2012	($3,187,000)
2013	($3,315,000)
2014	($3,448,000)

Fiscal Analysis

The bill would amend Chapter 171 of the Tax Code, relating to the franchise tax.

The bill would amend the definition of "affiliated group" by expanding it to include a group of one or more entities in which an equal interest is owned by all owners or by all member entities provided that none of the owner or member entities have more than 25 employees. The bill would amend the combined reporting provisions by adding a subsection that would allow an affiliated group described by the expanded definition to file a combined report in lieu of individual reports.

The bill would also amend the definition of "controlling interest" for certain types of entities. Under current law, there is a single definition for controlling interest applicable to a partnership, an association, or any other entity other than a limited liability company. The bill would add separate definitions of controlling interest for an association, a trust, and for any other entity.

The bill would take effect on January 1, 2010, and apply to a report due on or after that date.

Methodology

The change to the definition of "affiliated group" would allow the unrelated owners of a business to file a combined report if certain conditions are met. Those conditions would include that the owners have equal ownership shares and that none of owners or the businesses owned have more than 25 employees. The combined report would allow the entities to utilize additional subtractions from total revenue to determine taxable margin. The fiscal impact is based on franchise tax reports for professional associations and professional corporations in the professional services and health care industries.

The amendment to the definition of "controlling interest" would have no fiscal impact.

Local Government Impact

No fiscal implication to units of local government is anticipated.

Source Agencies:

304 Comptroller of Public Accounts

LBB Staff:

JOB, MN, SD, SM