Honorable Harvey Hilderbran, Chair, House Committee on Ways & Means
FROM:
John S O'Brien, Director, Legislative Budget Board
IN RE:
HB932 by Paxton (relating to the franchise tax liability of certain taxable entities.), As Introduced
Estimated Two-year Net Impact to General Revenue Related Funds for HB932, As Introduced: a negative impact of ($747,023,000) through the biennium ending August 31, 2013.
The bill will have a direct impact of a revenue loss of ($2,934,647,000) from the Property Tax Relief Fund during the 2012-13 biennium. The loss would be required to be made up with an equal amount of General Revenue to fund the Foundation School Program.
Fiscal Year
Probable Net Positive/(Negative) Impact to General Revenue Related Funds
2012
($389,721,000)
2013
($357,302,000)
2014
($346,011,000)
2015
($288,228,000)
2016
($279,155,000)
Fiscal Year
Probable Revenue (Loss) from General Revenue Fund 1
Probable Revenue (Loss) from Property Tax Relief Fund 304
2012
($389,721,000)
($1,425,122,000)
2013
($357,302,000)
($1,509,525,000)
2014
($346,011,000)
($1,558,928,000)
2015
($288,228,000)
($1,621,859,000)
2016
($279,155,000)
($1,646,540,000)
Fiscal Analysis
The bill would amend Chapter 171 of the Tax Code, regarding the franchise tax, by adding to the conditions contained in Section 171.002(d) under which a taxable entity would owe no tax. The bill would add the condition that the taxable entity's taxable income from its entire business in a tax year was zero or less.
The bill would prohibit the Comptroller from requiring an entity affected by any of the conditions for which no franchise tax is due (in Section 171.002(d)) to file a report or provide other information to verify that the entity does not owe any franchise tax.
This bill would take effect on January 1, 2012, and apply to reports due on or after that date.
Methodology
As an initial step, IRS tax returns for a sample of franchise tax reporting entities were analyzed. The franchise tax liability of entities in the sample with income of zero or less was used to estimate the impact of the bill for the entire franchise tax. In addition, this bill employs the term "the taxable entity's taxable income." Many of the entities subject to the franchise tax are pass through entities. These entities do not have taxable income. The estimate assumes such entities would claim to owe no franchise tax. The term "taxable income", for the purposes of this analysis, is assumed to refer to a taxpayers federal tax reports.
The provision prohibiting the Comptroller from requiring a taxable entity to file a report or information verifying the entity owes no tax would negatively impact the Comptroller's ability to collect the franchise tax.
Local Government Impact
No significant fiscal implication to units of local government is anticipated.