83R1850 BEF-D

By: Perry H.B. No. 2250

A BILL TO BE ENTITLED

AN ACT

relating to the franchise tax; changing the manner in which the franchise tax is computed and the rate of the tax; authorizing a filing fee; repealing the fee for failing to timely file a report.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 171.0001, Tax Code, is amended to read as follows:

Sec. 171.0001. GENERAL DEFINITIONS. In this chapter:

(1) "Affiliated group" means a group of one or more entities in which a controlling interest is owned by a common owner or owners, either corporate or noncorporate, or by one or more of the member entities.

[(1-a) "Artist" means a natural person or an entity that contracts to perform or entertain at a live entertainment event.]

(2) ["Assigned employee" has the meaning assigned by Section 91.001, Labor Code.

[(3)] "Banking corporation" means each state, national, domestic, or foreign bank, whether organized under the laws of this state, another state, or another country, or under federal law, including a limited banking association organized under Subtitle A, Title 3, Finance Code, and each bank organized under Section 25A [25(a)], Federal Reserve Act (12 U.S.C. Sections 611-631) (edge corporations), but does not include a bank holding company as that term is defined by Section 2, Bank Holding Company Act of 1956 (12 U.S.C. Section 1841).

(3) [(4)] "Beginning date" means:

(A) for a taxable entity chartered or organized in this state, the date on which the taxable entity's charter or organization takes effect; and

(B) for any other taxable entity, the date on which the taxable entity begins doing business in this state.

(4) [(5)] "Charter" includes a limited liability company's certificate of organization, a limited partnership's certificate of limited partnership, and the registration of a limited liability partnership.

(5) [(6) "Client company" means:

[(A) a person that contracts with a license holder under Chapter 91, Labor Code, and is assigned employees by the license holder under that contract; or

[(B) a client of a temporary employment service, as that term is defined by Section 93.001(2), Labor Code, to whom individuals are assigned for a purpose described by that subdivision.

[(7) "Combined group" means taxable entities that are part of an affiliated group engaged in a unitary business and that are required to file a group report under Section 171.1014.

[(8) "Controlling interest" means:

[(A) for a corporation, either more than 50 percent, owned directly or indirectly, of the total combined voting power of all classes of stock of the corporation, or more than 50 percent, owned directly or indirectly, of the beneficial ownership interest in the voting stock of the corporation;

[(B) for a partnership, association, trust, or other entity other than a limited liability company, more than 50 percent, owned directly or indirectly, of the capital, profits, or beneficial interest in the partnership, association, trust, or other entity; and

[(C) for a limited liability company, either more than 50 percent, owned directly or indirectly, of the total membership interest of the limited liability company or more than 50 percent, owned directly or indirectly, of the beneficial ownership interest in the membership interest of the limited liability company.

[(9)] "Internal Revenue Code" means the Internal Revenue Code of 1986 in effect for the federal tax year beginning on January 1, 2013 [2007], not including any changes made by federal law after that date, and any regulations adopted under that code applicable to that period.

(6) [(10) "Lending institution" means an entity that makes loans and:

[(A) is regulated by the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Office of Thrift Supervision, the Texas Department of Banking, the Office of Consumer Credit Commissioner, the Credit Union Department, or any comparable regulatory body;

[(B) is licensed by, registered with, or otherwise regulated by the Department of Savings and Mortgage Lending;

[(C) is a "broker" or "dealer" as defined by the Securities Exchange Act of 1934 at 15 U.S.C. Section 78c; or

[(D) provides financing to unrelated parties solely for agricultural production.

[(10-a) "Live entertainment event" means an event that occurs on a specific date to which tickets are sold in advance by a third-party vendor and at which:

[(A) a natural person or a group of natural persons, physically present at the venue, performs for the purpose of entertaining a ticket holder who is present at the event;

[(B) a traveling circus or animal show performs for the purpose of entertaining a ticket holder who is present at the event; or

[(C) a historical, museum-quality artifact is on display in an exhibition.

[(10-b) "Live event promotion services" means services related to the promotion, coordination, operation, or management of a live entertainment event. The term includes services related to:

[(A) the provision of staff for the live entertainment event; or

[(B) the scheduling and promotion of an artist performing or entertaining at the live entertainment event.

[(11) "Management company" means a corporation, limited liability company, or other limited liability entity that conducts all or part of the active trade or business of another entity (the "managed entity") in exchange for:

[(A) a management fee; and

[(B) reimbursement of specified costs incurred in the conduct of the active trade or business of the managed entity, including "wages and cash compensation" as determined under Sections 171.1013(a) and (b).

[(11-a)] "Natural person" means a human being or the estate of a human being. The term does not include a purely legal entity given recognition as the possessor of rights, privileges, or responsibilities, such as a corporation, limited liability company, partnership, or trust.

(7) "Officer" and "director" include a limited liability company's directors and managers and a limited banking association's directors and managers and participants if there are no directors or managers.

(8) [(11-b) "Qualified live event promotion company" means a taxable entity that:

[(A) receives at least 50 percent of the entity's annual total revenue from the provision or arrangement for the provision of three or more live event promotion services;

[(B) maintains a permanent nonresidential office from which the live event promotion services are provided or arranged;

[(C) employs 10 or more full-time employees during all or part of the period for which taxable margin is calculated;

[(D) does not provide services for a wedding or carnival; and

[(E) is not a movie theater.

[(12) "Retail trade" means:

[(A) the activities described in Division G of the 1987 Standard Industrial Classification Manual published by the federal Office of Management and Budget; and

[(B) apparel rental activities classified as Industry 5999 or 7299 of the 1987 Standard Industrial Classification Manual published by the federal Office of Management and Budget.

[(13)] "Savings and loan association" means a savings and loan association or savings bank, whether organized under the laws of this state, another state, or another country, or under federal law.

(9) [(13-a) "Security," for purposes of Sections 171.1011(g), 171.1011(g-2), and 171.106(f) only, has the meaning assigned by Section 475(c)(2), Internal Revenue Code, and includes instruments described by Sections 475(e)(2)(B), (C), and (D) of that code.

[(14)] "Shareholder" includes a limited liability company's member and a limited banking association's participant.

(10) [(15) "Staff leasing services company" means:

[(A) a business entity that offers staff leasing services, as that term is defined by Section 91.001, Labor Code; or

[(B) a temporary employment service, as that term is defined by Section 93.001, Labor Code.

[(16) "Total revenue" means the total revenue of a taxable entity as determined under Section 171.1011.

[(17)] "Unitary business" means a single economic enterprise that is made up of separate parts of a single entity or of a commonly controlled group of entities that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value to the separate parts. In determining whether a unitary business exists, the comptroller shall consider any relevant factor, including whether:

(A) the activities of the group members are in the same general line, such as manufacturing, wholesaling, retailing of tangible personal property, insurance, transportation, or finance;

(B) the activities of the group members are steps in a vertically structured enterprise or process, such as the steps involved in the production of natural resources, including exploration, mining, refining, and marketing; or

(C) the members are functionally integrated through the exercise of strong centralized management, such as authority over purchasing, financing, product line, personnel, and marketing.

[(18) "Wholesale trade" means the activities described in Division F of the 1987 Standard Industrial Classification Manual published by the federal Office of Management and Budget.]

SECTION 2. Section 171.0002(a), Tax Code, is amended to read as follows:

(a) Except as otherwise provided by this section, "taxable entity" means a partnership, limited liability partnership, corporation, banking corporation, savings and loan association, limited liability company, business trust, professional association, business association, joint venture, joint stock company, holding company, or other legal entity. [The term includes a combined group.] A joint venture does not include joint operating or co-ownership arrangements meeting the requirements of Treasury Regulation Section 1.761-2(a)(3) that elect out of federal partnership treatment as provided by Section 761(a), Internal Revenue Code.

SECTION 3. Section 171.0003(a), Tax Code, is amended to read as follows:

(a) An entity is a passive entity only if:

(1) the entity is a general or limited partnership or a trust, other than a business trust;

(2) during the period on which earned surplus [margin] is based, the entity's federal gross income consists of at least 90 percent of the following income:

(A) dividends, interest, foreign currency exchange gain, periodic and nonperiodic payments with respect to notional principal contracts, option premiums, cash settlement or termination payments with respect to a financial instrument, and income from a limited liability company;

(B) distributive shares of partnership income to the extent that those distributive shares of income are greater than zero;

(C) capital gains from the sale of real property, gains from the sale of commodities traded on a commodities exchange, and gains from the sale of securities; and

(D) royalties, bonuses, or delay rental income from mineral properties and income from other nonoperating mineral interests; and

(3) the entity does not receive more than 10 percent of its federal gross income from conducting an active trade or business.

SECTION 4. Section 171.0011(b), Tax Code, is amended to read as follows:

(b) The additional tax is equal to 0.25 percent of the taxable entity's net taxable earned surplus [the appropriate rate under Section 171.002 of the taxable entity's taxable margin] computed on the period beginning on the day after the last day for which the tax imposed on taxable margin or net taxable earned surplus was computed and ending on the date the taxable entity is no longer subject to the tax imposed under this chapter.

SECTION 5. Section 171.002, Tax Code, is amended by amending Subsections (a) and (d) and adding Subsection (e) to read as follows:

(a) The [Subject to Sections 171.003 and 171.1016 and except as provided by Subsection (b), the] rate of the franchise tax is 0.25 [one] percent of net taxable earned surplus [margin].

(d) A taxable entity is not required to pay any tax and is not considered to owe any tax for a period if:

(1) the amount of tax computed for the taxable entity is less than $1,000; or

(2) the taxable entity:

(A) is not part of an affiliated group engaged in a unitary business and the amount of the taxable entity's gross receipts [total revenue] from its [entire] business done in this state under Section 171.1032 is less than or equal to $1 million; or

(B) is part of an affiliated group engaged in a unitary business and the total amount of gross receipts of all taxable entities that are part of that affiliated group from their business done in this state under Section 171.1032 is less than or equal to $1 million [or the amount determined under Section 171.006 per 12-month period on which margin is based].

(e) If the amount of tax computed to be due under this chapter for any privilege period is less than zero, the comptroller shall consider the amount to be zero.

SECTION 6. The heading to Subchapter C, Chapter 171, Tax Code, is amended to read as follows:

SUBCHAPTER C. DETERMINATION OF TAXABLE EARNED SURPLUS [MARGIN];

ALLOCATION AND APPORTIONMENT

SECTION 7. Subchapter C, Chapter 171, Tax Code, is amended by adding Section 171.1032 to read as follows:

Sec. 171.1032. DETERMINATION OF GROSS RECEIPTS FROM BUSINESS DONE IN THIS STATE FOR TAXABLE EARNED SURPLUS. (a) Except for the gross receipts of a taxable entity that are subject to Section 171.1061, in apportioning taxable earned surplus, the gross receipts of a taxable entity from its business done in this state is the sum of the taxable entity's receipts from:

(1) each sale of tangible personal property if the property is delivered or shipped to a buyer in this state regardless of the FOB point or another condition of the sale, and each sale of tangible personal property shipped from this state to a purchaser in another state in which the seller is not subject to any tax on, or measured by, net income, without regard to whether the tax is imposed;

(2) each service performed in this state;

(3) each rental of property situated in this state;

(4) the use of a patent, copyright, trademark, franchise, or license in this state;

(5) each sale of real property located in this state, including royalties from oil, gas, or other mineral interests;

(6) each partnership or joint venture to the extent provided by Subsection (c); and

(7) other business done in this state.

(b) A taxable entity shall deduct from its gross receipts computed under Subsection (a) any amount to the extent included under Subsection (a) because of the application of Section 78 or Sections 951-964, Internal Revenue Code, any amount excludable under Section 171.110(i), and dividends received from a subsidiary, associate, or affiliated corporation that does not transact a substantial portion of its business or regularly maintain a substantial portion of its assets in the United States.

(c) A taxable entity shall include in its gross receipts computed under Subsection (a) the taxable entity's share of the gross receipts of each partnership and joint venture of which the taxable entity is a part apportioned to this state as though the taxable entity directly earned the receipts, including receipts from business done with the taxable entity.

SECTION 8. Subchapter C, Chapter 171, Tax Code, is amended by adding Section 171.1051 to read as follows:

Sec. 171.1051. DETERMINATION OF GROSS RECEIPTS FROM ENTIRE BUSINESS FOR TAXABLE EARNED SURPLUS. (a) Except for the gross receipts of a taxable entity that are subject to Section 171.1061, in apportioning taxable earned surplus, the gross receipts of a taxable entity from its entire business is the sum of the taxable entity's receipts from:

(1) each sale of the taxable entity's tangible personal property;

(2) each service, rental, or royalty;

(3) each partnership and joint venture as provided by Subsection (d); and

(4) other business.

(b) If a taxable entity sells an investment or capital asset, the taxable entity's gross receipts from its entire business for taxable earned surplus includes only the net gain from the sale.

(c) A taxable entity shall deduct from its gross receipts computed under Subsection (a) any amount to the extent included in Subsection (a) because of the application of Section 78 or Sections 951-964, Internal Revenue Code, any amount excludable under Section 171.110(i), and dividends received from a subsidiary, associate, or affiliated corporation that does not transact a substantial portion of its business or regularly maintain a substantial portion of its assets in the United States.

(d) A taxable entity shall include in its gross receipts computed under Subsection (a) the taxable entity's share of the gross receipts of each partnership and joint venture of which the taxable entity is a part.

SECTION 9. The heading to Section 171.106, Tax Code, is amended to read as follows:

Sec. 171.106. APPORTIONMENT OF TAXABLE EARNED SURPLUS [MARGIN] TO THIS STATE.

SECTION 10. Sections 171.106(a), (b), and (c), Tax Code, are amended to read as follows:

(a) Except as provided by Subsections (b) and (c) [this section], a taxable entity's taxable earned surplus [margin] is apportioned to this state to determine the amount of tax imposed under Section 171.002 by multiplying the taxable earned surplus [margin] by a fraction, the numerator of which is the taxable entity's gross receipts from business done in this state, as determined under Section 171.1032 [171.103], and the denominator of which is the taxable entity's gross receipts from its entire business, as determined under Section 171.1051 [171.105].

(b) A taxable entity's taxable earned surplus [margin] that is derived, directly or indirectly, from the sale of management, distribution, or administration services to or on behalf of a regulated investment company, including a taxable entity that includes trustees or sponsors of employee benefit plans that have accounts in a regulated investment company, is apportioned to this state to determine the amount of the tax imposed under Section 171.002 by multiplying the taxable entity's total taxable earned surplus [margin] from the sale of services to or on behalf of a regulated investment company by a fraction, the numerator of which is the average of the sum of shares owned at the beginning of the year and the sum of shares owned at the end of the year by the investment company shareholders who are commercially domiciled in this state or, if the shareholders are individuals, are residents of this state, and the denominator of which is the average of the sum of shares owned at the beginning of the year and the sum of shares owned at the end of the year by all investment company shareholders. In this subsection, "regulated investment company" has the meaning assigned by Section 851(a), Internal Revenue Code.

(c) A taxable entity's taxable earned surplus [margin] that is derived, directly or indirectly, from the sale of management, administration, or investment services to an employee retirement plan is apportioned to this state to determine the amount of the tax imposed under Section 171.002 by multiplying the taxable entity's total taxable earned surplus [margin] from the sale of services to an employee retirement plan company by a fraction, the numerator of which is the average of the sum of beneficiaries domiciled in Texas at the beginning of the year and the sum of beneficiaries domiciled in Texas at the end of the year, and the denominator of which is the average of the sum of all beneficiaries at the beginning of the year and the sum of all beneficiaries at the end of the year. In this section, "employee retirement plan" means a plan or other arrangement that is qualified under Section 401(a), Internal Revenue Code, or satisfies the requirements of Section 403, Internal Revenue Code, or a government plan described in Section 414(d), Internal Revenue Code. The term does not include an individual retirement account or individual retirement annuity within the meaning of Section 408, Internal Revenue Code.

SECTION 11. Subchapter C, Chapter 171, Tax Code, is amended by adding Section 171.1061 to read as follows:

Sec. 171.1061. ALLOCATION OF CERTAIN TAXABLE EARNED SURPLUS TO THIS STATE. An item of income included in a taxable entity's taxable earned surplus, except that portion derived from dividends and interest, that a state, other than this state, or a country, other than the United States, cannot tax because the activities generating that item of income do not have sufficient unitary connection with the taxable entity's other activities conducted within that state or country under the United States Constitution, is allocated to this state if the taxable entity's commercial domicile is in this state. Income that can only be allocated to the state of commercial domicile because the income has insufficient unitary connection with any other state or country shall be allocated to this state or another state or country net of expenses related to that income. A portion of a taxable entity's taxable earned surplus allocated to this state under this section may not be apportioned under Section 171.110(a)(2).

SECTION 12. The heading to Section 171.107, Tax Code, is amended to read as follows:

Sec. 171.107. DEDUCTION OF COST OF SOLAR ENERGY DEVICE FROM TAXABLE EARNED SURPLUS [MARGIN] APPORTIONED TO THIS STATE.

SECTION 13. Section 171.107(b), Tax Code, is amended to read as follows:

(b) A taxable entity may deduct from its apportioned taxable earned surplus [margin] 10 percent of the amortized cost of a solar energy device if:

(1) the device is acquired by the taxable entity for heating or cooling or for the production of power;

(2) the device is used in this state by the taxable entity; and

(3) the cost of the device is amortized in accordance with Subsection (c).

SECTION 14. The heading to Section 171.108, Tax Code, is amended to read as follows:

Sec. 171.108. DEDUCTION OF COST OF CLEAN COAL PROJECT FROM TAXABLE EARNED SURPLUS [MARGIN] APPORTIONED TO THIS STATE.

SECTION 15. Section 171.108(b), Tax Code, is amended to read as follows:

(b) A taxable entity may deduct from its apportioned taxable earned surplus [margin] 10 percent of the amortized cost of equipment:

(1) that is used in a clean coal project;

(2) that is acquired by the taxable entity for use in generation of electricity, production of process steam, or industrial production;

(3) that the taxable entity uses in this state; and

(4) the cost of which is amortized in accordance with Subsection (c).

SECTION 16. Subchapter C, Chapter 171, Tax Code, is amended by adding Section 171.110 to read as follows:

Sec. 171.110. DETERMINATION OF NET TAXABLE EARNED SURPLUS. (a) The net taxable earned surplus of a corporation is computed by:

(1) determining the corporation's reportable federal taxable income, subtracting from that amount any amount excludable under Subsection (i), any amount included in reportable federal taxable income under Section 78 or Sections 951-964, Internal Revenue Code, and dividends received from a subsidiary, associate, or affiliated corporation that does not transact a substantial portion of its business or regularly maintain a substantial portion of its assets in the United States, and adding to that amount any compensation of officers or directors in excess of $300,000 per person, or if a bank, any compensation of directors and executive officers in excess of $300,000 per person, to the extent excluded in determining federal taxable income to determine the corporation's taxable earned surplus;

(2) apportioning the corporation's taxable earned surplus to this state as provided by Section 171.106(a), (b), or (c), as applicable, to determine the corporation's apportioned taxable earned surplus;

(3) adding the corporation's taxable earned surplus allocated to this state as provided by Section 171.1061; and

(4) subtracting from that amount any allowable deductions and any business loss that is carried forward to the tax reporting period and deductible under Subsection (c).

(b) A corporation's reportable federal taxable income is the corporation's federal taxable income after Schedule C special deductions and before net operating loss deductions as computed under the Internal Revenue Code, except that an S corporation's reportable federal taxable income is the amount of the income reportable to the Internal Revenue Service as taxable to the corporation's shareholders.

(c) For purposes of this section, a business loss is any negative amount after apportionment and allocation. The business loss shall be carried forward to the year succeeding the loss year as a deduction to net taxable earned surplus, then successively to the succeeding four taxable years after the loss year or until the loss is exhausted, whichever occurs first, but for not more than five taxable years after the loss year. A business loss can be carried forward only by the corporation that incurred the loss and cannot be transferred to or claimed by any other entity, including the survivor of a merger if the loss was incurred by the corporation that did not survive the merger.

(d) A corporation may use either the "first in-first out" or "last in-first out" method of accounting to compute its net taxable earned surplus, but only to the extent that the corporation used that method on its most recent federal income tax report originally due on or before the date on which the corporation's franchise tax report is originally due.

(e) For purposes of this section, an approved employee stock ownership plan controlling a minority interest and voted through a single trustee shall be considered one shareholder.

(f) A corporation shall report its net taxable earned surplus based solely on its own financial condition. Consolidated reporting is prohibited.

(g) For purposes of this section, any person designated as an officer is presumed to be an officer if that person:

(1) holds an office created by the board of directors or under the corporate charter or bylaws; and

(2) has legal authority to bind the corporation with third parties by executing contracts or other legal documents.

(h) A corporation may rebut the presumption described in Subsection (g) that a person is an officer if it conclusively shows, through the person's job description or other documentation, that the person does not participate or have authority to participate in significant policymaking aspects of the corporate operations.

(i) Dividends and interest received from federal obligations are not included in earned surplus or gross receipts for earned surplus purposes.

(j) For a taxable entity other than a taxable entity treated for federal income tax purposes as a corporation, the net taxable earned surplus is computed in a manner substantially similar to the manner provided by this section for a corporation, under rules that the comptroller shall adopt. For a taxable entity treated for federal income tax purposes as a partnership, disregarded entity, or other entity on which federal income tax is not imposed, the comptroller's rules shall treat the entity as if the entity were subject to federal income tax.

(k) In this section:

(1) "Federal obligations" means:

(A) stocks and other direct obligations of, and obligations unconditionally guaranteed by, the United States government and United States government agencies; and

(B) direct obligations of a United States government-sponsored agency.

(2) "Obligation" means any bond, debenture, security, mortgage-backed security, pass-through certificate, or other evidence of indebtedness of the issuing entity. The term does not include a deposit, a repurchase agreement, a loan, a lease, a participation in a loan or pool of loans, a loan collateralized by an obligation of a United States government agency, or a loan guaranteed by a United States government agency.

(3) "United States government" means any department or ministry of the federal government, including a federal reserve bank. The term does not include a state or local government, a commercial enterprise owned wholly or partly by the United States government, or a local governmental entity or commercial enterprise whose obligations are guaranteed by the United States government.

(4) "United States government agency" means an instrumentality of the United States government whose obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the United States government. The term includes the Government National Mortgage Association, the Department of Veterans Affairs, the Federal Housing Administration, the Farmers Home Administration, the Export-Import Bank of the United States, the Overseas Private Investment Corporation, the Commodity Credit Corporation, the Small Business Administration, and any successor agency.

(5) "United States government-sponsored agency" means an agency originally established or chartered by the United States government to serve public purposes specified by the United States Congress but whose obligations are not explicitly guaranteed by the full faith and credit of the United States government. The term includes the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Farm Credit System, the Federal Home Loan Bank System, the Student Loan Marketing Association, and any successor agency.

SECTION 17. Section 171.1121, Tax Code, is amended to read as follows:

Sec. 171.1121. GROSS RECEIPTS FOR TAXABLE EARNED SURPLUS [MARGIN]. (a) For purposes of this section, "gross receipts" means all revenues reportable by a taxable entity on its federal tax return, without deduction for the cost of property sold, materials used, labor performed, or other costs incurred, unless otherwise specifically provided in this chapter. "Gross receipts" does not include revenues that are not included in taxable earned surplus. For example, Schedule C special deductions and any amounts subtracted from reportable federal taxable income under Section 171.110(a)(1) are not included in taxable earned surplus and therefore are not considered gross receipts.

(b) Except as otherwise provided by this section, a taxable entity shall use the same accounting methods to apportion taxable earned surplus [margin] as used in computing reportable federal taxable income [margin].

(c) A taxable entity shall report its gross receipts based solely on its own financial condition. Consolidated reporting is prohibited.

(d) Unless Section 171.111 applies due to an election under that section before that section's repeal, a [A] taxable entity may not change its accounting methods used to calculate gross receipts more often than once every four years without the express written consent of the comptroller. A change in accounting methods is not justified solely because it results in a reduction of tax liability.

(e) A taxable entity's share of a partnership's gross receipts that is included in the taxable entity's federal taxable income must be used in computing the taxable entity's gross receipts under this section. Unless otherwise provided by this chapter, a taxable entity may not deduct costs incurred from the taxable entity's share of a partnership's gross receipts. The gross receipts must be apportioned as though the taxable entity directly earned them.

SECTION 18. The heading to Section 171.1532, Tax Code, is amended to read as follows:

Sec. 171.1532. BUSINESS ON WHICH TAX ON NET TAXABLE EARNED SURPLUS [MARGIN] IS BASED.

SECTION 19. Sections 171.202(a) and (d), Tax Code, are amended to read as follows:

(a) Except as provided by Section 171.2022, a taxable entity on which the franchise tax is imposed shall file an annual report with the comptroller containing:

(1) financial information of the taxable entity necessary to compute the tax under this chapter;

(2) the name and address of each officer and director of the taxable entity;

(3) the name and address of the agent of the taxable entity designated under Section 171.354; [and]

(4) a copy of the taxable entity's federal income tax return if the taxable entity filed a federal income tax return, a copy of any consolidated federal income tax return that includes information about the taxable entity's income if the taxable entity is a member of a federal affiliated group that filed a consolidated federal income tax return, or a copy of any federal income tax return that includes information about the taxable entity's income if the taxable entity is treated as a disregarded entity for federal income tax purposes; and

(5) other information required by the comptroller.

(d) In the case of a taxpayer whose previous return was its initial report, the optional payment provided under Subsection (c)(2)(B) or (e)(2)(B) must be equal to an amount produced by multiplying the net taxable earned surplus [margin], as reported on the initial report filed on or before May 14, by the rate of tax in Section 171.002 that is effective January 1 of the year in which the report is due.

SECTION 20. Section 171.203, Tax Code, is amended by amending Subsections (a), (b), (d), and (e) and adding Subsections (a-1), (a-2), (a-3), (a-4), and (d-1) to read as follows:

(a) A taxable entity [corporation or limited liability company] on which the franchise tax is imposed, regardless of whether the taxable entity [corporation or limited liability company] is required to pay any tax, shall file a report with the comptroller containing the taxable entity's name, taxpayer number, file number assigned by the secretary of state, or other information required by the comptroller to identify the taxable entity. A taxable entity, other than a nonprofit entity, shall remit with the report a $200 filing fee.

(a-1) Except as provided by Subsection (a-2), to determine eligibility for the exemption provided by Section 171.2022, or to determine the amount of the franchise tax or the correctness of a franchise tax report, the comptroller may require a taxable entity that may be subject to the tax imposed under this chapter to include on the report under Subsection (a) the amount of the taxable entity's taxable earned surplus or any other information the comptroller may request that is necessary to make a determination under this subsection.

(a-2) The comptroller may require a taxable entity that does not owe any tax because of the application of Section 171.002(d)(2) to include on the report under Subsection (a) the amount of the taxable entity's gross receipts from its business done in this state. The comptroller may not require a taxable entity described by this subsection to report or compute its taxable earned surplus.

(a-3) The comptroller may require any entity to file information as necessary to verify that the entity is not subject to the tax imposed under this chapter.

(a-4) A corporation or limited liability company shall include on the report under Subsection (a):

(1) the name of each corporation or limited liability company in which the corporation or limited liability company filing the report owns a 10 percent or greater interest and the percentage owned by the corporation or limited liability company;

(2) the name of each corporation or limited liability company that owns a 10 percent or greater interest in the corporation or limited liability company filing the report;

(3) the name, title, and mailing address of each person who is an officer or director of the corporation or limited liability company on the date the report is filed and the expiration date of each person's term as an officer or director, if any;

(4) the name and address of the agent of the corporation or limited liability company designated under Section 171.354; and

(5) the address of the corporation's or limited liability company's principal office and principal place of business.

(b) The taxable entity [corporation or limited liability company] shall file the report once a year on a form prescribed by the comptroller.

(d) A [The] corporation or limited liability company shall send a copy of the report to each person named in the report under Subsection (a-4)(3) [(a)(3)] who is not currently employed by the corporation or limited liability company or a related corporation or limited liability company listed in Subsection (a-4)(1) [(a)(1)] or (2).

(d-1) An officer or director of the taxable entity [corporation or limited liability company] or another authorized person must sign the report under a certification that:

(1) all information contained in the report is true and correct to the best of the person's knowledge; and

(2) a copy of the report has been mailed to each person identified in Subsection (d) [this subsection] on the date the return is filed, if applicable.

(e) If a person's name is included in a report under Subsection (a-4)(3) [(a)(3)] and the person is not an officer or director of the corporation or limited liability company on the date the report is filed, the person may file with the comptroller a sworn statement disclaiming the person's status as shown on the report. The comptroller shall maintain a record of statements filed under this subsection and shall make that information available on request using the same procedures the comptroller uses for other requests for public information.

SECTION 21. Section 171.206, Tax Code, is amended to read as follows:

Sec. 171.206. CONFIDENTIAL INFORMATION. Except as provided by Section 171.207, the following information is confidential and may not be made open to public inspection:

(1) information that is obtained from a record or other instrument that is required by this chapter to be filed with the comptroller including information required under Sections 171.203(a-1), (a-2), and (a-3); or

(2) information, including information about the business affairs, operations, profits, losses, [cost of goods sold, compensation,] or expenditures of a taxable entity, obtained by an examination of the books and records, officers, partners, trustees, agents, or employees of a taxable entity on which a tax is imposed by this chapter.

SECTION 22. Section 171.207, Tax Code, is amended to read as follows:

Sec. 171.207. INFORMATION NOT CONFIDENTIAL. The following information is not confidential and shall be made open to public inspection:

(1) information contained in a document filed under this chapter with a county clerk as notice of a tax lien; and

(2) information contained in a report required by Section 171.203, other than information required under Section 171.203(a-1), (a-2), or (a-3) [or 171.2035].

SECTION 23. Section 171.208, Tax Code, is amended to read as follows:

Sec. 171.208. PROHIBITION OF DISCLOSURE OF INFORMATION. A person, including a state officer or employee or an owner of a taxable entity, who has access to a report filed under this chapter may not make known in a manner not permitted by law the amount or source of the taxable entity's income, profits, losses, expenditures, [cost of goods sold, compensation,] or other information in the report relating to the financial condition of the taxable entity.

SECTION 24. Section 171.212(a), Tax Code, is amended to read as follows:

(a) A taxable entity must file an amended report under this chapter if:

(1) the taxable entity's net taxable earned surplus [margin] is changed as the result of an audit or other adjustment by the Internal Revenue Service or another competent authority; or

(2) the taxable entity files an amended federal income tax return or other return that changes the taxable entity's net taxable earned surplus [margin].

SECTION 25. Subchapter E, Chapter 171, Tax Code, is amended by adding Section 171.216 to read as follows:

Sec. 171.216. SUNSET REVIEW OF CERTAIN PROVISIONS BY COMPTROLLER. (a) Not later than January 1, 2023, the comptroller shall review and issue a written report to the 88th Legislature recommending whether the following provisions should be continued in effect or amended:

(1) the rate of the franchise tax and the application of the franchise tax to a taxable entity's net taxable earned surplus under Section 171.002(a);

(2) the amount of a taxable entity's gross receipts from its business done in this state that results in the exemption provided by Section 171.002(d)(2); and

(3) the compensation that a taxable entity must add under Section 171.110(a)(1).

(b) The comptroller shall consider the following criteria in determining whether to recommend a provision described by Subsection (a) be continued in effect or amended:

(1) the efficiency and effectiveness of the franchise tax with the provision;

(2) the purposes for the franchise tax and the extent to which the purposes have been achieved with the provision; and

(3) the estimated fiscal impact of any proposed amendment to the provision.

SECTION 26. Sections 171.362(a) and (b), Tax Code, are amended to read as follows:

(a) If a taxable entity on which a tax is imposed by this chapter fails to pay the tax when it is due and payable or fails to file a report required by this chapter when it is due, the taxable entity is liable for a penalty of five percent of the amount of the tax due and of the filing fee due under Section 171.203(a).

(b) If the tax is not paid or the report is not filed within 30 days after the due date, a penalty of an additional five percent of the tax due and of the filing fee due under Section 171.203(a) is imposed.

SECTION 27. Subchapter H, Chapter 490, Government Code, is transferred to Chapter 171, Tax Code, redesignated as Subchapter L, Chapter 171, Tax Code, and amended to read as follows:

SUBCHAPTER L. [H. FRANCHISE] TAX CREDIT FOR CLEAN ENERGY PROJECT

Sec. 171.651 [490.351]. DEFINITION. In this subchapter, "clean energy project" has the meaning assigned by Section 120.001, Natural Resources Code.

Sec. 171.652. [490.352. FRANCHISE] TAX CREDIT FOR CLEAN ENERGY PROJECT. (a) The comptroller shall adopt rules for issuing to an entity implementing a clean energy project in this state a [franchise tax] credit against the tax imposed under this chapter. A clean energy project is eligible for a [franchise tax] credit only if the project is implemented in connection with the construction of a new facility.

(b) The comptroller shall issue a [franchise tax] credit to an entity operating a clean energy project after:

(1) the Railroad Commission of Texas has issued a certificate of compliance for the project to the entity as provided by Section 120.004, Natural Resources Code;

(2) the construction of the project has been completed;

(3) the electric generating facility associated with the project is fully operational;

(4) the Bureau of Economic Geology of The University of Texas at Austin verifies to the comptroller that the electric generating facility associated with the project is sequestering at least 70 percent of the carbon dioxide resulting from or associated with the generation of electricity by the facility; and

(5) the owner or operator of the project has entered into an interconnection agreement relating to the project with the Electric Reliability Council of Texas.

(c) The total amount of the [franchise tax] credit that may be issued to the entity designated in the certificate of compliance for a clean energy project is equal to the lesser of:

(1) 10 percent of the total capital cost of the project, including the cost of designing, engineering, permitting, constructing, and commissioning the project, the cost of procuring land, water, and equipment for the project, and all fees, taxes, and commissions paid and other payments made in connection with the project but excluding the cost of financing the capital cost of the project; or

(2) $100 million.

(d) The amount of the [franchise tax] credit for each report year is calculated by determining the amount of [franchise] tax imposed under this chapter that is due based on the net taxable earned surplus [margin] generated by a clean energy project from the generation and sale of power and the sale of any products that are produced by the electric generation facility. The amount of the [franchise tax] credit claimed under this section for a report year may not exceed the amount of [franchise] tax under this chapter attributable to the clean energy project for that report year.

[(e) The comptroller may not issue a franchise tax credit under this section before September 1, 2013. This subsection expires September 2, 2013.]

SECTION 28. The following provisions of the Tax Code are repealed:

(1) Sections 171.002(b), (c), and (c-1);

(2) Section 171.0021;

(3) Section 171.003;

(4) Section 171.006;

(5) Section 171.101;

(6) Section 171.1011;

(7) Section 171.1012;

(8) Section 171.1013;

(9) Section 171.1014;

(10) Section 171.1015;

(11) Section 171.1016;

(12) Section 171.103;

(13) Section 171.105;

(14) Section 171.1055;

(15) Sections 171.106(f) and (f-1);

(16) Section 171.111;

(17) Section 171.204;

(18) Section 171.2125; and

(19) Section 171.362(f).

SECTION 29. Section 1(c), Chapter 286 (H.B. 4765), Acts of the 81st Legislature, Regular Session, 2009, as amended by Section 37.01, Chapter 4 (S.B. 1), Acts of the 82nd Legislature, 1st Called Session, 2011, is repealed.

SECTION 30. Section 2, Chapter 286 (H.B. 4765), Acts of the 81st Legislature, Regular Session, 2009, as amended by Section 37.02, Chapter 4 (S.B. 1), Acts of the 82nd Legislature, 1st Called Session, 2011, and which amended former Subsection (d), Section 171.002, Tax Code, is repealed.

SECTION 31. Section 3, Chapter 286 (H.B. 4765), Acts of the 81st Legislature, Regular Session, 2009, as amended by Section 37.03, Chapter 4 (S.B. 1), Acts of the 82nd Legislature, 1st Called Session, 2011, and which amended former Subsection (a), Section 171.0021, Tax Code, is repealed.

SECTION 32. (a) Section 24, Chapter 1 (H.B. 3), Acts of the 79th Legislature, 3rd Called Session, 2006, is repealed.

(b) The change in law made by this section applies only to a challenge filed on or after the effective date of this Act. A challenge filed before the effective date of this Act is governed by the law in effect on the date the challenge was filed, and the former law is continued in effect for that purpose.

SECTION 33. (a) The repeal of Section 171.111, Tax Code, by this Act does not affect a credit that was established under that section before the effective date of this Act.

(b) A taxable entity that has any unused credits established before the effective date of this Act under Section 171.111, Tax Code, may claim those unused credits on or with the tax report for the period in which the credits were established, and the former law under which the taxable entity established the credits is continued in effect for purposes of determining the amount of the credits the taxable entity may claim and the manner in which the taxable entity may claim the credits.

SECTION 34. (a) This Act applies only to a report originally due on or after the effective date of this Act.

(b) The change in law made by this Act does not affect the obligation for or the payment, computation, and collection of the franchise tax for a report originally due before the effective date of this Act. The obligation for and the payment, computation, and collection of the franchise tax for a report originally due before the effective date of this Act is governed by the law in effect on the date the report was originally due and that law is continued in effect for those purposes.

SECTION 35. This Act takes effect January 1, 2014.