Honorable Tommy Williams, Chair, Senate Committee on Finance
FROM:
Ursula Parks, Director, Legislative Budget Board
IN RE:
HB317 by Otto (Relating to the classification of certain entities as primarily engaged in retail trade for purposes of the franchise tax.), As Engrossed
Estimated Two-year Net Impact to General Revenue Related Funds for HB317, As Engrossed: an impact of $0 through the biennium ending August 31, 2015.
Additionally, the bill will have a direct impact of a revenue loss to the Property Tax Relief Fund of ($5,411,000) for the 2014-15 biennium. Any loss to the Property Tax Relief Fund must 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
2014
$0
2015
$0
2016
$0
2017
$0
2018
$0
Fiscal Year
Probable Revenue (Loss) from Property Tax Relief Fund 304
2014
($2,700,000)
2015
($2,711,000)
2016
($2,762,000)
2017
($2,713,000)
2018
($2,691,000)
Fiscal Analysis
The bill would amend Chapter 171 of the Tax Code, regarding the franchise tax, by adding a provision to the definition of "retail trade" in Section 171.0001. The added provision would expand the definition to include "rental-purchase agreement activities regulated by Chapter 92, Business and Commerce Code." Chapter 92 of the Business and Commerce Code, titled "Rental-Purchase Agreements," contains provisions specifying certain requirements for rental-purchase agreements between merchants and consumers.
The bill would take effect January 1, 2014, and apply to reports due on or after that date.
Methodology
Under current law a taxable entity primarily engaged in renting personal property to consumers is considered to not be engaged in retail trade, and the entity would calculate franchise tax liability based on a tax rate of 1 percent. The bill would allow those entities to calculate franchise tax liability based on a 0.5 percent tax rate. The estimated fiscal impact is based on data in the Comptroller's franchise tax files and research on companies engaged in rental-purchase activities with consumers.
Local Government Impact
No fiscal implication to units of local government is anticipated.