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A BILL TO BE ENTITLED
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AN ACT
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relating to the determination of cost of goods sold for purposes of |
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computing the franchise tax. |
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BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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SECTION 1. Section 171.101(a), Tax Code, is amended to read |
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as follows: |
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(a) The taxable margin of a taxable entity is computed by: |
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(1) determining the taxable entity's margin, which is |
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the lesser of: |
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(A) the amount provided by this paragraph, which |
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is the lesser of: |
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(i) 70 percent of the taxable entity's total |
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revenue from its entire business, as determined under Section |
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171.1011; or |
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(ii) an amount equal to the taxable entity's |
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total revenue from its entire business as determined under Section |
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171.1011 minus $1 million; or |
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(B) an amount computed by determining the taxable |
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entity's total revenue from its entire business under Section |
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171.1011 and subtracting the greater of: |
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(i) $1 million; or |
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(ii) an amount equal to the sum of: |
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(a) at the election of the taxable |
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entity, either: |
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(1) cost of goods sold, as |
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determined under Section 171.1012 or 171.10121; or |
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(2) compensation, as determined |
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under Section 171.1013; and |
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(b) any compensation, as determined |
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under Section 171.1013, paid to an individual during the period the |
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individual is serving on active duty as a member of the armed forces |
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of the United States if the individual is a resident of this state |
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at the time the individual is ordered to active duty and the cost of |
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training a replacement for the individual; |
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(2) apportioning the taxable entity's margin to this |
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state as provided by Section 171.106 to determine the taxable |
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entity's apportioned margin; and |
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(3) subtracting from the amount computed under |
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Subdivision (2) any other allowable deductions to determine the |
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taxable entity's taxable margin. |
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SECTION 2. Section 171.1011(v), Tax Code, is amended to |
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read as follows: |
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(v) A taxable entity primarily engaged in the business of |
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transporting goods by waterways that does not subtract cost of |
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goods sold in computing its taxable margin shall exclude from its |
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total revenue direct costs of providing transportation services by |
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intrastate or interstate waterways to the same extent that a |
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taxable entity that sells in the ordinary course of business real or |
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tangible personal property would be authorized by Section 171.1012 |
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or 171.10121 to subtract those costs as costs of goods sold in |
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computing its taxable margin, notwithstanding Section |
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171.1012(e)(3). |
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SECTION 3. Subchapter C, Chapter 171, Tax Code, is amended |
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by adding Section 171.10121 to read as follows: |
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Sec. 171.10121. ALTERNATIVE DETERMINATION OF COST OF GOODS |
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SOLD. In lieu of determining cost of goods sold as provided by |
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Section 171.1012 and subject to Section 171.1014, a taxable entity |
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that elects to subtract cost of goods sold for the purpose of |
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computing its taxable margin may determine the amount of that cost |
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of goods sold as follows: |
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(1) for a taxable entity treated for federal income |
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tax purposes as a corporation, the cost of goods sold is the amount |
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reportable as cost of goods sold on line 2, Internal Revenue Service |
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Form 1120; |
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(2) for a taxable entity treated for federal income |
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tax purposes as a partnership, the cost of goods sold is the amount |
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reportable as cost of goods sold on line 2, Internal Revenue Service |
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Form 1065; |
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(3) for a taxable entity treated for federal income |
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tax purposes as an S corporation, the cost of goods sold is the |
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amount reportable as cost of goods sold on line 2, Internal Revenue |
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Service Form 1120S; or |
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(4) for any other taxable entity, the cost of goods |
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sold is an amount determined in a manner substantially equivalent |
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to the amount for Subdivision (1), (2), or (3) determined by rules |
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the comptroller shall adopt. |
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SECTION 4. Section 171.1014, Tax Code, is amended by |
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amending Subsection (e) and adding Subsection (e-1) to read as |
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follows: |
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( |
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e) For purposes of Section 171.101, a combined group that |
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elects to subtract costs of goods sold shall determine that amount |
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by: |
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(1) determining the cost of goods sold for each of its |
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members as provided by Section 171.1012 or 171.10121 as if the |
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member were an individual taxable entity; |
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(2) adding the amounts of cost of goods sold |
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determined under Subdivision (1) together; and |
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(3) subtracting from the amount determined under |
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Subdivision (2) any cost of goods sold amounts paid from one member |
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of the combined group to another member of the combined group, but |
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only to the extent the corresponding item of total revenue was |
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subtracted under Subsection (c)(3). |
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(e-1) For purposes of Subsection (e), each member of a |
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combined group may elect to determine its cost of goods sold under |
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either Section 171.1012 or 171.10121. |
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SECTION 5. This Act applies only to a report originally due |
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on or after the effective date of this Act. |
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SECTION 6. This Act takes effect January 1, 2016. |