85R32 ADM-D
 
  By: Taylor of Collin S.B. No. 142
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the determination of cost of goods sold for purposes of
  computing the franchise tax.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 171.101(a), Tax Code, is amended to read
  as follows:
         (a)  The taxable margin of a taxable entity is computed by:
               (1)  determining the taxable entity's margin, which is
  the lesser of:
                     (A)  the amount provided by this paragraph, which
  is the lesser of:
                           (i)  70 percent of the taxable entity's total
  revenue from its entire business, as determined under Section
  171.1011; or
                           (ii)  an amount equal to the taxable entity's
  total revenue from its entire business as determined under Section
  171.1011 minus $1 million; or
                     (B)  an amount computed by determining the taxable
  entity's total revenue from its entire business under Section
  171.1011 and subtracting the greater of:
                           (i)  $1 million; or
                           (ii)  an amount equal to the sum of:
                                 (a)  at the election of the taxable
  entity, either:
                                       (1)  cost of goods sold, as
  determined under Section 171.1012 or 171.10121; or
                                       (2)  compensation, as determined
  under Section 171.1013; and
                                 (b)  any compensation, as determined
  under Section 171.1013, paid to an individual during the period the
  individual is serving on active duty as a member of the armed forces
  of the United States if the individual is a resident of this state
  at the time the individual is ordered to active duty and the cost of
  training a replacement for the individual;
               (2)  apportioning the taxable entity's margin to this
  state as provided by Section 171.106 to determine the taxable
  entity's apportioned margin; and
               (3)  subtracting from the amount computed under
  Subdivision (2) any other allowable deductions to determine the
  taxable entity's taxable margin.
         SECTION 2.  Section 171.1011(v), Tax Code, is amended to
  read as follows:
         (v)  A taxable entity primarily engaged in the business of
  transporting goods by waterways that does not subtract cost of
  goods sold in computing its taxable margin shall exclude from its
  total revenue direct costs of providing transportation services by
  intrastate or interstate waterways to the same extent that a
  taxable entity that sells in the ordinary course of business real or
  tangible personal property would be authorized by Section 171.1012
  or 171.10121 to subtract those costs as costs of goods sold in
  computing its taxable margin, notwithstanding Section
  171.1012(e)(3).
         SECTION 3.  Subchapter C, Chapter 171, Tax Code, is amended
  by adding Section 171.10121 to read as follows:
         Sec. 171.10121.  ALTERNATIVE DETERMINATION OF COST OF GOODS
  SOLD. In lieu of determining cost of goods sold as provided by
  Section 171.1012 and subject to Section 171.1014, a taxable entity
  that elects to subtract cost of goods sold for the purpose of
  computing its taxable margin may determine the amount of that cost
  of goods sold as follows:
               (1)  for a taxable entity treated for federal income
  tax purposes as a corporation, the cost of goods sold is the amount
  reportable as cost of goods sold on line 2, Internal Revenue Service
  Form 1120;
               (2)  for a taxable entity treated for federal income
  tax purposes as a partnership, the cost of goods sold is the amount
  reportable as cost of goods sold on line 2, Internal Revenue Service
  Form 1065;
               (3)  for a taxable entity treated for federal income
  tax purposes as an S corporation, the cost of goods sold is the
  amount reportable as cost of goods sold on line 2, Internal Revenue
  Service Form 1120S; or
               (4)  for any other taxable entity, the cost of goods
  sold is an amount determined in a manner substantially equivalent
  to the amount for Subdivision (1), (2), or (3) determined by rules
  the comptroller shall adopt.
         SECTION 4.  Section 171.1014, Tax Code, is amended by
  amending Subsection (e) and adding Subsection (e-1) to read as
  follows:
         (e)  For purposes of Section 171.101, a combined group that
  elects to subtract costs of goods sold shall determine that amount
  by:
               (1)  determining the cost of goods sold for each of its
  members as provided by Section 171.1012 or 171.10121 as if the
  member were an individual taxable entity;
               (2)  adding the amounts of cost of goods sold
  determined under Subdivision (1) together; and
               (3)  subtracting from the amount determined under
  Subdivision (2) any cost of goods sold amounts paid from one member
  of the combined group to another member of the combined group, but
  only to the extent the corresponding item of total revenue was
  subtracted under Subsection (c)(3).
         (e-1)  For purposes of Subsection (e), each member of a
  combined group may elect to determine its cost of goods sold under
  either Section 171.1012 or 171.10121.
         SECTION 5.  This Act applies only to a report originally due
  on or after the effective date of this Act.
         SECTION 6.  This Act takes effect January 1, 2018.