BILL ANALYSIS

C.S.H.B. 3191

By: Button

Trade, Workforce & Economic Development

Committee Report (Substituted)

BACKGROUND AND PURPOSE

The bill author has informed the committee that access to available and affordable quality child care is often cited as a barrier to employment for many Texas parents. C.S.H.B. 3191 seeks to address this issue by creating a franchise tax credit for employers that contribute to their employees' child-care costs and by requiring the Texas Workforce Commission to conduct a study to examine strategies for increasing access to and availability of child care among Texas families, including strategies that engage employers in child-care solutions available to their employees.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that rulemaking authority is expressly granted to the comptroller of public accounts in SECTION 1 this bill.

ANALYSIS

C.S.H.B. 3191 amends the Tax Code to provide for a franchise tax credit for a taxable entity that makes certain employer child-care contributions and for a study on access to and availability of child care in Texas.

Tax Credit for Child-Care Contribution

C.S.H.B. 3191 entitles a taxable entity to a franchise tax credit in an amount equal to the total amount of child-care contributions paid by the entity during the period on which the report is based and establishes the following:

· for purposes of calculating the total amount of those contributions paid by the entity:

o the total amount of child-care contributions paid by the entity may not exceed $3,600 multiplied by the number of children for whom the entity makes a child-care contribution during the applicable period; and

o a child who is the child of more than one employee of the taxable entity may only be included once when performing that calculation; and

· a taxable entity qualifies for a credit under the bill's provisions if the taxable entity subsidizes at least $1,200 of the annual cost incurred by an employee of the entity to obtain child care at:

o a child-care facility licensed under Human Resources Code provisions governing the regulation of certain facilities, homes, and agencies that provide child-care services; or

o a family home registered or listed under those Human Resources Code provisions.

The bill caps the total credit claimed on a report, including the amount of any carryforward under the bill's provisions, at the amount of franchise tax due for the report after applying all other applicable credits and caps the total amount of credits that may be awarded in a state fiscal year at $25 million, except as provided by the bill's provisions. The bill requires the comptroller of public accounts by rule to prescribe procedures by which it will allocate the amount of credits available in a fiscal year and requires those procedures to provide that credits are allocated to taxable entities that applied for the credit on a pro rata basis. For these purposes, a "child-care contribution" means the dollar amount of a contribution made by a taxable entity on behalf of an employee of the entity who is based in Texas, as follows:

· to a dependent care flexible spending account of the employee;

· in accordance with the requirements of a qualified child-care expenditure under federal law relating to employer-provided child care credits that is paid or incurred in relation to a qualified child-care facility, as defined by that law, that is located in Texas; or

· in accordance with rules adopted by the comptroller.

Such a contribution does not include salary or wages paid by the taxable entity to the employee for the employee's service.

C.S.H.B. 3191 authorizes a taxable entity that is eligible for a franchise tax credit that exceeds the amount of franchise tax due for the report after applying all other applicable credits to carry the unused credit forward for not more than five consecutive reports. The bill establishes that a carryforward is considered the remaining portion of a credit that cannot be claimed on a report because of that limitation and establishes that credits, including a carryforward, are considered to be used in the following order:

· a carryforward under these provisions; and

· a credit for the period on which the report is based.

C.S.H.B. 3191 requires a taxable entity to apply for a tax credit under the bill's provisions in the manner prescribed by the comptroller and to include with the application any information requested by the comptroller to determine whether the entity is eligible for the tax credit. The bill authorizes the comptroller to award a credit to a taxable entity that applies for the credit if the taxable entity is eligible for the credit. The bill establishes that the comptroller has discretion in determining whether to grant or deny such an application and requires the comptroller to notify a taxable entity in writing of its decision to grant or deny an application. The award or denial of a credit under the bill's provisions and the amount of any credit awarded is not a contested case under the Administrative Procedure Act. The bill requires the comptroller to notify a taxable entity in writing of the comptroller's decision to grant or deny the application and requires the comptroller, if it denies an entity's application, to include in the notice of denial the reasons for that decision.

C.S.H.B. 3191 authorizes the comptroller to elect to award a credit under the bill's provisions to a taxable entity by issuing a refund warrant to the entity in lieu of awarding a credit against the tax due on the entity's report in the manner provided by these provisions. The bill prohibits the comptroller from issuing a refund warrant in an amount that exceeds the amount of franchise tax due for the report after applying all other applicable credits. If a taxable entity that is issued a refund warrant under these provisions is eligible for an amount of credit that exceeds that limitation, that remaining portion of the credit is considered a carryforward under the bill's provisions. Such a refund warrant issued by the comptroller does not accrue interest under statutory provisions relating to interest on refunds or credits.

C.S.H.B. 3191 authorizes the comptroller by rule to do the following:

· prescribe the form to be used to apply for the child-care contribution tax credit; and

· establish an enrollment period with application deadlines during which an application for a child-care contribution tax credit must be submitted.

C.S.H.B. 3191 authorizes a taxable entity that makes a child-care contribution to sell or assign all or part of the credit that may be claimed for that contribution to one or more taxable entities, and authorizes any taxable entity to which all or part of the credit is sold or assigned to sell or assign all or part of the credit to another taxable entity. The bill establishes that there is no limit on the total number of transactions for the sale or assignment of all or part of the total credit authorized under the bill's provisions. The bill requires a taxable entity that sells or assigns a credit under these provisions and the taxable entity to which the credit is sold or assigned to jointly submit written notice of the sale or assignment to the comptroller not later than the 30th day after the date of the transaction and requires the notice to include the following information:

· the date on which the credit was originally established;

· the date of the sale or assignment;

· the amount of the credit sold or assigned and the remaining period during which it may be used;

· the names, addresses, and federal tax identification numbers of the taxable entity that sold or assigned the credit or part of the credit and the taxable entity to which the credit or part of the credit was sold or assigned; and

· the amount of the credit owned by the selling or assigning taxable entity before the sale or assignment, and the amount the selling or assigning taxable entity retained, if any, after the sale or assignment.

The bill establishes that the sale or assignment of a credit in accordance with these provisions does not extend the period for which a credit may be carried forward and does not increase the total amount of the credit that may be claimed. The bill prohibits another entity, after a taxable entity claims a child-care contribution tax credit, from using the same expenditure as the basis for another credit.

C.S.H.B. 3191 authorizes the comptroller, on determining that a taxable entity was improperly awarded a credit under the bill's provisions, to assess the amount of the improperly awarded credit against the taxable entity that was originally awarded the credit, regardless of whether that taxable entity has sold or assigned the credit in accordance with the bill's provisions. After the taxable entity has exhausted all available administrative and judicial remedies in relation to the assessment, the comptroller may use any money recovered through the assessment to do the following:

· increase the total amount of credit that may be awarded during the next state fiscal year;

· administer the credit under the bill's provisions; or

· return the money to the state treasury.

The bill's provisions relating to the child-care contribution tax credit apply only to a report originally due on or after January 1, 2027.

C.S.H.B. 3191 requires the comptroller to adopt rules necessary to implement and administer the child-care contribution tax credit.

C.S.H.B. 3191 requires the Texas Workforce Commission (TWC) to conduct a study to examine strategies that may increase access to and availability of child care among families in Texas, including strategies that engage employers in child-care solutions available to their employees. Not later than December 31, 2026, TWC must issue a report on the findings of the study to the governor, the lieutenant governor, the speaker of the house of representatives, and each legislative standing committee with jurisdiction over child-care facilities.

EFFECTIVE DATE

January 1, 2026.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 3191 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

The substitute omits the introduced version's provisions amending the Labor Code to do the following:

· require TWC to maintain on its website a link to a web page consisting of comprehensive and current information to help employers assist employees who are parents with accessing child care;

· require TWC to establish and administer the employer child-care contribution partnership program to support families in Texas in accessing high-quality child care by incentivizing eligible employers to contribute to eligible employee child-care costs and providing a state match for funds contributed by eligible employers; and

· require TWC to establish and administer the child-care innovation pilot program to address strategic workforce needs of designated pilot regions across the state by increasing the supply of quality, affordable child care and encouraging child-care partnerships with employers.

The introduced and the substitute both establish the meaning of a "child-care contribution" for purposes of the bill's provisions relating to the child-care contribution tax credit. However, the introduced established that a "child-care contribution" means the dollar amount of a contribution made by a taxable entity to an employee of the entity for use by the employee to secure child care at a licensed child-care facility or family home, including a licensed child-care facility operated by the entity, but does not include wages paid by the taxable entity to the employee or a payment to the employee that is considered compensation for the employee's service, whereas the substitute establishes the following:

· a "child-care contribution" means the dollar amount of a contribution made by a taxable entity on behalf of an employee of the entity who is based in Texas, as follows:

o to a dependent care flexible spending account of the employee;

o in accordance with the requirements of a qualified child-care expenditure under federal law relating to employer-provided child care credits that is paid or incurred in relation to a qualified child-care facility, as defined by that law, that is located in Texas; or

o in accordance with rules adopted by the comptroller; and

· such a contribution does not include salary or wages paid by the taxable entity to the employee for the employee's service.

The substitute includes a provision, absent from the introduced, establishing that a taxable entity qualifies for a credit under the bill's provisions if the taxable entity subsidizes at least $1,200 of the annual cost incurred by an employee of the entity to obtain child care at the following:

· a child-care facility licensed under Human Resources Code provisions governing the regulation of certain facilities, homes, and agencies that provide child-care services; or

· a family home registered or listed under those Human Resources Code provisions.

Whereas the introduced established that, for purposes of computing the total amount of child-care contributions paid by a taxable entity, such a contribution that exceeds $3,600 for a child is considered to be a child-care contribution in the amount of $3,600 for that child, the substitute establishes the following for purposes of calculating the total amount of those contributions paid by the entity:

· the total amount of child-care contributions paid by the entity may not exceed $3,600 multiplied by the number of children for whom the entity makes a child-care contribution during the applicable period; and

· a child who is the child of more than one employee of the taxable entity may only be included once when performing that calculation.

The substitute and the introduced both include provisions relating to the application for the a tax credit under the bill's provisions but differ in the following respects:

· the introduced required a taxable entity to apply for a tax credit under the bill's provisions on or with the report for the period for which the credit is claimed, which the substitute does not require;

· the introduced included as an additional condition on the comptroller's authority to award a credit to an eligible taxable entity that the credit be available based on the $25 million per fiscal year cap, which the substitute does not do;

· the substitute establishes that an award or denial of a credit under the bill's provisions and the amount of any credit awarded is not a contested case under the Administrative Procedure Act, which the introduced did not establish; and

· the substitute includes provisions, absent from the introduced, that do the following:

o authorize the comptroller to elect to award a credit under the bill's provisions to a taxable entity by issuing a refund warrant to the entity in lieu of awarding a credit against the tax due on the entity's report in the manner provided by these provisions;

o prohibit the comptroller from issuing a refund warrant in an amount that exceeds the amount of franchise tax due for the report after applying all other applicable credits;

o establish that, if a taxable entity that is issued a refund warrant under these provisions is eligible for an amount of credit that exceeds that limitation, that remaining portion of the credit is considered a carryforward under the bill's provisions and that such a refund warrant issued by the comptroller does not accrue interest under statutory provisions relating to interest on refunds or credits; and

o authorize the comptroller by rule to do the following:

§ prescribe the form to be used to apply for the child-care contribution tax credit; and

§ establish an enrollment period with application deadlines during which an application for a child-care contribution tax credit must be submitted.

Both the introduced and substitute establish that the sale or assignment of a credit in accordance with the applicable bill provisions does not extend the period for which a credit may be carried forward. However, the substitute also establishes that such a sale or assignment of a credit does not increase the total amount of the credit that may be claimed, which the introduced did not do.

The substitute includes provisions, absent from the introduced, that do the following:

· authorize the comptroller, on determining that a taxable entity was improperly awarded a credit under the bill's provisions, to assess the amount of the improperly awarded credit against the taxable entity that was originally awarded the credit, regardless of whether that taxable entity has sold or assigned the credit in accordance with the bill's provisions;

· authorize the comptroller, after the taxable entity has exhausted all available administrative and judicial remedies in relation to the assessment, to use any money recovered through the assessment to do the following:

o increase the total amount of credit that may be awarded during the next state fiscal year;

o administer the credit under the bill's provisions; or

o return the money to the state treasury;

· require TWC to conduct a study to examine strategies that may increase access to and availability of child care among families in Texas, including strategies that engage employers in child-care solutions available to their employees; and

· require TWC, not later than December 31, 2026, to issue a report on the findings of the study to the governor, the lieutenant governor, the speaker of the house of representatives, and each legislative standing committee with jurisdiction over child-care facilities.

The introduced established that the bill's provisions relating to the child-care contribution tax credit apply only to a report due on or after January 1, 2026, that those bill provisions take effect January 1, 2026, and that all other provisions of the introduced take effect September 1, 2026, whereas the substitute establishes that the bill's provisions relating to the child-care contribution tax credit apply only to a report due on or after January 1, 2027, and that the bill's provisions take effect January 1, 2026.