BILL ANALYSIS

S.B. 1058

By: Parker

Ways & Means

Committee Report (Unamended)

BACKGROUND AND PURPOSE

Chapter 171 of the Tax Code governs the franchise tax, which is assessed on the total revenue of taxable entities in Texas. However, the bill sponsor has informed the committee that for entities engaged in securities markets, revenue often includes pass-through payments that do not reflect true income, particularly transaction rebate payments made to brokers or dealers as part of securities trades. S.B. 1058 seeks to address this issue and secure accurate tax treatment for entities operating in the securities market by excluding from an entity's total revenue, for purposes of the franchise tax, rebate payments made to brokers or dealers that do not represent retained income.

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 this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

S.B. 1058 amends the Tax Code to require a taxable entity that is a registered securities market operator, in calculating the entity's total revenue for purposes of the franchise tax, to exclude from its total revenue transaction rebate payments made by the operator to a broker or dealer as part of a securities transaction. The bill defines the following terms:

· "broker" and "dealer" by reference to the federal Securities Exchange Act of 1934;

· "registered securities market operator" as an entity that is engaged in activities described in category 523210 of the 2022 North American Industry Classification System and is subject to registration with and regulation by the U.S. Securities and Exchange Commission or the U.S. Commodity Futures Trading Commission;

· "securities transaction" as the purchase or sale of a security by a broker or dealer; and

· "transaction rebate payment" as an amount paid to incentivize a broker or dealer to provide liquidity to the market.

The bill establishes that "security" has the meaning assigned by federal Internal Revenue Code provisions relating to the mark to market accounting method for dealers in securities.

S.B. 1058 applies only to a report originally due on or after the bill's effective date.

EFFECTIVE DATE

January 1, 2026.