Texas 2009 - 81st Regular

Texas House Bill HB4003 Compare Versions

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1	1	By: Paxton H.B. No. 4003
2	2
3	3
4	4	A BILL TO BE ENTITLED
5	5	AN ACT
6	6	relating to the rates and computation of the franchise tax.
7	7	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
8	8	SECTION 1. Sections 171.002(a), (b), and (d), Tax Code, are
9	9	amended to read as follows:
10	10	(a) Subject to Sections 171.003 and 171.1016 and except as
11	11	provided by Subsection (b), the rate of the franchise tax is:
12	12	(1) for taxable margin of $1 million or less, zero;
13	13	(2) for taxable margin that exceeds $1 million but
14	14	does not exceed $10 million, 0.5 percent of the taxable margin that
15	15	exceeds $1 million; and
16	16	(3) for taxable margin that exceeds $10 million,
17	17	$45,000 plus one percent of the taxable margin that exceeds $10
18	18	million.
19	19	(b) Subject to Sections 171.003 and 171.1016, for those
20	20	taxable entities primarily engaged in retail or wholesale trade,
21	21	the rate of the franchise tax is:
22	22	(1) for taxable margin of $1 million or less, zero;
23	23	(2) for taxable margin that exceeds $1 million but
24	24	does not exceed $10 million, 0.25 percent of the taxable margin that
25	25	exceeds $1 million; and
26	26	(3) for taxable margin that exceeds $10 million,
27	27	$22,500 plus 0.5 percent of the taxable margin that exceeds $10
28	28	million [for those taxable entities primarily engaged in retail or
29	29	wholesale trade].
30	30	(d) A taxable entity is not required to pay any tax and is
31	31	not considered to owe any tax for a period if [:
32	32	[(1)] the amount of tax computed for the taxable entity
33	33	is less than $5,000 [$1,000; or
34	34	[(2) the amount of the taxable entity's total revenue
35	35	from its entire business is less than or equal to $300,000 or the
36	36	amount determined under Section 171.006 per 12-month period on
37	37	which margin is based].
38	38	SECTION 2. Subchapter A, Chapter 171, Tax Code, is amended
39	39	by adding Section 171.0023 to read as follows:
40	40	Sec. 171.0023. TAX LIABILITY OF CERTAIN TAXABLE ENTITIES.
41	41	(a) In this section, "taxable income" means:
42	42	(1) for a taxable entity treated for federal income
43	43	tax purposes as a corporation, the amount reportable as taxable
44	44	income on line 30, Internal Revenue Service Form 1120;
45	45	(2) for a taxable entity treated for federal income
46	46	tax purposes as a partnership, the amount reportable as ordinary
47	47	business income or loss on line 22, Internal Revenue Service Form
48	48	1065; or
49	49	(3) for a taxable entity other than a taxable entity
50	50	treated for federal income tax purposes as a corporation or
51	51	partnership, an amount determined in a manner substantially
52	52	equivalent to the amount for Subdivision (1) or (2) determined by
53	53	rules the comptroller shall adopt.
54	54	(b) Except as provided by Subsection (c), a taxable entity
55	55	is not required to pay any tax and is not considered to owe any tax
56	56	for a period if the taxable entity's taxable income for the period
57	57	is zero or less.
58	58	(c) Subsection (b) does not apply to a taxable entity that
59	59	is a member of a combined group.
60	60	(d) Section 171.1011(a) applies to a reference in this
61	61	section to an Internal Revenue Service form, and Section
62	62	171.1011(b) applies to a reference in this section to an amount
63	63	reportable on a line number on an Internal Revenue Service form.
64	64	(e) The comptroller shall adopt rules as necessary to
65	65	accomplish the legislative intent prescribed by this section.
66	66	SECTION 3. The heading to Section 171.006, Tax Code, is
67	67	amended to read as follows:
68	68	Sec. 171.006. ADJUSTMENT OF ELIGIBILITY FOR [NO TAX DUE,
69	69	DISCOUNTS, AND] COMPENSATION DEDUCTION.
70	70	SECTION 4. Section 171.006(b), Tax Code, is amended to read
71	71	as follows:
72	72	(b) On [Beginning in 2010, on] January 1 of each
73	73	even-numbered year, the amount [amounts] prescribed by Section
74	74	[Sections 171.002(d)(2), 171.0021, and] 171.1013(c) is [are]
75	75	increased or decreased by an amount equal to the amount prescribed
76	76	by that section [those sections] on December 31 of the preceding
77	77	year multiplied by the percentage increase or decrease during the
78	78	preceding state fiscal biennium in the consumer price index and
79	79	rounded to the nearest $10,000.
80	80	SECTION 5. Section 171.1012, Tax Code, is amended to read as
81	81	follows:
82	82	Sec. 171.1012. DETERMINATION OF COST OF GOODS SOLD.
83	83	[(a) In this section:
84	84	[(1) "Goods" means real or tangible personal property
85	85	sold in the ordinary course of business of a taxable entity.
86	86	[(2) "Production" includes construction,
87	87	installation, manufacture, development, mining, extraction,
88	88	improvement, creation, raising, or growth.
89	89	[(3)(A) "Tangible personal property" means:
90	90	[(i) personal property that can be seen,
91	91	weighed, measured, felt, or touched or that is perceptible to the
92	92	senses in any other manner;
93	93	[(ii) films, sound recordings, videotapes,
94	94	live and prerecorded television and radio programs, books, and
95	95	other similar property embodying words, ideas, concepts, images, or
96	96	sound, without regard to the means or methods of distribution or the
97	97	medium in which the property is embodied, for which, as costs are
98	98	incurred in producing the property, it is intended or is reasonably
99	99	likely that any medium in which the property is embodied will be
100	100	mass-distributed by the creator or any one or more third parties in
101	101	a form that is not substantially altered; and
102	102	[(iii) a computer program, as defined by
103	103	Section 151.0031.
104	104	[(B) "Tangible personal property" does not
105	105	include:
106	106	[(i) intangible property; or
107	107	[(ii) services.
108	108	[(b)] Subject to Section 171.1014, a taxable entity that
109	109	elects to subtract cost of goods sold for the purpose of computing
110	110	its taxable margin shall determine the amount of that cost of goods
111	111	sold as follows:
112	112	(1) for a taxable entity treated for federal income
113	113	tax purposes as a corporation, the cost of goods sold is the amount
114	114	reportable as cost of goods sold on line 2, Internal Revenue Service
115	115	Form 1120;
116	116	(2) for a taxable entity treated for federal income
117	117	tax purposes as a partnership, the cost of goods sold is the amount
118	118	reportable as cost of goods sold on line 2, Internal Revenue Service
119	119	Form 1065;
120	120	(3) for a taxable entity treated for federal income
121	121	tax purposes as an S corporation, the cost of goods sold is the
122	122	amount reportable as cost of goods sold on line 2, Internal Revenue
123	123	Service Form 1120S; or
124	124	(4) for any other taxable entity, the cost of goods
125	125	sold is an amount determined in a manner substantially equivalent
126	126	to the amount for Subdivision (1), (2), or (3) determined by rules
127	127	the comptroller shall adopt [as provided by this section].
128	128	[(c) The cost of goods sold includes all direct costs of
129	129	acquiring or producing the goods, including:
130	130	[(1) labor costs;
131	131	[(2) cost of materials that are an integral part of
132	132	specific property produced;
133	133	[(3) cost of materials that are consumed in the
134	134	ordinary course of performing production activities;
135	135	[(4) handling costs, including costs attributable to
136	136	processing, assembling, repackaging, and inbound transportation
137	137	costs;
138	138	[(5) storage costs, including the costs of carrying,
139	139	storing, or warehousing property, subject to Subsection (e);
140	140	[(6) depreciation, depletion, and
141	141	amortization, reported on the federal income tax return on which
142	142	the report under this chapter is based, to the extent associated
143	143	with and necessary for the production of goods, including recovery
144	144	described by Section 197, Internal Revenue Code;
145	145	[(7) the cost of renting or leasing equipment,
146	146	facilities, or real property directly used for the production of
147	147	the goods, including pollution control equipment and intangible
148	148	drilling and dry hole costs;
149	149	[(8) the cost of repairing and maintaining equipment,
150	150	facilities, or real property directly used for the production of
151	151	the goods, including pollution control devices;
152	152	[(9) costs attributable to research, experimental,
153	153	engineering, and design activities directly related to the
154	154	production of the goods, including all research or experimental
155	155	expenditures described by Section 174, Internal Revenue Code;
156	156	[(10) geological and geophysical costs incurred to
157	157	identify and locate property that has the potential to produce
158	158	minerals;
159	159	[(11) taxes paid in relation to acquiring or producing
160	160	any material, or taxes paid in relation to services that are a
161	161	direct cost of production;
162	162	[(12) the cost of producing or acquiring electricity
163	163	sold; and
164	164	[(13) a contribution to a partnership in which the
165	165	taxable entity owns an interest that is used to fund activities, the
166	166	costs of which would otherwise be treated as cost of goods sold of
167	167	the partnership, but only to the extent that those costs are related
168	168	to goods distributed to the taxable entity as goods-in-kind in the
169	169	ordinary course of production activities rather than being sold.
170	170	[(d) In addition to the amounts includable under Subsection
171	171	(c), the cost of goods sold includes the following costs in relation
172	172	to the taxable entity's goods:
173	173	[(1) deterioration of the goods;
174	174	[(2) obsolescence of the goods;
175	175	[(3) spoilage and abandonment, including the costs of
176	176	rework labor, reclamation, and scrap;
177	177	[(4) if the property is held for future production,
178	178	preproduction direct costs allocable to the property, including
179	179	costs of purchasing the goods and of storage and handling the goods,
180	180	as provided by Subsections (c)(4) and (c)(5);
181	181	[(5) postproduction direct costs allocable to the
182	182	property, including storage and handling costs, as provided by
183	183	Subsections (c)(4) and (c)(5);
184	184	[(6) the cost of insurance on a plant or a facility,
185	185	machinery, equipment, or materials directly used in the production
186	186	of the goods;
187	187	[(7) the cost of insurance on the produced goods;
188	188	[(8) the cost of utilities, including electricity,
189	189	gas, and water, directly used in the production of the goods;
190	190	[(9) the costs of quality control, including
191	191	replacement of defective components pursuant to standard warranty
192	192	policies, inspection directly allocable to the production of the
193	193	goods, and repairs and maintenance of goods; and
194	194	[(10) licensing or franchise costs, including fees
195	195	incurred in securing the contractual right to use a trademark,
196	196	corporate plan, manufacturing procedure, special recipe, or other
197	197	similar right directly associated with the goods produced.
198	198	[(e) The cost of goods sold does not include the following
199	199	costs in relation to the taxable entity's goods:
200	200	[(1) the cost of renting or leasing equipment,
201	201	facilities, or real property that is not used for the production of
202	202	the goods;
203	203	[(2) selling costs, including employee expenses
204	204	related to sales;
205	205	[(3) distribution costs, including outbound
206	206	transportation costs;
207	207	[(4) advertising costs;
208	208	[(5) idle facility expense;
209	209	[(6) rehandling costs;
210	210	[(7) bidding costs, which are the costs incurred in
211	211	the solicitation of contracts ultimately awarded to the taxable
212	212	entity;
213	213	[(8) unsuccessful bidding costs, which are the costs
214	214	incurred in the solicitation of contracts not awarded to the
215	215	taxable entity;
216	216	[(9) interest, including interest on debt incurred or
217	217	continued during the production period to finance the production of
218	218	the goods;
219	219	[(10) income taxes, including local, state, federal,
220	220	and foreign income taxes, and franchise taxes that are assessed on
221	221	the taxable entity based on income;
222	222	[(11) strike expenses, including costs associated
223	223	with hiring employees to replace striking personnel, but not
224	224	including the wages of the replacement personnel, costs of
225	225	security, and legal fees associated with settling strikes;
226	226	[(12) officers' compensation;
227	227	[(13) costs of operation of a facility that is:
228	228	[(A) located on property owned or leased by the
229	229	federal government; and
230	230	[(B) managed or operated primarily to house
231	231	members of the armed forces of the United States; and
232	232	[(14) any compensation paid to an undocumented worker
233	233	used for the production of goods. As used in this subdivision:
234	234	[(A) "undocumented worker" means a person who is
235	235	not lawfully entitled to be present and employed in the United
236	236	States; and
237	237	[(B) "goods" includes the husbandry of animals,
238	238	the growing and harvesting of crops, and the severance of timber
239	239	from realty.
240	240	[(f) A taxable entity may subtract as a cost of goods sold
241	241	indirect or administrative overhead costs, including all mixed
242	242	service costs, such as security services, legal services, data
243	243	processing services, accounting services, personnel operations,
244	244	and general financial planning and financial management costs, that
245	245	it can demonstrate are allocable to the acquisition or production
246	246	of goods, except that the amount subtracted may not exceed four
247	247	percent of the taxable entity's total indirect or administrative
248	248	overhead costs, including all mixed service costs. Any costs
249	249	excluded under Subsection (e) may not be subtracted under this
250	250	subsection.
251	251	[(g) A taxable entity that is allowed a subtraction by this
252	252	section for a cost of goods sold and that is subject to Section
253	253	263A, 460, or 471, Internal Revenue Code, may capitalize that cost
254	254	in the same manner and to the same extent that the taxable entity
255	255	capitalized that cost on its federal income tax return or may
256	256	expense those costs, except for costs excluded under Subsection
257	257	(e), or in accordance with Subsections (c), (d), and (f). If the
258	258	taxable entity elects to capitalize costs, it must capitalize each
259	259	cost allowed under this section that it capitalized on its federal
260	260	income tax return. If the taxable entity later elects to begin
261	261	expensing a cost that may be allowed under this section as a cost of
262	262	goods sold, the entity may not deduct any cost in ending inventory
263	263	from a previous report. If the taxable entity elects to expense a
264	264	cost of goods sold that may be allowed under this section, a cost
265	265	incurred before the first day of the period on which the report is
266	266	based may not be subtracted as a cost of goods sold. If the taxable
267	267	entity elects to expense a cost of goods sold and later elects to
268	268	capitalize that cost of goods sold, a cost expensed on a previous
269	269	report may not be capitalized.
270	270	[(h) A taxable entity shall determine its cost of goods
271	271	sold, except as otherwise provided by this section, in accordance
272	272	with the methods used on the federal income tax return on which the
273	273	report under this chapter is based. This subsection does not
274	274	affect the type or category of cost of goods sold that may be
275	275	subtracted under this section.
276	276	[(i) A taxable entity may make a subtraction under this
277	277	section in relation to the cost of goods sold only if that entity
278	278	owns the goods. The determination of whether a taxable entity is
279	279	an owner is based on all of the facts and circumstances, including
280	280	the various benefits and burdens of ownership vested with the
281	281	taxable entity. A taxable entity furnishing labor or materials to
282	282	a project for the construction, improvement, remodeling, repair, or
283	283	industrial maintenance (as the term "maintenance" is defined in 34
284	284	T.A.C. Section 3.357) of real property is considered to be an owner
285	285	of that labor or materials and may include the costs, as allowed by
286	286	this section, in the computation of cost of goods sold. Solely for
287	287	purposes of this section, a taxable entity shall be treated as the
288	288	owner of goods being manufactured or produced by the entity under a
289	289	contract with the federal government, including any subcontracts
290	290	that support a contract with the federal government,
291	291	notwithstanding that the Federal Acquisition Regulation may
292	292	require that title or risk of loss with respect to those goods be
293	293	transferred to the federal government before the manufacture or
294	294	production of those goods is complete.
295	295	[(j) A taxable entity may not make a subtraction under this
296	296	section for cost of goods sold to the extent the cost of goods sold
297	297	was funded by partner contributions and deducted under Subsection
298	298	(c)(13).
299	299	[(k) Notwithstanding any other provision of this section,
300	300	if the taxable entity is a lending institution that offers loans to
301	301	the public and elects to subtract cost of goods sold, the entity,
302	302	other than an entity primarily engaged in an activity described by
303	303	category 5932 of the 1987 Standard Industrial Classification Manual
304	304	published by the federal Office of Management and Budget, may
305	305	subtract as a cost of goods sold an amount equal to interest
306	306	expense. For purposes of this subsection, an entity engaged in
307	307	lending to unrelated parties solely for agricultural production
308	308	offers loans to the public.
309	309	[(k-1) Notwithstanding any other provision of this section,
310	310	the following taxable entities may subtract as a cost of goods sold
311	311	the costs otherwise allowed by this section in relation to tangible
312	312	personal property that the entity rents or leases in the ordinary
313	313	course of business of the entity:
314	314	[(1) a motor vehicle rental or leasing company that
315	315	remits a tax on gross receipts imposed under Section 152.026;
316	316	[(2) a heavy construction equipment rental or leasing
317	317	company; and
318	318	[(3) a railcar rolling stock rental or leasing
319	319	company.
320	320	[(l) Notwithstanding any other provision of this section, a
321	321	payment made by one member of an affiliated group to another member
322	322	of that affiliated group not included in the combined group may be
323	323	subtracted as a cost of goods sold only if it is a transaction made
324	324	at arm's length.
325	325	[(m) In this section, "arm's length" means the standard of
326	326	conduct under which entities that are not related parties and that
327	327	have substantially equal bargaining power, each acting in its own
328	328	interest, would negotiate or carry out a particular transaction.
329	329	[(n) In this section, "related party" means a person,
330	330	corporation, or other entity, including an entity that is treated
331	331	as a pass-through or disregarded entity for purposes of federal
332	332	taxation, whether the person, corporation, or entity is subject to
333	333	the tax under this chapter or not, in which one person, corporation,
334	334	or entity, or set of related persons, corporations, or entities,
335	335	directly or indirectly owns or controls a controlling interest in
336	336	another entity.
337	337	[(o) If a taxable entity, including a taxable entity with
338	338	respect to which cost of goods sold is determined pursuant to
339	339	Section 171.1014(e)(1), whose principal business activity is film
340	340	or television production or broadcasting or the distribution of
341	341	tangible personal property described by Subsection (a)(3)(A)(ii),
342	342	or any combination of these activities, elects to subtract cost of
343	343	goods sold, the cost of goods sold for the taxable entity shall be
344	344	the costs described in this section in relation to the property and
345	345	include depreciation, amortization, and other expenses directly
346	346	related to the acquisition, production, or use of the property,
347	347	including expenses for the right to broadcast or use the property.]
348	348	SECTION 6. Section 171.1013, Tax Code, is amended by adding
349	349	Subsection (i) to read as follows:
350	350	(i) Subject to Section 171.1014 and the limitation in
351	351	Subsection (c), a taxable entity that elects to subtract
352	352	compensation for the purpose of computing its taxable margin under
353	353	Section 171.101 may include as wages and cash compensation any
354	354	compensation paid to an independent contractor as reported on
355	355	Internal Revenue Service Form 1099, or any subsequent form with a
356	356	different number or designation that substantially provides the
357	357	same information.
358	358	SECTION 7. Section 171.1015(d), Tax Code, is amended to
359	359	read as follows:
360	360	(d) Section 171.002(d) does not apply to an upper tier
361	361	entity if, before the attribution of any total revenue by a lower
362	362	tier entity to an upper tier entity under this section, the lower
363	363	tier entity does not meet the criteria of Section 171.002(d)
364	364	[171.002(d)(1) or (d)(2)].
365	365	Effective January 1, 2011, Section 171.103(b), Tax Code, is
366	366	amended to read as follows:
367	367	(b) A combined group shall include in its gross receipts
368	368	computed under Subsection (a) the gross receipts of each taxable
369	369	entity that is a member of the combined group [and that has a nexus
370	370	with this state for the purpose of taxation].
371	371	Effective January 1, 2011, Section 171.1055(b), Tax Code, is
372	372	amended to read as follows:
373	373	(b) In apportioning margin, receipts derived from
374	374	transactions between individual members of a combined group that
375	375	are excluded under Section 171.1014(c)(3) may not be included in
376	376	the receipts of the taxable entity from its business done in this
377	377	state as determined under Section 171.103[, except that receipts
378	378	ultimately derived from the sale of tangible personal property
379	379	between individual members of a combined group where one member
380	380	party to the transaction does not have nexus in this state shall be
381	381	included in the receipts of the taxable entity from its business
382	382	done in this state as determined under Section 171.103 to the extent
383	383	that the member of the combined group that does not have nexus in
384	384	this state resells the tangible personal property without
385	385	substantial modification to a purchaser in this state. "Receipts
386	386	ultimately derived from the sale" means the amount paid for the
387	387	tangible personal property by the third party purchaser].
388	388	SECTION 8. Section 171.204(b), Tax Code, is amended to read
389	389	as follows:
390	390	(b) The comptroller may require a taxable entity that does
391	391	not owe any tax because of the application of Section 171.0023
392	392	[171.002(d)(2)] to file an abbreviated information report with the
393	393	comptroller stating the amount of the taxable entity's taxable
394	394	income as defined by that section [total revenue from its entire
395	395	business]. The comptroller may not require a taxable entity
396	396	described by this subsection to file an information report that
397	397	requires the taxable entity to report or compute its margin.
398	398	SECTION 9. Sections 171.0021, 171.1016(d), and 171.103(c)
399	399	and (d), Tax Code, are repealed.
400	400	SECTION 10. This Act applies only to a report originally due
401	401	on or after the effective date of this Act.
402	402	SECTION 11. Except as otherwise provided by this Act, this
403	403	Act takes effect January 1, 2010.