83R23240 BEF-D
By: Hilderbran, et al. H.B. No. 500
Substitute the following for H.B. No. 500:
By: Hilderbran C.S.H.B. No. 500
A BILL TO BE ENTITLED
AN ACT
relating to the computation of the franchise tax, including certain
exclusions from the tax.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 171.0001(12), Tax Code, is amended to
read as follows:
(12) "Retail trade" means:
(A) the activities described in Division G of the
1987 Standard Industrial Classification Manual published by the
federal Office of Management and Budget; [and]
(B) apparel rental activities classified as
Industry 5999 or 7299 of the 1987 Standard Industrial
Classification Manual published by the federal Office of Management
and Budget;
(C) the activities classified as Industry Group
753 of the 1987 Standard Industrial Classification Manual published
by the federal Office of Management and Budget; and
(D) rental-purchase agreement activities
regulated by Chapter 92, Business & Commerce Code.
SECTION 2. Section 171.002, Tax Code, is amended by adding
Subsection (c-2) to read as follows:
(c-2) Subsection (c)(2) does not apply to total revenue from
activities in a trade that rents or leases tangible personal
property as described by Industry Group 735 of the Standard
Industrial Classification Manual published by the United States
Department of Labor.
SECTION 3. Section 171.006(b), Tax Code, is amended to read
as follows:
(b) Beginning in 2010, on January 1 of each even-numbered
year, the amounts prescribed by Sections 171.002(d)(2) [,
171.0021,] and 171.1013(c) are increased or decreased by an amount
equal to the amount prescribed by those sections on December 31 of
the preceding year multiplied by the percentage increase or
decrease during the preceding state fiscal biennium in the consumer
price index and rounded to the nearest $10,000.
SECTION 4. 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) 65 percent [70 percent] of the taxable
entity's total revenue from its entire business, as determined
under Section 171.1011; or
(B) an amount computed by:
(i) determining the taxable entity's total
revenue from its entire business, under Section 171.1011;
(ii) subtracting, at the election of the
taxable entity, either:
(a) cost of goods sold, as determined
under Section 171.1012; or
(b) compensation, as determined under
Section 171.1013; and
(iii) subtracting, in addition to any
subtractions made under Subparagraph (ii)(a) or (b), 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 5. Section 171.1011, Tax Code, is amended by
amending Subsection (g) and adding Subsections (g-8), (g-9),
(g-10), (g-11), (u), (v), (w-1), and (x) to read as follows:
(g) A taxable entity shall exclude from its total revenue,
to the extent included under Subsection (c)(1)(A), (c)(2)(A), or
(c)(3), only the following flow-through funds that are mandated by
contract or subcontract to be distributed to other entities:
(1) sales commissions to nonemployees, including
split-fee real estate commissions;
(2) the tax basis as determined under the Internal
Revenue Code of securities underwritten; and
(3) subcontracting payments made under a contract or
subcontract entered into [handled] by the taxable entity to provide
services, labor, or materials in connection with the actual or
proposed design, construction, remodeling, remediation, or repair
of improvements on real property or the location of the boundaries
of real property.
(g-8) A taxable entity that is primarily engaged in the
business of transporting aggregates shall exclude from its total
revenue, to the extent included under Subsection (c)(1)(A),
(c)(2)(A), or (c)(3), subcontracting payments made by the taxable
entity to nonemployee agents for the performance of delivery
services on behalf of the taxable entity. In this subsection,
"aggregates" means any commonly recognized construction material
removed or extracted from the earth, including dimension stone,
crushed and broken limestone, crushed and broken granite, other
crushed and broken stone, construction sand and gravel, industrial
sand, dirt, soil, cementitious material, and caliche.
(g-9) A taxable entity that is a landlord of commercial
property shall exclude from its total revenue, to the extent
included under Subsection (c)(1)(A), (2)(A), or (3), payments,
excluding expenses for interest and depreciation and other expenses
not listed in this subsection, received from a tenant of the
property for ad valorem taxes and any tax or excise imposed on
rents.
(g-10) A taxable entity that is primarily engaged in the
business of transporting barite shall exclude from its total
revenue, to the extent included under Subsection (c)(1)(A),
(c)(2)(A), or (c)(3), subcontracting payments made by the taxable
entity to nonemployee agents for the performance of transportation
services on behalf of the taxable entity. For purposes of this
subsection, "barite" means barium sulfate (BaSO4), a mineral used
as a weighing agent in oil and gas exploration.
(g-11) A taxable entity that is primarily engaged in the
business of performing landman services shall exclude from its
total revenue, to the extent included under Subsection (c)(1)(A),
(c)(2)(A), or (c)(3), subcontracting payments made by the taxable
entity to nonemployees for the performance of landman services on
behalf of the taxable entity. In this subsection, "landman
services" means:
(1) performing title searches for the purpose of
determining ownership of or curing title defects related to oil,
gas, or other related mineral or petroleum interests;
(2) negotiating the acquisition or divestiture of
mineral rights for the purpose of the exploration, development, or
production of oil, gas, or other related mineral or petroleum
interests; or
(3) negotiating or managing the negotiation of
contracts or other agreements related to the ownership of mineral
interests for the exploration, exploitation, disposition,
development, or production of oil, gas, or other related mineral or
petroleum interests.
(u) A taxable entity that is a physician practice shall
exclude from its total revenue the actual cost paid by the taxable
entity for a vaccine.
(v) A taxable entity primarily engaged in the business of
transporting commodities 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 inbound and outbound
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 to subtract those costs as costs of
goods sold in computing its taxable margin.
(w-1) A taxable entity primarily engaged in the business of
providing services as an agricultural aircraft operation, as
defined by 14 C.F.R. Section 137.3, shall exclude from its total
revenue the cost of labor, equipment, fuel, and materials used in
providing those services.
(x) A taxable entity that is registered as a motor carrier
under Chapter 643, Transportation Code, shall exclude from its
total revenue, to the extent included under Subsection (c)(1)(A),
(c)(2)(A), or (c)(3), flow-through revenue derived from taxes and
fees.
SECTION 6. Section 171.1011(p), Tax Code, is amended by
amending Subdivision (4-a) and adding Subdivisions (4-b) and (8) to
read as follows:
(4-a) "Physician practice" means an entity that:
(A) is owned entirely by one or more individuals
licensed to practice medicine in this state under Subtitle B, Title
3, Occupations Code; and
(B) offers services, the provision of which is
considered practicing medicine as defined by Section
151.002(a)(13), Occupations Code.
(4-b) "Pro bono services" means the direct provision
of legal services to the poor, without an expectation of
compensation.
(8) "Vaccine" means a preparation or suspension of
dead, live attenuated, or live fully virulent viruses or bacteria,
or of antigenic proteins derived from them, used to prevent,
ameliorate, or treat an infectious disease.
SECTION 7. Section 171.1012, Tax Code, is amended by adding
Subsection (q) to read as follows:
(q) Notwithstanding Subsection (i) or any other provision
of this section, a taxable entity that is primarily engaged in the
business of harvesting trees for wood may subtract as cost of goods
sold the direct costs of acquiring or producing the timber for the
wood that are specified by this subsection or otherwise described
by this section, regardless of whether the taxable entity owns the
land from which the trees are harvested, the harvested timber, or
the wood resulting from the harvested timber. For purposes of this
subsection, direct costs include costs of:
(1) moving harvesting equipment;
(2) severing timber;
(3) transporting timber to and from a mill or
designated delivery point;
(4) obtaining, using, storing, or maintaining
equipment necessary for an activity described by Subdivision (1),
(2), or (3); and
(5) other supplies, labor, freight, and fuel necessary
for an activity described by Subdivision (1), (2), or (3).
SECTION 8. Section 171.1014(d), Tax Code, is amended to
read as follows:
(d) For purposes of Section 171.101, a combined group shall
make an election to subtract either cost of goods sold or
compensation that applies to all of its members. Regardless of the
election, the taxable margin of the combined group may not exceed 65
percent [70 percent] of the combined group's total revenue from its
entire business, as provided by Section 171.101(a)(1)(A).
SECTION 9. Section 171.106, Tax Code, is amended by adding
Subsection (g) to read follows:
(g) A receipt from Internet hosting as defined by Section
151.108(a) is a receipt from business done in this state only if the
customer to whom the service is provided is located in this state.
SECTION 10. Sections 171.0021 and 171.1016(d), Tax Code,
are repealed.
SECTION 11. Section 1(c), Chapter 286 (H.B. 4765), Acts of
the 81st Legislature, Regular Session, 2009, as amended by Section
37.01, Chapter 4 (S.B. 1), Acts of the 82nd Legislature, 1st Called
Session, 2011, is repealed.
SECTION 12. Section 2, Chapter 286 (H.B. 4765), Acts of the
81st Legislature, Regular Session, 2009, as amended by Section
37.02, Chapter 4 (S.B. 1), Acts of the 82nd Legislature, 1st Called
Session, 2011, and which amended former Subsection (d), Section
171.002, Tax Code, is repealed.
SECTION 13. Section 3, Chapter 286 (H.B. 4765), Acts of the
81st Legislature, Regular Session, 2009, as amended by Section
37.03, Chapter 4 (S.B. 1), Acts of the 82nd Legislature, 1st Called
Session, 2011, and which amended former Subsection (a), Section
171.0021, Tax Code, is repealed.
SECTION 14. This Act applies only to a report originally due
on or after the effective date of this Act.
SECTION 15. This Act takes effect January 1, 2014.