83R14288 E
By: Hilderbran H.B. No. 500
A BILL TO BE ENTITLED
AN ACT
relating to the franchise tax.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 171.1011(c), Tax Code, is amended to
read as follows:
(c) Except as provided by this section, and subject to
Section 171.1014, for the purpose of computing its taxable margin
under Section 171.101, the total revenue of a taxable entity is:
(1) for a taxable entity treated for federal income
tax purposes as a corporation, an amount computed by:
(A) adding:
(i) the amount reportable as income on line
1c, Internal Revenue Service Form 1120;
(ii) the amounts reportable as income on
lines 4 through 10, Internal Revenue Service Form 1120; and
(iii) any total revenue reported by a lower
tier entity as includable in the taxable entity's total revenue
under Section 171.1015(b); [and]
(B) subtracting:
(i) bad debt expensed for federal income
tax purposes that corresponds to items of gross receipts included
in Subsection (c)(1)(A) for the current reporting period or a past
reporting period;
(ii) to the extent included in Subsection
(c)(1)(A), foreign royalties and foreign dividends, including
amounts determined under Section 78 or Sections 951-964, Internal
Revenue Code;
(iii) to the extent included in Subsection
(c)(1)(A), net distributive income from a taxable entity treated as
a partnership or as an S corporation for federal income tax
purposes;
(iv) allowable deductions from Internal
Revenue Service Form 1120, Schedule C, to the extent the relating
dividend income is included in total revenue;
(v) to the extent included in Subsection
(c)(1)(A), items of income attributable to an entity that is a
disregarded entity for federal income tax purposes; and
(vi) to the extent included in Subsection
(c)(1)(A), other amounts authorized by this section; and
(C) if the amount computed under Subsections
(c)(1)(A) and (c)(1)(B) totals $20 million or less, subtracting $1
million;
(2) for a taxable entity treated for federal income
tax purposes as a partnership, an amount computed by:
(A) adding:
(i) the amount reportable as income on line
1c, Internal Revenue Service Form 1065;
(ii) the amounts reportable as income on
lines 4, 6, and 7, Internal Revenue Service Form 1065;
(iii) the amounts reportable as income on
lines 3a and 5 through 11, Internal Revenue Service Form 1065,
Schedule K;
(iv) the amounts reportable as income on
line 17, Internal Revenue Service Form 8825;
(v) the amounts reportable as income on
line 11, plus line 2 or line 45, Internal Revenue Service Form 1040,
Schedule F; and
(vi) any total revenue reported by a lower
tier entity as includable in the taxable entity's total revenue
under Section 171.1015(b); [and]
(B) subtracting:
(i) bad debt expensed for federal income
tax purposes that corresponds to items of gross receipts included
in Subsection (c)(2)(A) for the current reporting period or a past
reporting period;
(ii) to the extent included in Subsection
(c)(2)(A), foreign royalties and foreign dividends, including
amounts determined under Section 78 or Sections 951-964, Internal
Revenue Code;
(iii) to the extent included in Subsection
(c)(2)(A), net distributive income from a taxable entity treated as
a partnership or as an S corporation for federal income tax
purposes;
(iv) to the extent included in Subsection
(c)(2)(A), items of income attributable to an entity that is a
disregarded entity for federal income tax purposes; and
(v) to the extent included in Subsection
(c)(2)(A), other amounts authorized by this section; and
(C) if the amount computed under Subsections
(c)(2)(A) and (c)(2)(B) totals $20 million or less, subtracting $1
million; or
(3) for a taxable entity other than a taxable entity
treated for federal income tax purposes as a corporation or
partnership, an amount determined in a manner substantially
equivalent to the amount for Subdivision (1) or (2), including the
subtraction of $1 million as provided by Subdivision (1)(C) or
(2)(C), determined by rules that the comptroller shall adopt.
SECTION 2. Section 171.002(d), Tax Code, is amended to read
as follows:
(d) A taxable entity is not required to pay any tax and is
not considered to owe any tax for a period if[:
[(1)] the amount of tax computed for the taxable
entity is less than $1,000[; or
[(2) the amount of the taxable entity's total revenue
from its entire business is less than or equal to $1 million or the
amount determined under Section 171.006 per 12-month period on
which margin is based].
SECTION 3. Section 171.006, Tax Code, is amended by
amending Subsection (b) and adding Subsection (g) to read as
follows:
(b) Beginning in 2010, on January 1 of each even-numbered
year, the amounts prescribed by Sections 171.1011(c)(1)(C),
171.1011(c)(2)(C), 171.1011(c)(3) [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.
(g) A receipt from Internet hosting described 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 4. Section 171.1011, Tax Code, is amended by
amending Subsection (g) and adding Subsection (g-8) 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 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 handled by the taxable
entity to provide services, labor, or materials in connection with
the actual or proposed design, construction, remodeling, or repair
of improvements on real property or the location of the boundaries
of real property; and
(4) subcontracting payments made to individuals for
services related to the acquisition or management of petroleum
interests or the performance of title or contract functions related
to the exploration, exploitation, or disposition of petroleum or
mineral interests.
(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.
SECTION 5. Section 171.1014, Tax Code, is amended by
amending Subsection (c) and adding Subsections (j) and (k) to read
as follows:
(c) For purposes of Section 171.101, a combined group shall
determine its total revenue by:
(1) determining the total revenue of each of its
members as provided by Section 171.1011 as if the member were an
individual taxable entity, except that only one member of the
combined group may subtract $1 million under Section
171.1011(c)(1)(C), (c)(2)(C), or (c)(3);
(2) adding the total revenues of the members
determined under Subdivision (1) together; and
(3) subtracting, to the extent included under Section
171.1011(c)(1)(A), (c)(2)(A), or (c)(3), items of total revenue
received from a member of the combined group.
(j) Notwithstanding any other provision of this chapter and
except as provided by Subsection (k), a nonqualified affiliate that
would, except as otherwise provided by this subsection, be included
in a combined group with a qualified affiliate may not be included
in such combined group if:
(1) more than 50 percent of the threshold amount is
from activities in retail or wholesale trade;
(2) less than 50 percent of the threshold amount is
from the sale of products produced by any entity that is included in
an affiliated group with such qualified affiliate; and
(3) less than 5 percent of the threshold amount is from
providing retail or wholesale electric utilities.
(k) For purposes of Subsection (j):
(1) "nonqualified affiliate" means an individual
taxable entity that provides retail or wholesale electric
utilities;
(2) "qualified affiliate" means an individual taxable
entity that does not provide retail or wholesale electric
utilities; and
(3) "threshold amount" means the total revenue
determined under Subsection (c), provided that Subsection (j) has
no effect on the determination of total revenue.
SECTION 6. Section 171.1015(d), Tax Code, is amended to
read as follows:
(d) Section 171.002(d) does not apply to an upper tier
entity if, before the attribution of any total revenue by a lower
tier entity to an upper tier entity under this section, the lower
tier entity does not meet the criteria of Section 171.002(d)
[171.002(d)(1) or (d)(2)].
SECTION 7. Sections 171.1016(a) and (b), Tax Code, are
amended to read as follows:
(a) Notwithstanding any other provision of this chapter, a
taxable entity whose total revenue from its entire business is not
more than $20 [$10] million may elect to pay the tax imposed under
this chapter in the amount computed and at the rate provided by this
section rather than in the amount computed and at the tax rate
provided by Section 171.002.
(b) The amount of the tax for which a taxable entity that
elects to pay the tax as provided by this section is liable is
computed by:
(1) determining the taxable entity's total revenue
from its entire business, as determined under Section 171.1011;
(2) apportioning the amount computed under
Subdivision (1) to this state, as provided by Section 171.106, to
determine the taxable entity's apportioned total revenue; and
(3) multiplying the amount computed under Subdivision
(2) by the rate of 0.48 [0.575] percent.
SECTION 8. (a) 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.
(b) This section takes effect September 1, 2013.
SECTION 9. (a) 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.
(b) This section takes effect September 1, 2013.
SECTION 10. (a) 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.
(b) This section takes effect September 1, 2013.
SECTION 11. (a) The comptroller of public accounts shall
conduct a comprehensive study of alternative methods of taxing
business entities that would generate approximately the same
revenue as the franchise tax.
(b) In conducting the study, the comptroller shall assume
that:
(1) the alternative method of tax is imposed on all
taxable entities subject to the current franchise tax; and
(2) the alternative method of tax is imposed on all
taxable entities at the same rate.
(c) The comptroller of public accounts shall submit a report
to the legislature regarding the results of the study conducted
under this section not later than January 1, 2015.
SECTION 12. Sections 171.0021, 171.1016(d), and
171.204(b), Tax Code, are repealed.
SECTION 13. This Act applies only to a report originally due
on or after January 1, 2014.
SECTION 14. Except as otherwise provided by this Act, this
Act takes effect January 1, 2014.