By: Hilderbran, Thompson of Harris, H.B. No. 500
Creighton, Button, Turner of Collin,
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. (a) Section 111.064, Tax Code, is amended by
adding Subsection (g) to read as follows:
(g) For a refund of an amount paid under Chapter 171 that is
claimed after December 31, 2015, and granted for a report period due
on or after January 1, 2000, the rate of interest is the rate set in
Section 111.060.
(b) This section takes effect January 1, 2016.
SECTION 2. 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 3. Section 171.002, Tax Code, is amended by
amending Subsection (a) and adding Subsection (c-2) to read as
follows:
(a) Subject to Sections 171.003 and 171.1016 and except as
provided by Subsection (b), the rate of the franchise tax is:
(1) one percent of taxable margin; or
(2) for a taxable entity that elects to subtract
compensation under Section 171.1013 for the purpose of computing
its taxable margin, 0.95 percent of taxable margin.
(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 4. 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 5. Section 171.052(a), Tax Code, is amended to read
as follows:
(a) Except as provided by Subsection (c), an insurance
organization, title insurance company, or title insurance agent
authorized to engage in insurance business in this state that is
[now] required to pay an annual tax [under Chapter 4 or 9, Insurance
Code,] measured by its gross premium receipts is exempted from the
franchise tax. A nonadmitted insurance organization that is
required to pay a gross premium receipts tax during a tax year is
exempted from the franchise tax for that same tax year. A
nonadmitted insurance organization that is subject to an occupation
tax or any other tax that is imposed for the privilege of doing
business in another state or a foreign jurisdiction, including a
tax on gross premium receipts, is exempted from the franchise tax.
SECTION 6. Sections 171.101(a) and (b), Tax Code, are
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) the amount provided by this paragraph, which
is the lesser of:
(i) 70 percent of the taxable entity's total
revenue from its entire business, as determined under Section
171.1011; or
(ii) an amount equal to the taxable entity's
total revenue from its entire business as determined under Section
171.1011 minus $1 million; or
(B) an amount computed by[:
[(i)] determining the taxable entity's
total revenue from its entire business[,] under Section 171.1011
and [;
[(ii)] subtracting the greater of:
(i) $1 million; or
(ii) an amount equal to:
(a) [,] at the election of the taxable
entity, either:
(1) [(a)] cost of goods sold, as
determined under Section 171.1012; or
(2) [(b)] compensation, as
determined under Section 171.1013; and
(b) any [(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.
(b) Notwithstanding Subsection (a)(1)(B)(ii)(a)
[(a)(1)(B)(ii)], a staff leasing services company may subtract only
the greater of $1 million as provided by Subsection (a)(1)(B)(i) or
compensation as determined under Section 171.1013.
SECTION 7. Section 171.1011, Tax Code, is amended by
amending Subsections (g) and (g-4) and adding Subsections (g-8),
(g-9), (g-10), (g-11), (u), (v), (w-1), (x), and (y) 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-4) A taxable entity that is a pharmacy cooperative shall
exclude from its total revenue, to the extent included under
Subsection (c)(1)(A), (c)(2)(A), or (c)(3), flow-through funds
from rebates from pharmacy wholesalers that are distributed to the
pharmacy cooperative's shareholders. A taxable entity that
provides a pharmacy network shall exclude from its total revenue,
to the extent included under Subsection (c)(1)(A), (c)(2)(A), or
(c)(3), flow-through funds from rebates from pharmacy wholesalers
that are distributed to pharmacies in the pharmacy network and
flow-through funds from reimbursements for payments to pharmacies
in the pharmacy network.
(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 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.
(y) A taxable entity shall exclude from its total revenue,
to the extent included under Subsection (c)(1)(A), (c)(2)(A), or
(c)(3) but not subtracted as a cost of goods sold on the report or on
a previous report, the depreciation used to calculate gain or loss
on the disposition of real property held primarily for the
production of rental income.
SECTION 8. Section 171.1011(p), Tax Code, is amended by
adding Subdivision (8) to read as follows:
(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 9. Section 171.1012, Tax Code, is amended by
amending Subsection (f) and adding Subsections (k-2), (k-3), (p),
(q), (r), and (s) to read as follows:
(f) A taxable entity may subtract as a cost of goods sold
indirect or administrative overhead costs, including all mixed
service costs, such as security services, legal services, data
processing services, accounting services, personnel operations,
and general financial planning and financial management costs, that
it can demonstrate are allocable to the acquisition or production
of goods, except that the amount subtracted may not exceed 5.5
[four] percent of the taxable entity's total indirect or
administrative overhead costs, including all mixed service costs.
Any costs excluded under Subsection (e) may not be subtracted under
this subsection.
(k-2) This subsection applies only to a pipeline entity: (1)
that owns or leases and operates the pipeline by which the product
is transported for others and only to that portion of the product to
which the entity does not own title; and (2) that is primarily
engaged in gathering, storing, transporting, or processing crude
oil, including finished petroleum products, natural gas,
condensate, and natural gas liquids, except for a refinery
installation that manufactures finished petroleum products from
crude oil. Notwithstanding Subsection (e)(3) or (i), a pipeline
entity providing services for others related to the product that
the pipeline does not own and to which this subsection applies may
subtract as a cost of goods sold its depreciation, operations, and
maintenance costs allowed by this section related to the services
provided.
(k-3) For purposes of Subsection (k-2), "processing" means
the physical or mechanical removal, separation, or treatment of
crude oil, including finished petroleum products, natural gas,
condensate, and natural gas liquids after those materials are
produced from the earth. The term does not include the chemical or
biological transformation of those materials.
(p) Notwithstanding Subsection (e)(2) or any other
provision of this section, the cost of goods sold includes 20
percent of the costs attributable to the acceptance of credit cards
and debit cards as a means of payment.
(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).
(r) A taxable entity that has total revenue from its entire
business of less than $5 million and that elects to subtract cost of
goods sold for the purpose of computing its taxable margin may elect
to determine the amount of that cost of goods sold in accordance
with this subsection. A taxable entity making the election
authorized by this subsection is not subject to the provisions of
this section relating to the computation of the amount of cost of
goods sold other than this subsection and Subsection (s). The
taxable entity shall determine the amount of cost of goods sold as
follows:
(1) for a taxable entity treated for federal income
tax purposes as a corporation, the cost of goods sold is the amount
reportable as cost of goods sold on line 2, Internal Revenue Service
Form 1120;
(2) for a taxable entity treated for federal income
tax purposes as a partnership, the cost of goods sold is the amount
reportable as cost of goods sold on line 2, Internal Revenue Service
Form 1065;
(3) for a taxable entity treated for federal income
tax purposes as an S corporation, the cost of goods sold is the
amount reportable as cost of goods sold on line 2, Internal Revenue
Service Form 1120S; or
(4) for any other taxable entity, the cost of goods
sold is an amount determined in a manner substantially equivalent
to the amount for Subdivision (1), (2), or (3) determined by rules
the comptroller shall adopt.
(s) A combined group that has total revenue from its entire
business of less than $5 million and that elects to subtract cost of
goods sold for the purpose of computing its taxable margin shall
make the election to compute the amount of that cost of goods sold
under Subsection (r), or to compute that amount under the other
provisions of this section, for all of its members.
SECTION 10. (a) Section 171.1012, Tax Code, is amended by
adding Subsection (t) to read as follows:
(t) If a taxable entity that is a movie theater elects to
subtract cost of goods sold, the cost of goods sold for the taxable
entity shall be the costs described by this section in relation to
the acquisition, production, exhibition, or use of a film or motion
picture, including expenses for the right to use the film or motion
picture.
(b) Section 171.1012(t), Tax Code, as added by this section,
is a clarification of existing law and does not imply that existing
law may be construed as inconsistent with the law as amended by this
section.
(c) This section takes effect September 1, 2013.
SECTION 11. Section 171.1013(a), Tax Code, is amended to
read as follows:
(a) Except as otherwise provided by this section, "wages and
cash compensation" means the amount entered in the Medicare wages
and tips box of Internal Revenue Service Form W-2 or any subsequent
form with a different number or designation that substantially
provides the same information. The term also includes, to the
extent not included above:
(1) net distributive income from a taxable entity
treated as a partnership for federal income tax purposes, but only
if the person receiving the distribution is a natural person;
(2) net distributive income from limited liability
companies and corporations treated as S corporations for federal
income tax purposes, but only if the person receiving the
distribution is a natural person;
(3) stock awards and stock options deducted for
federal income tax purposes; [and]
(4) net distributive income from a limited liability
company treated as a sole proprietorship for federal income tax
purposes, but only if the person receiving the distribution is a
natural person; and
(5) salaries or other compensation deducted for
federal income tax purposes of employees located outside the United
States for which the employer is not required to issue an Internal
Revenue Service Form W-2.
SECTION 12. Section 171.1014, Tax Code, is amended by
amending Subsections (d) and (d-1) and adding Subsection (j) 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, or $1 million.
Regardless of the election, the taxable margin of the combined
group may not exceed the amount [70 percent of the combined group's
total revenue from its entire business, as] provided by Section
171.101(a)(1)(A) for the combined group.
(d-1) A member of a combined group that does not elect to
compute the amount of cost of goods sold as provided by Section
171.1012(r), if applicable, may claim as cost of goods sold those
costs that qualify under Section 171.1012 if the goods for which the
costs are incurred are owned by another member of the combined
group.
(j) Notwithstanding any other provision of this section, a
taxable entity that provides retail or wholesale electric utilities
may not be included as a member of a combined group that includes
one or more taxable entities that do not provide retail or wholesale
electric utilities if that combined group in the absence of this
subsection:
(1) would not meet the requirements of Section
171.002(c) solely because one or more members of the combined group
provide retail or wholesale electric utilities; and
(2) would have less than five percent of the combined
group's total revenue derived from providing retail or wholesale
electric utilities.
SECTION 13. Section 171.106, Tax Code, is amended by adding
Subsection (g) to read as 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 14. Section 171.106, Tax Code, is amended by adding
Subsection (h) to read as follows:
(h) A taxable entity that is a broadcaster shall include in
the numerator of the broadcaster's apportionment factor receipts
arising from a broadcast or other distribution of film by any means
only if the legal domicile of the broadcaster's customer is in this
state. This subsection applies only to receipts that are licensing
income from distributing film programming. In this subsection:
(1) "Broadcaster" means a taxable entity, not
including a cable service provider or a direct broadcast satellite
service, that is a:
(A) television or radio station licensed by the
Federal Communications Commission;
(B) television or radio broadcast network;
(C) cable television network; or
(D) television distribution company.
(2) "Customer" means a person, including a licensee,
that has a direct connection or contractual relationship with a
broadcaster under which the broadcaster derives revenue.
(3) "Film programming" means all or part of a live or
recorded performance, event, or production intended to be
distributed for visual and auditory perception by an audience.
(4) "Programming" includes news, entertainment,
sporting events, plays, stories, or other literary, commercial,
educational, or artistic works.
SECTION 15. (a) Subchapter C, Chapter 171, Tax Code, is
amended by adding Section 171.109 to read as follows:
Sec. 171.109. DEDUCTION OF RELOCATION COSTS BY CERTAIN
TAXABLE ENTITIES FROM MARGIN APPORTIONED TO THIS STATE. (a) In
this section, "relocation costs" means the costs incurred by a
taxable entity to relocate the taxable entity's main office or
other principal place of business from one location to another. The
term includes:
(1) costs of relocating computers and peripherals,
other business supplies, furniture, and inventory; and
(2) any other costs related to the relocation that are
allowable deductions for federal income tax purposes.
(b) Subject to Subsection (c), a taxable entity may deduct
from its apportioned margin relocation costs incurred in relocating
the taxable entity's main office or other principal place of
business to this state from another state if the taxable entity:
(1) did not do business in this state before
relocating the taxable entity's main office or other principal
place of business to this state; and
(2) is not a member of an affiliated group engaged in a
unitary business, another member of which is doing business in this
state on the date the taxable entity relocates the taxable entity's
main office or other principal place of business to this state.
(c) A taxable entity must take the deduction authorized by
Subsection (b) on the report based on the taxable entity's initial
period described by Section 171.151(1).
(d) On the comptroller's request, a taxable entity that
takes a deduction authorized by this section shall file with the
comptroller proof of the deducted relocation costs.
(b) The change in law made by this section applies only to a
taxable entity that relocates the taxable entity's main office or
other principal place of business to this state on or after the
effective date of this section.
(c) This section takes effect September 1, 2013.
SECTION 16. Subchapter D, Chapter 171, Tax Code, is amended
by adding Section 171.159 to read as follows:
Sec. 171.159. RETAILER RECEIPT SHOWING TAX. (a) A taxable
entity that is a retailer subject to Chapter 151 shall include on
any receipt for an item subject to taxation under Chapter 151 an
additional notation showing the amount of taxes the customer is
paying for the purpose of reimbursement of the tax under this
chapter.
(b) For purposes of this section, the taxable entity may
estimate the amount of tax the customer is paying under this chapter
based on the tax rate to which the taxable entity is subject.
SECTION 17. Subchapter E, Chapter 171, Tax Code, is amended
by adding Section 171.216 to read as follows:
Sec. 171.216. BIENNIAL REPORT. Not later than January 1 of
each odd-numbered year, the comptroller shall submit to the
legislature and the governor a report prepared by an independent
researcher from a research center established under Section 1.005,
Education Code, or a tier one research university, on tax relief,
including tax credits and exemptions, provided to taxable entities
through changes to the tax imposed under this chapter enacted by the
83rd Legislature, Regular Session, 2013, for economic development
purposes, as determined by the comptroller. The report must
include:
(1) an estimate of:
(A) the total number of taxable entities that
received tax relief during the preceding two calendar years as a
result of those changes; and
(B) the total amount of the tax relief described
by Paragraph (A); and
(2) an evaluation of the effects of the tax relief on
this state, including the effects on:
(A) employment in this state;
(B) other economic activity in this state; and
(C) state tax revenues.
SECTION 18. Effective January 1, 2016, Chapter 171, Tax
Code, is amended by adding Subchapters P-1 and Q-2 to read as
follows:
SUBCHAPTER P-1. TAX CREDITS FOR CERTAIN
JOB CREATION ACTIVITIES
Sec. 171.771. DEFINITIONS. In this subchapter:
(1) "Agricultural processing" means an establishment
primarily engaged in activities described in categories 0724,
2011-2099, 2211, 2231, 2824, 2833, 2834, 2835, 2836, 2841,
3111-3199, 3262, or 3952, in product classes 28692 or 28698 of
category 2869, or in product classes 28992 or 28994 of category 2899
of the 1987 Standard Industrial Classification Manual published by
the United States Department of Labor.
(2) "Central administrative offices" means an
establishment primarily engaged in performing management or
support services for other establishments of the same enterprise.
An enterprise consists of all establishments having more than 50
percent common direct or indirect ownership.
(3) "Data processing" means an establishment
primarily engaged in activities described in categories 7371-7379
of the 1987 Standard Industrial Classification Manual published by
the United States Department of Labor.
(4) "Distribution" means an establishment primarily
engaged in activities described in categories 5012-5199 of the 1987
Standard Industrial Classification Manual published by the United
States Department of Labor.
(5) "Group health benefit plan" means:
(A) a health plan provided by a health
maintenance organization established under Chapter 843, Insurance
Code;
(B) a health benefit plan approved by the
commissioner of insurance; or
(C) a self-funded or self-insured employee
welfare benefit plan that provides health benefits and is
established in accordance with the Employee Retirement Income
Security Act of 1974 (29 U.S.C. Section 1001 et seq.).
(6) "Manufacturing" means an establishment primarily
engaged in activities described in categories 2011-3999 of the 1987
Standard Industrial Classification Manual published by the United
States Department of Labor.
(7) "Qualified business" means an establishment
primarily engaged in agricultural processing, central
administrative offices, distribution, data processing,
manufacturing, research and development, or warehousing.
(8) "Qualifying job" means a new permanent full-time
job that:
(A) pays an annual wage of at least $50,000,
subject to Section 171.772;
(B) is covered by a group health benefit plan for
which the business pays at least 80 percent of the premiums or other
charges assessed under the plan for the employee; and
(C) is not created to replace a previous
employee.
(9) "Research and development" means an establishment
primarily engaged in activities described in category 8731 of the
1987 Standard Industrial Classification Manual published by the
United States Department of Labor.
(10) "Warehousing" means an establishment primarily
engaged in activities described in categories 4221-4226 of the 1987
Standard Industrial Classification Manual published by the United
States Department of Labor.
Sec. 171.772. BIENNIAL ADJUSTMENT OF WAGE FOR QUALIFYING
JOB. (a) In this section, "consumer price index" means the average
over a state fiscal biennium of the Consumer Price Index for All
Urban Consumers (CPI-U), U.S. City Average, published monthly by
the United States Bureau of Labor Statistics, or its successor in
function.
(b) Beginning in 2016, on January 1 of each even-numbered
year, the wage amount prescribed by Section 171.771(8) is increased
or decreased by an amount equal to the amount prescribed by that
section 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
dollar.
(c) The amount determined under Subsection (b) applies to a
report originally due on or after the date the determination is
made.
(d) The comptroller shall make the determination required
by this section and may adopt rules related to making that
determination.
(e) A determination by the comptroller under this section is
final and may not be appealed.
Sec. 171.773. ELIGIBILITY. A taxable entity is eligible for
a credit against the tax imposed under this chapter if the taxable
entity:
(1) is a qualified business; and
(2) creates a minimum of 10 qualifying jobs.
Sec. 171.774. AMOUNT OF CREDIT. A taxable entity may
establish a credit equal to 25 percent of the total wages paid by
the taxable entity for each qualifying job during each of the first
12 months of employment of the person hired to perform the job that
occur during the period on which the report is based.
Sec. 171.775. LENGTH OF CREDIT. The credit established
shall be claimed in five equal installments of one-fifth the credit
amount over the five consecutive reports beginning with the report
based on the period during which the qualifying jobs were created.
Sec. 171.776. LIMITATIONS. (a) The total credit claimed
under this subchapter for a report, including the amount of any
carryforward credit under Section 171.777, may not exceed 50
percent of the amount of franchise tax due for the report before any
other applicable tax credits.
(b) The total credit claimed under this subchapter and
Subchapter Q-2 for a report, including the amount of any
carryforward credits, may not exceed the amount of franchise tax
due for the report after any other applicable credits.
Sec. 171.777. CARRYFORWARD. (a) If a taxable entity is
eligible for a credit that exceeds the limitations under Section
171.776, the taxable entity may carry the unused credit forward for
not more than five consecutive reports.
(b) A carryforward is considered the remaining portion of an
installment that cannot be claimed in the current year because of a
limitation under Section 171.776. A carryforward is added to the
next year's installment of the credit in determining the limitation
for that year. A credit carryforward from a previous report is
considered to be used before the current year installment.
Sec. 171.778. CERTIFICATION OF ELIGIBILITY. (a) For the
initial and each succeeding report on which a credit is claimed
under this subchapter, the taxable entity shall file with its
report, on a form provided by the comptroller, information that
sufficiently demonstrates that the taxable entity is eligible for
the credit.
(b) The burden of establishing entitlement to and the value
of the credit is on the taxable entity.
(c) A credit expires under this subchapter and the taxable
entity may not take any remaining installment of the credit if in
one of the five years in which the installment of a credit accrues,
the taxable entity fails to maintain the minimum number of
qualifying jobs required to be created by Section 171.773.
(d) Notwithstanding Subsection (c), the taxable entity may
take the portion of an installment that accrued in a previous year
and was carried forward to the extent permitted under Section
171.777.
Sec. 171.779. ASSIGNMENT PROHIBITED. A taxable entity may
not convey, assign, or transfer the credit allowed under this
subchapter to another entity unless all of the assets of the taxable
entity are conveyed, assigned, or transferred in the same
transaction.
Sec. 171.780. BIENNIAL REPORT BY COMPTROLLER. (a) Before
the beginning of each regular session of the legislature, the
comptroller shall submit to the governor, the lieutenant governor,
and the speaker of the house of representatives a report that
states:
(1) the total number of jobs created by taxable
entities that claim a credit under this subchapter and the average
and median annual wage of those jobs;
(2) the total amount of credits applied against the
tax under this chapter and the amount of unused credits including:
(A) the total amount of franchise tax due by
taxable entities claiming a credit under this subchapter before and
after the application of the credit;
(B) the average percentage reduction in
franchise tax due by taxable entities claiming a credit under this
subchapter; and
(C) the percentage of tax credits that were
awarded to taxable entities with fewer than 100 employees;
(3) the two-digit standard industrial classification
of businesses claiming a credit under this subchapter;
(4) the geographical distribution of the credits
claimed under this subchapter; and
(5) the effect of the credit provided under this
subchapter on employment, personal income, and capital investment
in this state and on state tax revenues.
(b) The final report issued before the expiration of this
subchapter must include historical information on the credit
authorized under this subchapter.
(c) The comptroller may not include in the report
information that is confidential by law.
(d) For purposes of this section, the comptroller may
require a taxable entity that claims a credit under this subchapter
to submit information, on a form provided by the comptroller, on the
location of the taxable entity's job creation in this state and any
other information necessary to complete the report required under
this section.
(e) The comptroller shall provide notice to the members of
the legislature that the report required under this section is
available on request.
Sec. 171.781. COMPTROLLER POWERS AND DUTIES. The
comptroller shall adopt rules and forms necessary to implement this
subchapter.
Sec. 171.782. EXPIRATION. (a) This subchapter expires
December 31, 2025.
(b) The expiration of this subchapter does not affect the
carryforward of a credit under Section 171.777 or those credits for
which a taxable entity is eligible before the date this subchapter
expires.
SUBCHAPTER Q-2. TAX CREDITS FOR CERTAIN CAPITAL INVESTMENTS
Sec. 171.821. DEFINITIONS. In this subchapter:
(1) "Agricultural processing" and "qualified
business" have the meanings assigned those terms by Section
171.771.
(2) "Qualified capital investment" means tangible
personal property first placed in service in this state by a taxable
entity primarily engaged in agricultural processing, and that is
described in Section 1245(a), Internal Revenue Code, such as
engines, machinery, tools, and implements used in a trade or
business or held for investment and subject to an allowance for
depreciation, cost recovery under the accelerated cost recovery
system, or amortization. The term does not include real property or
buildings and their structural components. Property that is leased
under a capitalized lease is considered a "qualified capital
investment," but property that is leased under an operating lease
is not considered a "qualified capital investment." Property
expensed under Section 179, Internal Revenue Code, is not
considered a "qualified capital investment."
Sec. 171.822. ELIGIBILITY. (a) A qualified business is
eligible for a credit against the tax imposed under this chapter in
the amount and under the conditions and limitations provided by
this subchapter.
(b) To qualify for the credit authorized under this
subchapter, a qualified business must:
(1) pay an annual wage of at least the amount required
for a qualifying job as defined by Section 171.771 for the period on
which the report is based;
(2) offer health benefits coverage to all full-time
employees at the location with respect to which the credit is
claimed through a group health benefit plan, as defined by Section
171.771, for which the business pays at least 80 percent of the
premiums or other charges assessed under the plan for the
employees; and
(3) make a minimum $500,000 qualified capital
investment.
Sec. 171.823. AMOUNT OF CREDIT. A taxable entity may
establish a credit equal to 7.5 percent of the qualified capital
investment during the period on which the report is based.
Sec. 171.824. LENGTH OF CREDIT. The credit established
shall be claimed in five equal installments of one-fifth the credit
amount over the five consecutive reports beginning with the report
based on the period during which the qualified capital investment
was made.
Sec. 171.825. LIMITATIONS. (a) The total credit claimed
under this subchapter for a report, including the amount of any
carryforward credit under Section 171.826, may not exceed 50
percent of the amount of franchise tax due for the report before any
other applicable tax credits.
(b) The total credit claimed under this subchapter and
Subchapter P-1 for a report, including the amount of any
carryforward credits, may not exceed the amount of franchise tax
due for the report after any other applicable tax credits.
Sec. 171.826. CARRYFORWARD. (a) If a taxable entity is
eligible for a credit from an installment that exceeds the
limitation under Section 171.825, the taxable entity may carry the
unused credit forward for not more than five consecutive reports.
(b) A carryforward is considered the remaining portion of an
installment that cannot be claimed in the current year because of a
limitation under Section 171.825. A carryforward is added to the
next year's installment of the credit in determining the limitation
for that year. A credit carryforward from a previous report is
considered to be used before the current year installment.
Sec. 171.827. CERTIFICATION OF ELIGIBILITY. (a) For the
initial and each succeeding report on which a credit is claimed
under this subchapter, the taxable entity shall file with its
report, on a form provided by the comptroller, information that
sufficiently demonstrates that the taxable entity is eligible for
the credit.
(b) The burden of establishing entitlement to and the value
of the credit is on the taxable entity.
(c) A credit expires under this subchapter and the taxable
entity may not take any remaining installment of the credit if in
one of the five years in which the installment of a credit accrues,
the taxable entity:
(1) disposes of the qualified capital investment;
(2) takes the qualified capital investment out of
service;
(3) moves the qualified capital investment out of this
state; or
(4) fails to pay the annual wage required for a
qualifying job under Section 171.771 for the period covered by the
report on which the taxable entity would otherwise claim the
credit.
(d) Notwithstanding Subsection (c), the taxable entity may
take the portion of an installment that accrued in a previous year
and was carried forward to the extent permitted under Section
171.826.
Sec. 171.828. ASSIGNMENT PROHIBITED. A taxable entity may
not convey, assign, or transfer the credit allowed under this
subchapter to another entity unless all of the assets of the taxable
entity are conveyed, assigned, or transferred in the same
transaction.
Sec. 171.829. BIENNIAL REPORT BY COMPTROLLER. (a) Before
the beginning of each regular session of the legislature, the
comptroller shall submit to the governor, the lieutenant governor,
and the speaker of the house of representatives a report that
states:
(1) the total amount of qualified capital investments
made by taxable entities that claim a credit under this subchapter
and the average and median wages paid by those taxable entities;
(2) the total amount of credits applied against the
tax under this chapter and the amount of unused credits, including:
(A) the total amount of franchise tax due by
taxable entities claiming a credit under this subchapter before and
after the application of the credit;
(B) the average percentage reduction in
franchise tax due by taxable entities claiming a credit under this
subchapter;
(C) the percentage of tax credits that were
awarded to taxable entities with fewer than 100 employees; and
(D) the two-digit standard industrial
classification of taxable entities claiming a credit under this
subchapter;
(3) the geographical distribution of the qualified
capital investments on which tax credit claims are made under this
subchapter; and
(4) the effect of the credit provided under this
subchapter on employment, personal income, and capital investment
in this state and on state tax revenues.
(b) The final report issued before the expiration of this
subchapter must include historical information on the credit
authorized under this subchapter.
(c) The comptroller may not include in the report
information that is confidential by law.
(d) For purposes of this section, the comptroller may
require a taxable entity that claims a credit under this subchapter
to submit information, on a form provided by the comptroller, on the
location of the taxable entity's capital investment in this state
and any other information necessary to complete the report required
under this section.
(e) The comptroller shall provide notice to the members of
the legislature that the report required under this section is
available on request.
Sec. 171.830. COMPTROLLER POWERS AND DUTIES. The
comptroller shall adopt rules and forms necessary to implement this
subchapter.
Sec. 171.831. EXPIRATION. (a) This subchapter expires
December 31, 2025.
(b) The expiration of this subchapter does not affect the
carryforward of a credit under Section 171.826 or those credits for
which a taxable entity is eligible before the date this subchapter
expires.
SECTION 19. Chapter 171, Tax Code, is amended by adding
Subchapter S to read as follows:
SUBCHAPTER S. TAX CREDIT FOR CERTIFIED REHABILITATION OF CERTIFIED
HISTORIC STRUCTURES
Sec. 171.901. DEFINITIONS. In this subchapter:
(1) "Certified historic structure" means a property in
this state that is:
(A) listed individually in the National Register
of Historic Places;
(B) designated as a Recorded Texas Historic
Landmark under Section 442.006, Government Code, or as a state
archeological landmark under Chapter 191, Natural Resources Code;
or
(C) certified by the commission as contributing
to the historic significance of:
(i) a historic district listed in the
National Register of Historic Places; or
(ii) a local district certified by the
United States Department of the Interior in accordance with 36
C.F.R. Section 67.9.
(2) "Certified rehabilitation" means the
rehabilitation of a certified historic structure that the
commission has certified as meeting the United States secretary of
the interior's Standards for Rehabilitation as defined in 36 C.F.R.
Section 67.7.
(3) "Commission" means the Texas Historical
Commission.
(4) "Eligible costs and expenses" means qualified
rehabilitation expenditures as defined by Section 47(c)(2),
Internal Revenue Code.
Sec. 171.902. ELIGIBILITY FOR CREDIT. An entity is
eligible to apply for a credit in the amount and under the
conditions and limitations provided by this subchapter against the
tax imposed under this chapter.
Sec. 171.903. QUALIFICATION. An entity is eligible for a
credit for eligible costs and expenses incurred in the certified
rehabilitation of a certified historic structure as provided by
this subchapter if:
(1) the rehabilitated certified historic structure is
placed in service on or after September 1, 2013;
(2) the entity has an ownership interest in the
certified historic structure in the year during which the structure
is placed in service after the rehabilitation; and
(3) the total amount of the eligible costs and
expenses incurred exceeds $5,000.
Sec. 171.904. CERTIFICATION OF ELIGIBILITY. (a) Before
claiming, selling, or assigning a credit under this subchapter, the
entity that incurred the eligible costs and expenses in the
rehabilitation of a certified historic structure must request from
the commission a certificate of eligibility on which the commission
certifies that the work performed meets the definition of a
certified rehabilitation. The entity must include with the
entity's request:
(1) information on the property that is sufficient for
the commission to determine whether the property meets the
definition of a certified historic structure; and
(2) information on the rehabilitation, and
photographs before and after work is performed, sufficient for the
commission to determine whether the rehabilitation meets the United
States secretary of the interior's Standards for Rehabilitation as
defined in 36 C.F.R. Section 67.7.
(b) The commission shall issue a certificate of eligibility
to an entity that has incurred eligible costs and expenses as
provided by this subchapter. The certificate must:
(1) confirm that:
(A) the property to which the eligible costs and
expenses relate is a certified historic structure; and
(B) the rehabilitation qualifies as a certified
rehabilitation; and
(2) specify the date the certified historic structure
was first placed in service after the rehabilitation.
(c) The entity must forward the certificate of eligibility
and the following documentation to the comptroller to claim the tax
credit:
(1) an audited cost report issued by a certified
public accountant, as defined by Section 901.002, Occupations Code,
that itemizes the eligible costs and expenses incurred in the
certified rehabilitation of the certified historic structure by the
entity;
(2) the date the certified historic structure was
first placed in service after the rehabilitation and evidence of
that placement in service; and
(3) an attestation of the total eligible costs and
expenses incurred by the entity on the rehabilitation of the
certified historic structure.
(d) For purposes of approving the tax credit under
Subsection (c), the comptroller may rely on the audited cost report
provided by the entity that requested the tax credit.
(e) An entity that sells or assigns a credit under this
subchapter to another entity shall provide a copy of the
certificate of eligibility, together with the audited cost report,
to the purchaser or assignee.
Sec. 171.905. AMOUNT OF CREDIT; LIMITATIONS. (a) The total
amount of the credit under this subchapter with respect to the
rehabilitation of a single certified historic structure that may be
claimed may not exceed 25 percent of the total eligible costs and
expenses incurred in the certified rehabilitation of the certified
historic structure.
(b) The total credit claimed for a report, including the
amount of any carryforward under Section 171.906, may not exceed
the amount of franchise tax due for the report after any other
applicable tax credits.
(c) Eligible costs and expenses may only be counted once in
determining the amount of the tax credit available, and more than
one entity may not claim a credit for the same eligible costs and
expenses.
Sec. 171.906. CARRYFORWARD. (a) If an entity is eligible
for a credit that exceeds the limitation under Section 171.905(b),
the entity may carry the unused credit forward for not more than
five consecutive reports.
(b) A carryforward is considered the remaining portion of a
credit that cannot be claimed in the current year because of the
limitation under Section 171.905(b).
Sec. 171.907. APPLICATION FOR CREDIT. (a) An entity must
apply for a credit under this subchapter on or with the report for
the period for which the credit is claimed.
(b) An entity shall file with any report on which the credit
is claimed a copy of the certificate of eligibility issued by the
commission under Section 171.904 and any other information required
by the comptroller to sufficiently demonstrate that the entity is
eligible for the credit.
(c) The burden of establishing eligibility for and the value
of the credit is on the entity.
Sec. 171.908. SALE OR ASSIGNMENT OF CREDIT. (a) An entity
that incurs eligible costs and expenses may sell or assign all or
part of the credit that may be claimed for those costs and expenses
to one or more entities, and any entity to which all or part of the
credit is sold or assigned may sell or assign all or part of the
credit to another entity. 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 this subchapter, however, collectively all
transfers are subject to the maximum total limits provided by
Section 171.905.
(b) An entity that sells or assigns a credit under this
section and the entity to which the credit is sold or assigned shall
jointly submit written notice of the sale or assignment to the
comptroller on a form promulgated by the comptroller not later than
the 30th day after the date of the sale or assignment. The notice
must include:
(1) the date of the sale or assignment;
(2) the amount of the credit sold or assigned;
(3) the names and federal tax identification numbers
of the entity that sold or assigned the credit or part of the credit
and the entity to which the credit or part of the credit was sold or
assigned; and
(4) the amount of the credit owned by the selling or
assigning entity before the sale or assignment, and the amount the
selling or assigning entity retained, if any, after the sale or
assignment.
(c) The sale or assignment of a credit in accordance with
this section 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. After an entity claims a credit for eligible
costs and expenses, another entity may not use the same costs and
expenses as the basis for claiming a credit.
(d) Notwithstanding the requirements of this subchapter, a
credit earned or purchased by, or assigned to, a partnership,
limited liability company, S corporation, or other pass-through
entity may be allocated to the partners, members, or shareholders
of that entity and claimed under this subchapter in accordance with
the provisions of any agreement among the partners, members, or
shareholders and without regard to the ownership interest of the
partners, members, or shareholders in the rehabilitated certified
historic structure, provided that the entity that claims the credit
must be subject to the tax imposed under this chapter.
Sec. 171.909. RULES. The commission and the comptroller
shall adopt rules necessary to implement this subchapter.
SECTION 20. (a) Chapter 325, Government Code, is amended by
adding Section 325.025 to read as follows:
Sec. 325.025. EVALUATION OF EXEMPTIONS FROM FRANCHISE TAX.
(a) The commission shall periodically evaluate each exemption
provided by Chapter 171, Tax Code, from the tax imposed under that
chapter to consider whether retaining the exemption is in the
public's best interest.
(b) At each regular legislative session, the commission
shall present to the governor and the legislature a report on the
evaluation and recommendations it makes under Subsection (a).
(c) The commission shall conduct the evaluation required by
Subsection (a) according to a schedule that the commission adopts.
The schedule must provide for the commission to evaluate each tax
exemption at an interval not to exceed six years. The commission
shall provide the schedule to the governor and the legislature.
(d) The evaluation described by this section does not apply
to a tax exemption that is:
(1) explicitly provided by the constitution of this
state; or
(2) related to an item or service that this state is
unable to tax under the United States Constitution or federal law.
(b) The Sunset Advisory Commission shall adopt a schedule
for evaluating exemptions from the tax imposed under Chapter 171,
Tax Code, as provided by Section 325.025, Government Code, as added
by this section, on or before January 1, 2014.
SECTION 21. Sections 171.0021, 171.1016(d), and 171.103(c)
and (d), Tax Code, are repealed.
SECTION 22. (a) Section 18, Chapter 1 (H.B. 3), Acts of the
79th Legislature, 3rd Called Session, 2006, is amended by adding
Subsections (h) and (i) to read as follows:
(h) In this subsection and Subsection (i) of this section,
"transfer" includes a sale. Notwithstanding Subsections (e) and
(f) of this section, a corporation that has unused, unexpired
credits carried forward under former Subchapter P or Q, Chapter
171, Tax Code, may transfer the credits to another taxpayer of this
state. To be eligible to transfer the credits, the corporation must
obtain a certificate of transfer of credit from the comptroller of
public accounts for the amount of the credits to be transferred.
Not later than the 30th day after the date of the transfer, the
corporation must submit to the comptroller a notice of the transfer
in a form prescribed by the comptroller. The notice must be
accompanied by a copy of the certificate of transfer issued by the
comptroller and specify:
(1) the number on the certificate of transfer;
(2) the amount of the corporation's unused, unexpired
credits preceding the transfer;
(3) the date of the transfer;
(4) the amount of credits transferred;
(5) the tax identification numbers of the corporation
and the taxpayer to which the credits were transferred;
(6) the corporation's remaining amount of unused,
unexpired credits after the transfer; and
(7) any other information the comptroller requires.
(i) The transfer of a credit under Subsection (h) of this
section is limited to a credit that was first reported on a report
originally due before January 1, 2008, and does not include credits
authorized under former Subchapter Q-1, Chapter 171, Tax Code, or
credits that were created under the terms of a written agreement
between a taxpayer and the Texas Department of Economic Development
or its successor that was entered into before June 1, 2006, and
which credits continue to accrue under the terms provided by
Section 19 of this Act. The transferee of a credit under this
section obtains the credit subject to the same rights and
privileges as the transferor. The transfer of a credit under
Subsection (h) of this section does not extend or lessen the period
during which the credit may be claimed. If a corporation transfers a
credit that the corporation was not entitled to claim at the time of
the transfer:
(1) the taxpayer to which the credit was transferred
may pursue any remedy authorized by law against the corporation and
may not pursue any remedy against the comptroller of public
accounts or this state; and
(2) the comptroller:
(A) may not allow the taxpayer to which the
credit was transferred to apply the credit on a report; or
(B) shall recover from the taxpayer the amount of
the credit the taxpayer claims on a report using any means
authorized by law.
(b) This section applies only to a credit transferred on or
after the effective date of this section.
(c) This section takes effect September 1, 2013.
SECTION 23. 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 24. 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 25. 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 26. This Act applies only to a report originally due
on or after the effective date of this Act.
SECTION 27. Section 171.1011(y), Tax Code, as added by this
Act, takes effect January 1, 2016.
SECTION 28. Section 14 of this Act takes effect January 1,
2015.
SECTION 29. Section 171.1011(n), Tax Code, is amended to
read as follows:
(n) A [Except as provided by Subsection (o), a] taxable
entity that is a health care provider shall exclude from its total
revenue:
(1) to the extent included under Subsection (c)(1)(A),
(c)(2)(A), or (c)(3), the total amount of payments the health care
provider received:
(A) under the Medicaid program, Medicare
program, Indigent Health Care and Treatment Act (Chapter 61, Health
and Safety Code), and Children's Health Insurance Program (CHIP);
(B) for professional services provided in
relation to a workers' compensation claim under Title 5, Labor
Code; and
(C) for professional services provided to a
beneficiary rendered under the TRICARE military health system; and
(2) the actual cost to the health care provider for any
uncompensated care provided, but only if the provider maintains
records of the uncompensated care for auditing purposes and, if the
provider later receives payment for all or part of that care, the
provider adjusts the amount excluded for the tax year in which the
payment is received.
SECTION 30. Section 171.1011(o), Tax Code, is repealed.
SECTION 31. This Act applies only to a report originally due
on or after the effective date of this Act.
SECTION 32. This Act takes effect January 1, 2015.
SECTION 33. Except as otherwise provided by this Act, this
Act takes effect January 1, 2014.