By: Creighton S.B. No. 330
A BILL TO BE ENTITLED
AN ACT
relating to the computation of the franchise tax.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. 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
computed by determining the taxable entity's total revenue from its
entire business, as determined under Section 171.1011, and
subtracting an amount equal to the sum of:
(A) $1 million;
(B) cost of goods sold, as determined under
Section 171.1012; and
(C) compensation, as determined under Section
171.1013 [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 determining the
taxable entity's total revenue from its entire business under
Section 171.1011 and subtracting the greater of:
[(i) $1 million; or
[(ii) an amount equal to the sum of:
[(a) at the election of the taxable
entity, either:
[(1) cost of goods sold, as
determined under Section 171.1012; or
[(2) compensation, as determined
under Section 171.1013; and
[(b) any 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 2. Section 171.1011(v), Tax Code, is amended to
read as follows:
(v) A taxable entity primarily engaged in the business of
transporting goods 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 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 is [would be] authorized by Section
171.1012 to subtract those costs as costs of goods sold in computing
its taxable margin, notwithstanding Section 171.1012(e)(3).
SECTION 3. Sections 171.1012(b), (k), (o), and (t), Tax
Code, are amended to read as follows:
(b) Subject to Section 171.1014, a taxable entity shall
determine the amount of [that elects to subtract] cost of goods sold
as provided by this section for the purpose of computing its taxable
margin [shall determine the amount of that cost of goods sold as
provided by this section].
(k) Notwithstanding any other provision of this section, a
[if the] taxable entity that is a lending institution and that
offers loans to the public [and elects to subtract cost of goods
sold, the entity], other than an entity primarily engaged in an
activity described by category 5932 of the 1987 Standard Industrial
Classification Manual published by the federal Office of Management
and Budget, may subtract as a cost of goods sold an amount equal to
interest expense. For purposes of this subsection, an entity
engaged in lending to unrelated parties solely for agricultural
production offers loans to the public.
(o) The cost of goods sold for [If] a taxable entity,
including a taxable entity with respect to which cost of goods sold
is determined pursuant to Section 171.1014(e)(1), whose principal
business activity is film or television production or broadcasting
or the distribution of tangible personal property described by
Subsection (a)(3)(A)(ii), or any combination of these activities,
[elects to subtract cost of goods sold, the cost of goods sold for
the taxable entity] shall be the costs described in this section in
relation to the property and include depreciation, amortization,
and other expenses directly related to the acquisition, production,
or use of the property, including expenses for the right to
broadcast or use the property.
(t) The cost of goods sold for [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.
SECTION 4. Sections 171.1013(b), (b-1), (c-1), and (h), Tax
Code, are amended to read as follows:
(b) Subject to Section 171.1014, [a taxable entity that
elects to subtract compensation] for the purpose of computing its
taxable margin under Section 171.101 a taxable entity shall [may]
subtract an amount of compensation equal to:
(1) subject to the limitation in Subsection (c), all
wages and cash compensation paid by the taxable entity to its
officers, directors, owners, partners, and employees; and
(2) the cost of all benefits, to the extent deductible
for federal income tax purposes, the taxable entity provides to its
officers, directors, owners, partners, and employees, including
workers' compensation benefits, health care, employer
contributions made to employees' health savings accounts, and
retirement.
(b-1) This subsection applies to a taxable entity that is a
small employer, as that term is defined by Section 1501.002,
Insurance Code, and that has not provided health care benefits to
any of its employees in the calendar year preceding the beginning
date of its reporting period. Subject to Section 171.1014, [a
taxable entity to which this subsection applies that elects to
subtract compensation] for the purpose of computing its taxable
margin under Section 171.101 a taxable entity to which this
subsection applies may subtract health care benefits as provided
under Subsection (b) and may also subtract:
(1) for the first 12-month period on which margin is
based and in which the taxable entity provides health care benefits
to all of its employees, an additional amount equal to 50 percent of
the cost of health care benefits provided to its employees for that
period; and
(2) for the second 12-month period on which margin is
based and in which the taxable entity provides health care benefits
to all of its employees, an additional amount equal to 25 percent of
the cost of health care benefits provided to its employees for that
period.
(c-1) Subject to Section 171.1014, [a taxable entity that
elects to subtract compensation] for the purpose of computing its
taxable margin under Section 171.101 a taxable entity may not
subtract as compensation any wages or cash compensation paid to an
undocumented worker. As used in this section "undocumented
worker" means a person who is not lawfully entitled to be present
and employed in the United States.
(h) Subject to Section 171.1014, [a taxable entity that
elects to subtract compensation] for the purpose of computing its
taxable margin under Section 171.101 a taxable entity may not
include as wages or cash compensation amounts paid to an employee
whose primary employment is directly associated with the operation
of a facility that is:
(1) located on property owned or leased by the federal
government; and
(2) managed or operated primarily to house members of
the armed forces of the United States.
SECTION 5. Sections 171.1014(d), (e), and (f), Tax Code,
are amended to read as follows:
(d) For purposes of Section 171.101, a combined group shall
[make an election to] subtract the sum of [either] cost of goods
sold, as determined under Subsection (e),[or] compensation, as
determined under Subsection (f) [that applies to all of its
members, or] and $1 million [. Regardless of the election, the
taxable margin of the combined group may not exceed the amount
provided by Section 171.101(a)(1)(A) for the combined group].
(e) For purposes of Section 171.101, a combined group shall
determine cost [that elects to subtract costs] of goods sold [shall
determine that amount] by:
(1) determining the cost of goods sold for each of its
members as provided by Section 171.1012 as if the member were an
individual taxable entity;
(2) adding the amounts of cost of goods sold
determined under Subdivision (1) together; and
(3) subtracting from the amount determined under
Subdivision (2) any cost of goods sold amounts paid from one member
of the combined group to another member of the combined group, but
only to the extent the corresponding item of total revenue was
subtracted under Subsection (c)(3).
(f) For purposes of Section 171.101, a combined group shall
determine the amount of compensation [that elects] to subtract
[compensation shall determine that amount] by:
(1) determining the compensation for each of its
members as provided by Section 171.1013 as if each member were an
individual taxable entity, subject to the limitation prescribed by
Section 171.1013(c);
(2) adding the amounts of compensation determined
under Subdivision (1) together; and
(3) subtracting from the amount determined under
Subdivision (2) any compensation amounts paid from one member of
the combined group to another member of the combined group, but only
to the extent the corresponding item of total revenue was
subtracted under Subsection (c)(3).
SECTION 6. Sections 171.101(b) and (d), Tax Code, are
repealed.
SECTION 7. This Act applies only to a report originally due
on or after the effective date of this Act.
SECTION 8. This Act takes effect January 1, 2016.