85R32 ADM-D
By: Sanford H.B. No. 2545
A BILL TO BE ENTITLED
AN ACT
relating to the determination of cost of goods sold for purposes of
computing 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
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 171.10121; 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 would be authorized by Section 171.1012
or 171.10121 to subtract those costs as costs of goods sold in
computing its taxable margin, notwithstanding Section
171.1012(e)(3).
SECTION 3. Subchapter C, Chapter 171, Tax Code, is amended
by adding Section 171.10121 to read as follows:
Sec. 171.10121. ALTERNATIVE DETERMINATION OF COST OF GOODS
SOLD. In lieu of determining cost of goods sold as provided by
Section 171.1012 and subject to Section 171.1014, a taxable entity
that elects to subtract cost of goods sold for the purpose of
computing its taxable margin may determine the amount of that 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.
SECTION 4. Section 171.1014, Tax Code, is amended by
amending Subsection (e) and adding Subsection (e-1) to read as
follows:
(e) For purposes of Section 171.101, a combined group 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 or 171.10121 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).
(e-1) For purposes of Subsection (e), each member of a
combined group may elect to determine its cost of goods sold under
either Section 171.1012 or 171.10121.
SECTION 5. This Act applies only to a report originally due
on or after the effective date of this Act.
SECTION 6. This Act takes effect January 1, 2018.