| 1 | 1 | | 87R11612 BEF-D |
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| 2 | 2 | | By: Morrison H.B. No. 2704 |
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| 3 | 3 | | |
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| 4 | 4 | | |
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| 5 | 5 | | A BILL TO BE ENTITLED |
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| 6 | 6 | | AN ACT |
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| 7 | 7 | | relating to the treatment of certain limited liability companies as |
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| 8 | 8 | | passive entities for purposes of the franchise tax. |
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| 9 | 9 | | BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: |
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| 10 | 10 | | SECTION 1. Section 171.0003(a), Tax Code, is amended to |
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| 11 | 11 | | read as follows: |
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| 12 | 12 | | (a) An entity is a passive entity only if: |
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| 13 | 13 | | (1) the entity is a general or limited partnership, a |
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| 14 | 14 | | limited liability company, or a trust, other than a business trust; |
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| 15 | 15 | | (2) during the period on which margin is based, the |
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| 16 | 16 | | entity's federal gross income consists of at least 90 percent of the |
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| 17 | 17 | | following income: |
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| 18 | 18 | | (A) dividends, interest, foreign currency |
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| 19 | 19 | | exchange gain, periodic and nonperiodic payments with respect to |
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| 20 | 20 | | notional principal contracts, option premiums, cash settlement or |
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| 21 | 21 | | termination payments with respect to a financial instrument, and |
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| 22 | 22 | | income from a limited liability company; |
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| 23 | 23 | | (B) distributive shares of partnership income to |
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| 24 | 24 | | the extent that those distributive shares of income are greater |
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| 25 | 25 | | than zero; |
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| 26 | 26 | | (C) capital gains from the sale of real property, |
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| 27 | 27 | | gains from the sale of commodities traded on a commodities |
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| 28 | 28 | | exchange, and gains from the sale of securities; and |
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| 29 | 29 | | (D) royalties, bonuses, or delay rental income |
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| 30 | 30 | | from mineral properties and income from other nonoperating mineral |
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| 31 | 31 | | interests; and |
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| 32 | 32 | | (3) the entity does not receive more than 10 percent of |
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| 33 | 33 | | its federal gross income from conducting an active trade or |
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| 34 | 34 | | business. |
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| 35 | 35 | | SECTION 2. This Act applies only to a report originally due |
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| 36 | 36 | | on or after the effective date of this Act. |
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| 37 | 37 | | SECTION 3. This Act takes effect January 1, 2022. |
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