Texas ~ Multiple Taxes: Omnibus Tax and Budget Bill Passed by House

The Texas House of Representatives has passed, with amendments, S.B. 1, the fiscal matters and omnibus tax bill, which contains various franchise, sales and use, and other tax changes as summarized below. The franchise and sales and use tax provisions were discussed in previous stories. (TAXDAY, 2011/06/09, S.26; TAXDAY, 2011/06/08, S.26) The Senate did not concur in the House amendments to S.B. 1, and the bill has been sent to a conference committee to resolve the differences in the two versions of the bill.

Franchise Tax Proposals

The bill would extend the small business exemption from the franchise tax increase for businesses with total revenues less than or equal to $300,000 to less than or equal to $1 million until December 31, 2013. The exemption is currently scheduled to decrease to $600,000 for 2012.

The proposed bill would also delay the removal of the franchise tax discounts for taxable entities that have no tax liability due to the franchise revised revenue threshold for incurring a tax liability and increase from $500,000 to $600,000 the minimum amount of a taxable entity’s total revenue for a taxable entity entitled to a 40% discount until January 1, 2014. These changes were scheduled to occur January 1, 2012.

The bill also proposes to change the latest date that a corporation could carry forward unused franchise tax credits under the former tax for job creation activities or capital investments from the earlier of the date the credit would have expired under former state law had it continued in existence or December 31, 2012, to the earlier of the date the credit would have expired under former state law had it continued in existence or December 31, 2016.

The bill also proposes to amend the definition of “retail trade” for franchise tax purposes with the addition of the term “apparel rental activities” effective January 1, 2012.

Sales Tax Proposals

Under the bill, the following retailers would be considered to be engaged in business in Texas for use tax collection purposes: (1) a retailer that holds a substantial ownership interest in, or is owned in whole or in substantial part by, a person who maintains a business location in Texas, provided that certain conditions are met and (2) a retailer that holds a substantial ownership interest in, or is owned in whole or in substantial part by, a person who maintains a distribution center, warehouse, or similar location in Texas and who delivers property sold by the retailer to consumers. In addition, the bill would expand the definition of a “seller” or “retailer” to include a person who has been entrusted with the possession of property and has the power to sell, lease, or rent the property without further action by the owner.

The bill would also change the annual sales tax holiday period for back-to-school purchases (qualified clothing, footwear, backpacks, and school supplies). Currently, the tax holiday period begins at 12:01 a.m. on the third Friday in August. The bill would change this to “the Friday before the eighth day preceding the earliest date on which any school district, other than a district operating a year-round system, may begin instruction for the school year as prescribed by Section 25.0811(a), Education Code.” The holiday period would end at 12 midnight on the following Sunday.

Additional Tax Proposals

The bill also contains provisions relating to property tax, fuel taxes, cigarette taxes, and unclaimed property.

S.B. 1, as amended and passed by the House of Representatives in Special Session on June 10, 2011

AUTHOR

Wolters Kluwer Tax and Accounting

Wolters Kluwer Tax and Accounting is a leading provider of software solutions and local expertise that helps tax, accounting, and audit professionals research and navigate complex regulations, comply with legislation, manage their businesses and advise clients with speed, accuracy and efficiency. Wolters Kluwer Tax and Accounting is part of Wolters Kluwer N.V. (AEX: WKL), a global leader in information services and solutions for professionals in the health, tax and accounting, risk and compliance, finance and legal sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialized technology and services. Wolters Kluwer reported 2016 annual revenues of €4.3 billion. The company, headquartered in Alphen aan den Rijn, the Netherlands, serves customers in over 180 countries, maintains operations in over 40 countries and employs 19,000 people worldwide. Wolters Kluwer shares are listed on Euronext Amsterdam (WKL) and are included in the AEX and Euronext 100 indices. Wolters Kluwer has a sponsored Level 1 American Depositary Receipt program. The ADRs are traded on the over-the-counter market in the U.S. (WTKWY).

All stories by: Wolters Kluwer Tax and Accounting