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