85R687 BEF-D     By: Creighton S.B. No. 130       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 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), and [that applies to all of its   members, or] $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, 2018.