TSCPA Governmental Affairs

Tax benefits for destination management companies

Senate Bill 636 by Senator Kel Seliger (R-Amarillo) passed the state legislature on the last day of the legislative session. The bill as originally authored requires the State Comptroller to provide certain information about taxpayers to other government entities upon request. While the bill was on the House floor, Rep. Patrick Rose (D-Dripping Springs) added an amendment which provides sales and franchise tax relief to destination management companies (DMC).

Based on information from Rose’s staff, there are only 18 such companies in Texas with most of them being small businesses. These companies solicit primarily out-of-state businesses to come to Texas for meetings and conventions, and the DMC then makes all the arrangements for the hotels, meals and activities. The client company pays the DMC and it in turn pays the companies providing the accommodations and other services.

The Rose amendment provides an exemption for sales and franchise tax revenues for payments the DMC makes on behalf of the client. Rep. Will Hartnett (R-Dallas) and Sen. Leticia Van de Putte (D-San Antonio) authored bills to provide DMC relief but Hartnett’s bill died on the House floor at the end of the session and Van de Putte’s bill never made it out of the Senate Finance Committee. The Rose amendment was basically the same as the other two bills except for some language changes to satisfy the State Comptroller that a loophole was not being created for companies other than DMCs.

This is a good example of the margin tax controversy over taxation of flow-through revenues. The margin tax law specifically excludes some types of flow-through revenue from taxable revenue, but unless one of the specific exemptions applies, other flow-through revenues are subject to taxation. During the legislative session there were a number of bills authored to provide flow-through revenue exemptions for various businesses and revenues. SB 636 was the only such bill that passed the 81st Legislature.

There were approximately 100 bills offered during the session to amend the margin tax, and they all failed except for SB 636 and House Bill 4765 by Rep. Rene Oliveira (D-Brownsville), Chairman of the House Ways and Means committee. HB 4765 raised the franchise tax revenue exemption from $300,000 to $1 million for returns filed in 2010 and 2011 and set the exemption at $600,000 for later years.

Semi-independence expands to include Texas Finance Commission

Several years ago TSCPA supported legislation that made the Texas State Board of Public Accountancy (TSBPA) a semi-independent, self-directed (SDSI) state agency along with the architectural and engineering boards.  The three agencies were part of a pilot project which is scheduled to sunset in 2013 if not renewed by the legislature.  SDSI agencies do not have to submit their budgets to the legislature for approval each biennium.  Their budget funds do not come from taxes, but from the license and exam fees paid by the licensees.  For this privilege the TSBPA must pay over $700,000 annually into the state’s general revenue fund.  That’s because before SDSI the legislature appropriated a budget less than proposed license fees; a common practice for licensing agencies resulting in a hidden state tax.

 

The main reason TSBPA wanted this budget freedom was to have sufficient funds for effective enforcement actions against wayward CPAs.  Major cases, such as those caused by Enron, require substantial resources to prosecute.  With SDSI TSBPA has the ability to raise or lower license fees as necessary to generate funds quicker than is possible through the legislative appropriations process.  Since SDSI TSBPA has raised fees to generate funds and then lowered them on more than one occasion when the funds were not needed.

 

The pilot program must be doing well because during the recent legislative session the state’s Finance Commission was awarded SDSI status.  Evidently the current financial crises demonstrated that the state’s financial regulators needed more flexibility in order to deal effectively with regulated financial institutions.  And they don’t even have to make a contribution to the general revenue fund.  Read this Fort Worth Star-Telegram article for more information about SDSI and how it applies to the Finance Commission.

New property tax appraisal appeal process

CPA Rep. John Otto (R-Dayton) authored a bill that passed the 81st Legislature providing for pilot program testing of a new way to appeal property tax appraisals on commercial property valued at $1 million or more. HB 2612 allows appeals to be made to the State Office of Administrative Hearings before an administrative law judge. The program only applies to property located in Bexar, Cameron, El Paso, Harris Tarrant and Travis counties.

According to an article in the Fort Worth Business Press, property tax appraisals are not falling as fast as market values so the pilot program may be welcome by some taxpayers.

Governor Perry signs scholarship transfer bill

Last Saturday, May 23, Governor Perry signed HB 2440 into law. The bill transfers the administration of accounting scholarship funds for fifth-year accounting students from the Higher Education Coordinating Board (HECB) to the State Board of Public Accountancy (TSBPA). It was authored by Rep. Brian McCall (R-Plano) and sponsored in the Senate by Sen. Tommy Williams, CPA (R-The Woodlands). The bill is effective September 1, 2009.

CPAs pay a $10 fee with their annual license renewal, put towards scholarships for fifth-year accounting students planning to sit for the CPA examination. While the HECB has done a good job of fund administration, because of restrictions applicable to the Board’s budget during the biennial appropriations process arbitrary limits have been placed on the total funds available for scholarships each year despite the availability of funds. It is hoped that the transfer for the administration of the funds will alleviate this problem and more funds will be available for future scholarships.

The bill to make the transfer was a cooperative effort between HECB, TSBPA and the Texas Society of CPAs.

Scholarship bill clears Senate Higher Education Committee

Monday afternoon - immediately after the Senate adjourned for the day - Senator Zaffirini called a meeting of the Higher Education Committee to consider HB 2440, which is the bill that transfers the administration of fifth-year accounting scholarship funds from the Higher Education Coordinating Board to the State Board of Accountancy. The committee voted to send the bill to the Senate Local and Consent Calendar, which means the bill should pass without opposition.

This is the last step in the bill process and clearing the Senate will send the bill to Governor Perry for signature.

New TSBPA Chair announced

Governor Rick Perry has appointed the new chair of the Texas State Board of Public Accountancy, as well as 3 new members to the Board itself.

Read about them here.

House approves margin tax cut for small business

The House unanimously passed HB 4765 by Rep. Rene Oliveira (D-Brownsville). The bill raises the total revenue exemption from $300,000 to $1 million for two years, reverting to $300,000 if no action is taken during the 2011 legislative session. A number of legislators had filed similar bills but Oliveira, Chairman of the Ways and Means committee, filed HB 4765 to include the two year limitation. All the other bills would have made the change permanent.

Oliveira’s bill will remove thousands of businesses from the franchise tax rolls. Floor debate indicated that there will be fewer franchise tax-paying entities now than were paying the loophole-riddled prior franchise tax.

Rep. Jim Keffer (R-Eastland), Ways and Means chair during last session, offered an amendment to raise the revenue exemption from $300,000 to $600,000 and reduce the tax on taxpayers eligible for the E-Z computation (entities with $10 million or less in revenue).Keffer pointed out that this would actually help more taxpayers while not giving so many a complete pass on paying the tax. The amendment was withdrawn due to procedural issues.

Read the Austin American-Statesman coverage here.

Progress on margin tax clean-up

Two TSCPA-initiated House bills relating to technical corrections within the margin tax have progressed through committee. Both bills are sponsored by Rep. Charlie Howard (R-Sugar Land).

HB 4265clarifies the definition of controlling interest for partnerships, associations, trusts and other entities. It has been voted favorably from House Ways & Means.

HB 4270, which allows a deduction for related-party transactions at the fair market value of the transaction, was voted from the committee and recommended for the Local and Consent Calendar, indicating broad support.

Remaining in House Ways & Means are these TSCPA-supported margin tax bills:

HB 4264 - requires the COGS deduction to be taken from the federal tax return and eliminates all the specific COGS language.

HB 4266 - allows entities using the tiered partnership section to transfer both revenue and deductions to the upper-tier entity.

HB 4267 - clarifies when someone who does not have legal title to goods will be considered the owner of goods for COGS purposes.

HB 4268 - allows taxpayers that elect to deduct COGS to elect to use the amount reported on their federal tax return in lien of the other specific provisions for COGS deduction.

HB 4269 - clarifies that passive income includes capital gains, not net capital gains and eliminates the 10% business income test for a passive entity.

Unclaimed property bill set for hearing

HB 4115by Rep. Jim Pitts (R-Waxahachie) is a State Comptroller-requested bill requiring entities that report unclaimed property to the state to include driver’s license number or state identification number and email address of the unclaimed property owner or possible owner, if known. The bill also requires the entity to provide specific notice to the possible owner that the entity must report the property to the State Comptroller.

A significant new penalty of 5% of the unclaimed property value is assessed against a reporting entity who fails to knowingly supply the owner’s Social Security number.

The bill is scheduled for the hearing today before the House Business and Industry Committee upon House adjournment.

Read the bill.

Margin tax bills scheduled for hearing

On Wednesday, April 15, 2009, the House Ways and Means committee will hear many of the margin tax bills filed this session. The committee will likely leave all the bills pending, but having the hearing is the first step in the bill clearing the committee. Chairman Oliveira (D-Brownsville) has stated that bills that cost the state revenue would have a hard time being brought up for a vote in his committee.

Here are some of the bills and topics on Wednesday’s agenda.

• HBs 277, 720, 1220, 1667, 2845 and 4765 all raise the minimum taxable revenue from $300,000 to $1 million.

• HB 2227 raises the minimum taxable revenue to $1.5 million and HB 2534 to $5 million.

• HB 1825 not only raises the minimum taxable revenue to $1 million, but also allows graduated tax rates for the first $10 million of taxable margin.

• HB 4766 raises the minimum taxable revenue to $750,000 and gives tax discount for revenues between $750,000 and $1 million.

• HB 1758 exempts all franchise payments below $10,000.

• HB 3835 eliminates the existing specific flow through exemptions in the law but leaves the general language allowing flow through exemptions.

• HB 1036 repeals the margin tax and re-institutes the former franchise tax.

• HB 2944 cuts the retail/wholesale tax rates in half.

• HB 3927 determines when Internet hosting revenues are Texas revenues.

• HB 4269 clarifies that passive income includes all capital gains from real estate, not just “net” gains.

Several bills exempt specific types of revenues from taxation as follows:

• HB 1994 exempts the cost of administering vaccines.

• HB 2391 exempts guaranteed payments to performing artists.

• HB 3189 exempts landlords’ collections of property taxes, maintenance payments, etc. from tenants.

• HB 3778 exempts delivery services

HB 3237 is an omnibus bill that gives taxpayers the option of using federal cost of goods sold, allows compensation deductions for distributions to Professional Corporations or Professional Associations as long as those entities are owned by natural persons, restricts partnership distributions included in compensation deductions to income distributions only (losses are excluded from the computation), allows compensation deductions for payments to independent contractors whose earnings are reported on Federal Form 1099, repeals the Finnigan reporting requirements and reduces the maximum total revenue that can be taxed from 70% to 45%.

HB 4003 is another omnibus bill that establishes graduated tax rates of the top bracket rate of .5%, raises the minimum taxable revenue to $1 million, raises the minimum franchise tax due before payment is required from $1,000 to $5,000, excuses an entity form paying any franchise tax for any year when its federal taxable income is zero or less, eliminates the detailed cost of goods sold sections of the law and requires COGS to be determined by line item reference to the federal return, allows compensation deductions for payments to independent contractors whose earnings are reported on Federal Form 1099, changes the apportionment formula from Joyce to Finnigan and repeals the section requiring Finnegan info only reporting.

Can stimulus cost jobs?

The major thrust of the federal stimulus program is to create jobs, but will that be the result? A study presented by the Texas Public Policy Foundations says no. The report claims that American Recovery and Reinvestment Act of 2009  “will lead to job losses in Texas.”

Can that be true?  Check out The Economic Impact of Federal Spending on State Economic Performance.

Excellent analysis of tort reform this session

Many thanks to The Lone Star Report and its managing editor William Lutz for permission to share this article  with TSCPA members: LSR040309

We're tracking a few tort reform bills for you this legislative session, and the LSR item provides terrific insight into what can be a complicated issue.

How about more legislative sessions?

Rep. Craig Eiland (D-Galveston) and Rep. Richard Raymond (D-Laredo) both think the legislature should meet more often.

Eiland authored HJR 29, which is a constitutional amendment that establishes a veto session for the legislature. A sitting governor gets to veto any bill offered by the legislature and it takes a two-thirds vote of the legislature to overturn a veto. But the legislature does not get the chance to override vetoes that are issued that occur after the session. A lot of bills are passed in the final days of a legislative session which are not subject to veto override. Eiland suggests a five-day session in June just to deal with vetoes. The governor does not get a chance to veto proposed constitutional amendments, so he can’t veto this one if it passes the legislature. Eiland submitted a similar bill last session which passed the House but never went anywhere in the Senate.

Raymond must believe a two-year budget is too long,as he proposed constitutional amendment in HJR 103 requiring the state to operate on an annual budget and the legislature to convene in budget session in even-numbered years. HJR 103 provides for a 60-day session to deal only with budget issues unless the governor adds issues to the regular session.

Personal income tax bill filed

Rep. Lon Burnam's (D-Fort Worth) HB 1735 is a personal income tax on incomes in excess of $100,000. The tax rates are graduated starting at 2% for those making less than $150,000 and increasing to 6% for incomes over $1 million.

The tax is proposed to help fund public education. The bill will undoubtedly be assigned to the House Ways and Means committee where the chairman, Rep. Rene Oliveira (D-Brownsville), has said he will give any bill a hearing if requested by the bill sponsor. Oliveira was quick to add, however, that, getting a hearing doesn’t mean getting a vote on the bill by the committee.

The Texas constitution requires the voters' approval for a Texas personal income tax.

Speaking of income taxes, CPAs continue to ask if a court challenge has been filed claiming the margin tax is an income tax and therefore invalid because the voters did not approve it. No lawsuits are known to have been filed as of today.

One of the arguments against the margin tax being considered an income tax is the fact that you have to pay the tax even if you don’t have income. Sen. Mike Jackson (R-La Porte) has filed SB 1037, which would change that. Jackson’s bill says if you report zero or less on the net income line of your federal return, you don’t have to pay any franchise tax. The bill does not apply to members of combined groups.

Higher gas taxes?

Sen. John Carona (R-Dallas), who chairs the Senate Transportation committee, has offered legislation to increase the gas tax. The twenty cents-per-gallon tax has not been increased since 1991, but some think the time is right.

Check out this article in the Austin American-Statesman about the possibilities, and then read the same newspaper’s editorial supporting the proposal.

House committees named

Speaker Straus announced assignments to House committees this morning.

• alpha by committee (PDF)

• alpha by legislator (PDF)

Senate committees named

Lt. Governor David Dewhurst released his Senate committee rosters over the weekend.

• alpha by committee (PDF)

• alpha by Senator (also PDF)

TSCPA recognized by the legislature

Upwards of 200 TSCPA members were on hand at the Capitol yesterday to hear the House and Senate to declare it TSCPA Day.

Read all about it.

Ice cream (you scream) at the Capitol

It’s not all work and no play at the Capitol: Rep. Joe Pickett (D-El Paso) serves ice cream in his office.  I’ll be you didn’t expect to find a Capitol office that looks like an ice cream parlor.

Check out the fun story in the Austin American-Statesman.

Silver-Haired Legislature

Their votes don’t make law, but a group of citizens aged 60 and older elect representatives from 117 districts across the state to come to Austin and articulate the issues they want the official legislature to address.  Legislators know that senior citizens vote, and they courteously listen to the silver-hairs' concerns about health care, property taxes and transportation. The seniors are also concerned about electric utility regulation and eminent domain issues.

Check out the full story as reported in the San Antonio Express-News.

CPA Senator Tommy Williams leads fight for voter ID

The Texas House of Representatives opened in peaceful harmony with the unanimous election of Joe Straus (R-San Antonio) as the new Speaker. By contrast, the normally collegial Senate opened with a partisan fight over Senate rules and voter ID legislation.

In an evening session the Senate voted to exempt voter ID legislation from the long-standing two-thirds rule, which would have required agreement by two-thirds of the chamber to bring a bill to the floor. Senator Tommy Williams (R-Woodlands), a TSCPA member, led the effort to exempt the voter ID bill from this requirement.

Read more about it in today's Austin-American Statesman.

Findings of the Business Tax Advisory Committee

Included in the legislation making technical corrections to the margin tax in the 2007 session was formation of the Business Tax Advisory Committee. The group is charged with studying the impact of the margin tax on state businesses every biennium.

Five TSCPA members serve on the Business Tax Advisory Committee.

The BTAC's first review of the margin tax has just been published; read the report and TSCPA's analysis here.

Combs release revenue estimate

Comptroller Susan Combs has released her revenue estimate, i.e., the numbers legislators will be working with when session convenes tomorrow.

Read the revenue report here.

Combs estimates $77 billion available for general spending, which amounts to a 10.5% decrease from the last biennium.

89% of expected revenue will be derived from taxes. Of those taxes, sales tax accounts for 65% of the total.

DIGEST: Joe Straus as new Speaker of the Texas House

Austin American-Statesman: The Joe Straus era begins

Dallas Morning News: New Texas speaker to shift House dynamic toward middle

Fort Worth Star-Telegram: Straus' Texas House speaker rivals withdraw bids

Houston Chronicle: Straus' victory appears certain as speaker foe bails

San Antonio Express-News: Speaker contest a one-man race

The end of an era

By now you've likely heard that Rep. Tom Craddick (R-Midland) has dropped out of the Speaker's race.

Today's Austin American-Statesman offers a good digest of the story here.

Will today be the day?

Will today be the day THE opposition Speaker candidate is selected? Eleven ABC (Anybody But Craddick) Republican legislators are meeting in an undisclosed location to select their consensus candidate to run against Speaker Craddick for the Speaker of the House on Jan. 13, 2009. Pundits have speculated that Craddick’s biggest advantage is that his opponents cannot agree on a single candidate. Will that change by the end of the day?

Read more about it in this story from today's Fort Worth Star-Telegram.

Speaker’s race blankets the news

Amidst the stories of bowl games and New Year’s resolutions, newspapers across the state are enamored with the upcoming election of the Speaker of the Texas House of Representatives. With more challengers announcing every day, speculation is rife in Austin and evidently everywhere else.

If your home town paper is not mentioned, look for an article any day now.

Houston Chronicle: ANOTHER REPUBLICAN CHALLENGES CRADDICK

El Paso Times:  EL PASO LEGISLATORS VOW TO NOT VOTE FOR CRADDICK

KWTX: HOUSE SPEAKER RACE HEATING UP

Fort Worth Star-Telegram: THE SPEAKER

WFAA: DEBATE QUESTIONS CRADDICK'S HOLD ON SPEAKER POSITION

Dallas Morning News: CRADDICK'S GRIP ON POWER AS TEXAS HOUSE SPEAKER TO BE TESTED AGAIN

Lubbock Avalanche-Journal: AMARILLO LAWMAKER LOOKS AT CHALLENGING CRADDICK

Austin American-Statesman: CRADDICK FOES CLAIM NUMBERS THAT WOULD END HIS REIGN AS TEXAS SPEAKER

Democrats won’t be any better

One of the complaints against Speaker Tom Craddick is that he holds a grudge.  Evidently if the leadership of the Texas House changes to the Dems, retribution will still be the play of the day.

According to an editorial in today's Austin American-Statesman, the Democratic leadership has made it clear the Craddick Ds will have no place in future leadership under a D speaker.  Sounds like it doesn’t matter who's in charge, the worsening partisanship in the House will continue.

Check out the full op-ed.

It wasn’t over last night!

Yesterday's election saw Texas Democrats picking up three seats in the State House of Representatives, leaving the Republicans still in the majority by a single seat. But that slim majority could change depending on the planned recount in Irving's HD 105, where incumbent Republican Linda Harper-Brown kept her seat by 29 votes.

We'll have to wait to see what this means for Speaker Tom Craddick. As long as his opponents cannot unite for one candidate, he can likely remain as Speaker.

Check out more analysis from the Fort Worth Star-Telegram and the Austin American-Statesman.

The Speaker’s race: will it be over tonight?

You may remember at the end of the 2007 legislative session, Speaker Tom Craddick was challenged - some even asked for him to step down as Speaker of the Texas House of Representatives. He declined, and the ensuing battle to unseat him was unsuccessful.

Ever since then pundits have speculated about whether the 2009 legislative session would also feature Craddick as House speaker. Although the Speaker election is not held until the first day of the session - January 13, 2009 - and only House members get to vote, some members of the press believe the race may very well be decided today at the polls.

Check out this story in today's Austin American-Statesman.