TSCPA Governmental Affairs

CPA Rep. John Otto Testifies Before Congressional Hearing

The Texas Retailers Association issued a press release commending CPA Rep. Otto (R-Dayton) for testifying before the U.S. House Judiciary committee in support of H.R. 3179, the Marketplace Equity Act which would create a constitutional framework for collecting sales taxes online.  Otto expressed concerns to the committee about the competitive disadvantage that arises between local retailers and online retailers when online retailers don’t have to collect the 8 to 10 percent state sales taxes. Otto said this gives the online retailer a “significantly unfair marketplace advantage.”

Don’t Fix the Margin Tax to Raise More State Revenues

That’s the cry of the Texas Public Policy Foundation (TPPF) in reaction to the Supreme Court’s ruling that the margin tax is constitutional, and further that an income tax on partnerships and unincorporated associations does not violate the Bullock amendment of the Texas Constitution.

In a press release yesterday TPPF announced a new report entitled The Margin Tax Debunked (PDF). The press release and report are clearly aimed as the first shot across the bow of those legislators calling for more revenues from the franchise tax. The release points out that Speaker Straus has charged the Ways and Means committee with the task of evaluating the margin tax and determining if it should be altered or replaced and seeks to dispel what it calls “common myths regarding the franchise tax.”  It says the margin tax revenue shortfalls have not crippled the state’s revenue system nor caused the so-called structural deficit; the margin tax does not need to be “fixed to increase state revenues;” and the margin tax was never intended “to completely absorb the cost of statewide property tax relief.”

The full report can be found on the TPPF website.

Court Ruling Allows Fixes to Franchise Tax Inconsistencies

When the margin tax became the Texas franchise tax, legislators took great pains to make sure it was not an income tax.  Those great pains caused inconsistencies in the amount of taxes paid by different industries and even taxpayers in similar businesses.  The Supreme Court’s ruling that an income tax can be levied on business entities, including partnerships and unincorporated associations, means the legislature has the opportunity to eliminate those inconsistencies.

Fixing the tax may not necessarily raise more revenue, however, and the Texas Association of Business says it shouldn’t because business taxes in Texas are already high.  CPA Rep. John Otto (R-Dayton) says, "There should be a certain amount of revenue that the franchise tax can raise without being a hindrance to business, where we can remain competitive with other states."

While not calling for a tax increase, Rep. Mike Villarreal (D-San Antonio) says that when changes are made we need to have a tax that “grows with the economy.”

You can find all of this and more as Kate Alexander reports on different views about fixing the tax in the Austin American-Statesman.

Margin Tax Ruled Constitutional By Texas Supreme Court

On Nov. 28, 2011 in the Allcat Claims Service L.P. and John Weakly (Allcat) case the Texas Supreme Court ruled that the Texas franchise tax, often referred to as the margin tax, is a constitutional tax.

The court ruled that a tax on business partnerships and associations was not a tax on the personal income of the partners and therefore did not violate the so-called Bullock Amendment to the constitution which requires approval by voters before a personal income tax can be levied.

The ruling not only eliminates the constitutional uncertainty over the margin tax, but also opens the door to legislators to levy a true business income tax. TSCPA member Jimmy Martens, attorney-at-law and CPA, who argued the case before the Supreme Court on behalf of Allcat provided us with a short explanation of the court’s decision (.PDF). A brief news account of the decision can be found in the Austin-American Statesman.

In addition to claiming the margin tax violated the Bullock Amendment, Allcat claimed that the Comptroller’s interpretation of certain franchise tax provisions violates Allcat’s right to equal and uniform taxation under the Texas Constitution. The Supreme Court denied jurisdiction over this matter and referred it to the District Court in Austin. Read the entire court decision here.

There is another margin tax constitutional challenge before the Supreme Court. The suit was filed by Nestle USA, Inc., Switchplace, LLC and NSBMA LP (Nestle) claiming that the margin tax violates the Equal and Uniform Clause of the Texas Constitution as well as the Equal Protection Clause, the Due Process Clause and the Commerce Clause of the United States Constitution. Oral arguments are set for Jan. 12, 2012 in that case. At least one news article speculated that the Nestle case will be referred to the Austin District Court. For more details and reference to the case filings visit the TSCPA Government Affairs Blog.

Comptroller Issues Second Request for Information to Preserve Temporary Credit

We reported earlier about the Comptroller’s Oct. 1, 2011 letter to the reporting entities of all combined groups that claimed a temporary credit for business loss carry-forwards on a 2008, 2009 or 2010 franchise tax report. The letter required the reporting entities to provide the name of the entity or individual that owned, directly or indirectly, more than 50 percent of all of the entities included on the combined report. The reporting entity had to also include the Texas business loss carry-forward as of Jan. 1, 2008, for each affiliate that filed a preservation form in 2008 or that was the basis of a temporary credit for business loss carry-forward claimed on the franchise tax report.  The due date for the information was Oct. 31, 2011.

Some 8,655 taxpayers did not respond to the Oct. 1 letter so the Comptroller has sent a second request to those taxpayers with a Dec. 19 deadline for responding.  Taxpayers that do not respond face the possibility of losing any future credit for their business loss carry-forwards.  For more information check out Important Information to Ensure Franchise Taxpayers Keep Their Temporary Credit.

More Chinks in the Armor?

About two weeks back we reported that Speaker Joe Straus opined “I think at some point you can’t cut your way to prosperity.”  We wondered if that was a chink in the armor of the no new taxes mantra.

This week Senator Tommy Williams (R-The Woodlands), Chairman of the Senate Transportation and Homeland Security Committee, remarked, "We've got to start having some honest conversations with our constituents about what it takes to run state government," and retiring Senator Steve Ogden (R-Bryan) suggested a voter referendum on a business income tax.  Williams stopped short of suggesting tax increases, but suggested almost doubling the vehicle registration fee.

On the other hand, John Otto (R-Dayton), House Appropriations Subcommittee Chair and Vice-chairman of the Ways and Means Committee, suggested the Margin Tax needed revision, but he didn’t agree with Ogden that we needed a referendum: "I don't think we ought to use it [Margin Tax] for the fix for the shortfall.”

All were speaking at a meeting of the Texas Taxpayers and Research Association as reported by Kate Alexander in the Austin American-Statesman.  Sen. Ogden won’t have to worry about it but Williams and Otto are seeking re-election.  Can Republicans hold such “honest conversations with our constituents “about the “shortfall” before an election?

State Comptroller Notifies Taxpayers of Second Chance to Preserve Temporary Tax Credits

Last week we reported that State Comptroller Susan Combs would be offering a Second Chance to Preserve Business Loss Carryforwards.  Earlier the Comptroller issued a letter to taxpayers asking for additional information in order to preserve the temporary tax credits allowed for taxpayers with loss carryforwards from the old franchise tax (before the margin tax).  The original letter had an October 31, 2011 deadline.

The Comptroller’s website now includes specific notice that taxpayers who have not responded by Oct. 31 will get another opportunity.  See Important Information to Ensure Franchise Taxpayers Keep Their Temporary Credit.

A Chink in the Armor?

“I think at some point you can’t cut your way to prosperity,” so said Speaker Joe Straus in El Paso Thursday. Straus suggested that the legislature would have to address the Texas structural deficit “now.”  "We have no choice, unless we want to continue to try to grow our population and continue to shrink spending significantly," Straus said. You can read all about the Speaker’s comments in the El Paso Times’ article Texas House Speaker Joe Straus: We have to correct the deficit.

Straus also said it was time for the legislature to look at the margin tax again, regardless of the outcome of the constitutional challenge to the tax now before the Supreme Court.

Is this the first chink in the “no new taxes” armor? Or will it be a chink in Straus’ bid to continue as speaker? Check in after the elections.

Second Chance to Preserve Business Loss Carryforwards

On Oct. 1, 2011 State Comptroller Susan Combs sent a letter to the reporting entities of all combined groups that claimed a temporary credit for business loss carry-forwards on a 2008, 2009 or 2010 franchise tax report. The letter required the reporting entities to provide the name of the entity or individual that owned, directly or indirectly, more than 50 percent of all of the entities included on the combined report. The reporting entity had to also include the Texas business loss carry-forward as of Jan. 1, 2008, for each affiliate that filed a preservation form in 2008 or that was the basis of a temporary credit for business loss carry-forward claimed on the franchise tax report.  The due date for the information was Oct. 31, 2011.

TSCPA has been informed by the Comptroller’s office that the submission will be accepted even if it is received subsequent to Oct. 31.  Any combined group that did not respond to the initial letter by Oct. 31 can expect to receive a follow-up letter with another opportunity to respond.

While the final deadline for compliance was not stated, Comptroller staff indicated they wanted to give every subjected entity an appropriate opportunity to respond before terminating the entity’s temporary credit. This explanation has now been posted to the State Comptroller's website under Frequently Asked Questions.

Margin Tax Results Mixed in Meeting Policy Goals

The Texas Taxpayers and Research Association (TTARA) has issued a new analysis of the Texas margin tax: Understanding the Texas Franchise – or “Margin” – Tax.  The analysis reviews the results of the margin tax against the original policy goals for the tax. The results are mixed. The scorecard:

• Align the tax with a modern economy: Somewhat successful, especially in raising tax revenue from the service sector that is more in line with that sector’s share of the economy.
• Create a simpler business tax: The tax is more complicated than anticipated and more complicated than the former franchise tax.
• Eliminate tax planning opportunities: The tax did eliminate the massive tax avoidance schemes successful under the former franchise tax.
• Raise roughly $3 billion in new state revenue annually: The tax has collected between $1.4 billion and $2.5 billion less revenue per year than projected.

Even though the tax only met two out of four goals, TTARA says not meeting the revenue goal is a good thing because it keeps the primary Texas business tax more in line with other states. If the original revenue goals had been met Texas would have one of the higher state business tax.

TTARA also points out that while the tax does match the economy closer than the previous tax, the overall tax burden is still heavier on manufacturing and production companies than other sectors. The analysis also shows that this closer matching of the economy resulted in huge tax increases for some sectors. The tax liability on the information technology sector increased 162%, transportation sector 101% and for professional services, including CPAs, the increase was 88%. The result is likely a combination of making unincorporated entities subject to the tax plus more limited deductions for the service sector businesses. In terms of size, very small businesses saw their tax burden drop 46% while the next size category, businesses with revenues of $1 to $10 million, saw the largest percentage increase at 72% as compared to the average overall increase of 46%.

The analysis ends with speculation about reforming the franchise tax - again. Two possibilities are mentioned:

1. Simplify the tax by reducing deductions and making it more like a gross receipts tax, or
2. Shifting the tax base to net income.

Both concepts have pros and cons. Going to gross receipts trades off simplicity for potentially making the tax less reflective of the economy. Going the income tax way likely requires a higher tax rate than palatable to business entities.

For a short review of the analysis you can read Kate Alexander’s article in the Austin American-Statesman, but for a full understanding read the entire report, which is only six pages.

Oral Arguments in Margin Tax Constitutional Challenge

Monday, Oct. 24th the Texas Supreme Court heard oral arguments in the Allcat Claims Service case challenging the constitutionality of the margin tax.  Each side in the case had 30 minutes to present arguments and much of that time was taken up by the lawyers responding to questions from the Justices.  Ample evidence was submitted to demonstrate that Bob Bullock definitely was trying to require a referendum if the legislature wanted to levy an income tax on personal income, including partnership income.  Most of the arguments were centered on whether or not the state could tax a partnership as a separate business entity without running afoul of the Bullock Amendment.  Other statutes were cited in support of the separate entity theory amid the question of whether Bullock got it right in the amendment, even if his goal is clear.

There was very little argument about whether or not the margin tax is an income tax.  TSCPA member Jimmy Martens, speaking for Allcat, pointed out that all income taxes are taxes on gross revenue less statutory allowed deductions; just like the margin tax.  There didn’t seem to be any attempt to counter that argument with the state’s attorney concentrating on the business entity taxation premise.

Towards the end of the session, in response to a question from the bench, Martens offered the possibility of a judicial remedy that is only prospective.  Evidently there is precedent for such a solution based on the Carrollton-Farmer’s Branch ISD v. Edgewood ISD Supreme Court ruling.  The prospect of requiring the state to refund at least millions to partnerships with natural persons as partners during a time of fiscal distress for the state must be daunting to the Justices.  Perhaps opening the door to only fixing the future will keep the fear of the results from unduly influencing the legal outcome.  Martens has provided TSCPA with this explanation of the judicial rationale to support a prospective-only ruling.

If you are interested in the proceedings, you can hear the complete one hour, seven minute recording here.

What Do CPAs Think About the New Tax Plans?

Republican presidential candidate Herman Cain has been touting his 9-9-9 Plan and now Governor Perry offers his version of the flat tax.

Cain’s plan calls for a 9% business tax, a 9% personal income tax and a 9% federal sales tax. It’s actually a little more complicated that that, but it is a proposal to drastically change federal taxation as we know it.

Now Perry proposes Cut, Balance and Grow; a 20% flat tax on both business and personal income (although he says you can keep paying 35% if you prefer). Perry also proposes the first $12,500 of income per person tax free and allowing deductions for taxpayers with less than $500,000 in income (that’s just about everyone). He will also eliminate taxes on social security income and investment income.

Both plans are decried by critics as regressive, rich-people-centered give-aways, but is that really the case? Will they stimulate the economy? Will they raise needed revenue?

What do CPAs think about these radical proposals? Check out the links and let us know what you think.

Speaker Straus Issues Interim Committee Charges

While legislators do the heavy lifting during the biannual legislative session, they also are active in the interim between sessions. The Speaker of the House and the Lt. Gov. issue specific charges to each standing committee of the legislature. Speaker Joe Straus issued the House committee charges this week.

Straus issued two blanket charges to all committees:

• Study and make recommendations for significantly improving the state’s manufacturing capability.
• Find ways to increase transparency, accountability and efficiency in state government.

Of the 38 pages of committee charges, there are at least two charges of interest to CPAs.  The first charge to the Ways and Means committee, emphasis added:

Evaluate the state's tax structure and determine its impact on the competitiveness of the Texas business climate. Specifically, determine the impact of the state's major taxes, including the sales tax and franchise tax, as well as tax exemptions, exclusions, and credits on economic growth, capital investment, and job creation in Texas. As part of this review, evaluate the franchise (margins) tax and determine whether the tax structure should continue to exist in its current form or in a revised form, or whether the existing tax structure should be repealed and replaced with a different business tax.

During the last legislative session there was much discussion about the franchise tax and a number of legislators expressed publicly their view that the tax needed revision or replacing. The budget crises in the state essentially prevented the legislature from devoting time to the issue. There was discussion during and after the session of a joint select committee to be appointed by the Speaker and the Lt. Gov. but that idea was dismissed and the task has fallen to the Ways and Means committee. With two lawsuits challenging the constitutionality of the tax and the school district lawsuit challenging the constitutionality of school funding, substantive changes to the franchise tax could be in our future.

One of the charges to the Licensing and Administrative Procedures committee might also be of concern to CPAs:

Study the feasibility of streamlining the process to obtain an occupational license. Consider consolidating all occupational licenses under one state agency and whether such a move would increase efficiency and effectiveness. Analyze the process being used in other states.

Every few years the suggestion to consolidate occupational licensing is studied. In fact the Texas Department of Licensing and Regulation is already a consolidated licensing agency that administers 28 occupational and business licenses ranging from Auctioneers to Polygraph Examiners to Water Well Drillers. Each time this issue has been studied in the past, it has been determined that professional licenses (CPAs, Attorneys, Architects, Engineers, etc.) should not be consolidated into one agency. Hopefully, once again, legislators will differentiate between “occupational” and “professional” licensing.

There are many other interim charges that could result in proposed legislative changes that affect CPAs and taxpayers. The Appropriations and Ways and Means committees share one charge:

Analyze increases in Texas's overall state debt burden and the role debt plays in the state's fiscal management. Recommend strategies to reduce the state's debt, as well as the calculation of the constitutional debt limit.

Despite the fact that the Texas Constitution requires a balance budget each biennium, there are numerous exceptions and Texas goes deeper into debt each year. Four of the ten constitutional amendments on the November ballot are to authorize more debt for Texas.

Here’s the link to all the House Interim Committee Charges.

Second Margin Tax Lawsuit Filed

The constitutionality of the Texas franchise tax is challenged again by a new lawsuit filed with the Texas Supreme Court. This case was filed by Nestle USA, Inc., Switchplace, LLC and NSBMA LP claiming that the margin tax violates the Equal and Uniform Clause of the Texas Constitution as well as the Equal Protection Clause, the Due Process Clause and the Commerce Clause of the United States Constitution.

Nestle claims that although the company is engaged only in wholesale activity in Texas, it must pay the one percent tax rate of a manufacturer because it has manufacturing facilities outside the state of Texas.

Switchplace provides temporary accommodations services and complains that it is inappropriately denied the cost of goods sold deduction. NSBMA rents construction equipment and objects that it cannot claim a deduction for cost of goods sold while other types of suppliers of construction equipment do qualify for the deduction.

The suit was filed with the Texas Supreme Court as directed by the margin tax legislation and states that the Supreme Court jurisdiction is supported by Article V of the Texas Constitution and Texas Government Code, Section 22.002. The brief states that the franchise tax is a tax for the privilege of doing business in Texas and is unconstitutional because the tax “results in a non-uniform tax that causes similarly situated taxpayers to have a much higher taxable margin relative to their peers” and “provides certain ad hoc exclusions available to only some taxpayers.”  Click here to read the complete filing.

The initial case filed by Allcat Claims Service, LP and John Weekly to overturn the margin tax included the contention that the tax is a personal income tax and is therefore unconstitutional because it violates the Bullock Amendment requiring a referendum before such a tax can be implemented. There have been several friend-of-the-court briefs filed in that case including one filed by Nikki Laing, CPA and a host of others that included Nestle, Switchplace and NSBMA. The Laing brief supported the Allcat claims.

The Texas Association of Realtors and The Texas Taxpayers and Research Association (TTARA) have also filed briefs in support of the state’s position that the margin tax is not a tax on personal income.

You can find all the filings related to the Allcat case at The Supreme Court of Texas Electronic Briefing.

CPA Receives Texas Municipal League Award

CPA Rep. Raul Torres (R-Corpus Christi) received the Legislator of the Year award from the Texas Municipal League for his accomplishments during the session.

Torres served his first session in the Texas Legislaure in 2011.  The award is given in recognition of his “serving the needs and advocating the interests of Texas cities, large and small.” The press release stated that Torres “played a key role in defending municipalities and local control.”

More on this honor here.

2011 Tax Legislation

Texas state legislators stayed true to their “no new taxes” pledge during the 2011 legislative session, but they didn’t promise no new tax legislation: they passed a total of 34 bills that affected some type of state tax.

The Special Session’s Senate Bill 1 was a comprehensive fiscal matters bill necessary to balance the budget and it included numerous changes to tax laws. Senate Bill 934, passed during the regular session at the request of State Comptroller Susan Combs, included major changes in tax code administration and enforcement. The new laws affect sales taxes, franchise taxes, property taxes, sin taxes, occupancy taxes, insurance taxes, motor fuel taxes and maybe a few others.

Violations of tax law may now lead to criminal penalties, increased fines and more jail time. Tax investigators now have more authority and taxpayers have specific records retention requirements, not to mention a new $50 late filing penalty that applies to almost any type of state tax report.

Franchise tax changes which benefit certain taxpayers were enacted and the annual sales tax holiday was changed from August to July beginning in 2012.

To help you keep up with all these changes, State Comptroller Susan Combs has issued a new publication, Legislative Update – Focus on 2011 Legislation (PDF), summarizing all the tax law changes of the 2011 legislative session.  It’s a good guide with tax code and other statute references if you need to know the details.

New $50 Late Filing Penalty Applies to Tax Reports

Whether you owe any tax or not, Senate Bill 1 passed in June during the special legislative session adds a $50 late filing penalty to most tax forms. Some tax forms must be filed even if you don’t owe any tax and those forms must be filed timely or the $50 penalty will apply. From franchise tax to fireworks tax, many reports are affected. See the details (PDF) as published by State Comptroller Susan Combs.

Bastrop County Declared Federal Disaster Area

The President has declared Bastrop County a Federal Disaster Area due to the extensive wildfires in the County.  News reports have outlined the significant loss of property including many homes.  The declaration permits the IRS to postpone certain deadlines for taxpayers who reside or have a business in the disaster area. For instance, certain deadlines falling on or after Aug. 30 and on or before Oct. 31 have been postponed to Oct. 31. This includes corporations and other businesses that previously obtained an extension until Sept. 15 to file their 2010 returns, and individuals and businesses that received a similar extension until Oct. 17. It also includes the estimated tax payment for the third quarter, normally due Sept. 15. 

In addition, the IRS is waiving the failure-to-deposit penalties for employment and excise tax deposits due on or after Aug. 30 and on or before Sept. 14, 2011, as long as the deposits were made by Sept. 14, 2011.  For more details, read the IRS press release (PDF) and check out the IRS disaster relief web page.

 

Amazon Makes Deal With California To Delay Collecting Sales Tax For One Year

In June, the California assembly included in its budget a provision not unlike Texas's, SB 1: web retailers - Amazon chief among them - are now required to remit sales tax in any states where they have distribution centers or affiliate operations.

In Texas, the proposal first emerged as CPA Rep. John Otto's (R-Dayton) HB 2403. Vetoed by Governor Perry, it was resuscitated during the special session in SB 1, the critically important fiscal matters bill.

Amazon has been fighting the California requirement all summer. Late Wednesday, a deal was reached letting Amazon off the hook until September 2012.

It's this a preview of what we might see in Texas?

State Responds and Hearing Date Set in Margin Tax Constitutional Challenge

The State of Texas has responded to the Allcat Claims Service petition challenging the constitutionality of the current Texas Franchise tax (the Margin tax).  The state’s response contends that the so-called Bullock amendment prohibiting an income tax on natural persons, including the income share of partners, is not applicable to the Margin tax because the Margin tax does not tax natural persons and the Bullock Amendment does not prohibit the taxing of business entities.  The response says the Bullock amendment only prohibits a tax on natural persons, not the business ventures of natural persons.  The response also claims that the state Supreme Court lacks jurisdiction on the other claims of disparate treatment and awarding of attorney’s fees.

The Court has ordered parties to the lawsuit to file briefs addressing the constitutionality of the Court’s original jurisdiction as mandated by the Margin tax law, the merits of the Bullock amendment claim and whether the other claims in the suit are beyond the Court’s jurisdiction.  Briefs are due between now and Oct. 10, 2011 and the case is tentatively set for oral arguments during the week of Oct. 24, 2011.

Long Awaited Lawsuit Finally Filed: Is it an income tax?

Ever since the franchise tax was changed to the margin tax levied on all types of business entities, rumors have flown that there would be a lawsuit challenging the efficacy of the tax because some claimed the tax was an income tax levied on natural persons, specifically partners in limited partnerships or members of professional associations. The Texas constitution requires that any income tax imposed on natural persons, “including a person’s share of partnership and unincorporated association income,” must be approved by Texas voters.  If the margin tax is an income tax, this important step was not taken. It has finally happened. The lawsuit has been filed.

In an interesting twist, the legislation enacting the margin tax stated that any challenges to the tax must be heard directly by the Texas Supreme Court and gave the court 120 days in which to do so.  Allcat Claims Service, LP recently filed an original petition in the Texas Supreme Court challenging the constitutionality of the margin tax. When the law was passed back in 2006 the rationale for a Supreme Court trial in 120 days was so any such challenge could be quickly adjudicated before the tax actually went into effect. Five years later the rationale no longer applies but the law still does.

The law firm of Martens Seay & Todd is handling the case for Allcat and has issued a press release about the filing (PDF).

TSCPA member Rep. Raul Torres only Texas Legislator invited to the GOPAC Leaders Summit

House Appropriations Chairman Jim Pitts (R-Waxahachie) explains in an article written for the Corpus Christi Caller Times why it was important for Rep. Raul Torres (R-Corpus Christi) to attend a GOPAC meeting despite missing a couple of days of the special session. "The GOPAC Emerging Leadership Summit is an annual invitation-only conference for Republican leaders and rising stars. This year's summit included members of Congress as well as state legislators from 19 other states. Rep. Torres was the only member of the Texas Legislature selected for this honor and it is a credit to his hard work and attention to the issues vital to the future of Texas.”  Pitts said Torres “used his time wisely, productively.”

Tax Legislation Passes Special Session

The fiscal matters bill, SB 1 by Sen. Robert Duncan (R-Lubbock), which was essential to the balanced budget and passed the legislature during the special session, included several tax provisions. The following franchise tax changes are in the bill:

• Extension of the $1 million minimum revenue threshold for two years until Dec. 31, 2013 (Article 37)
• Extension of the deadline to use pre-margin tax credits until Dec. 31, 2016 (Article 31)
• Excluding payments to live entertainers from total revenue when made by live entertainment companies as defined in the bill (Article 44)
• Excluding payments to non-employee delivery contractors from total revenue by qualified logistics companies as defined in the bill (Article 44)
• Adding apparel rental entities as retailers if classified in SIC Codes 5999 and 7299 (Article 51)

SB 1 also includes the enactment of the full text of HB 2403 by CPA Rep. John Otto.  HB 2403, the so-called Amazon bill, which requires retailers with any operations in Texas, even through affiliates, to collect Texas sales taxes was vetoed by Perry during the regular session.  For the second time the legislature has passed this legislation to require more Internet retailers to collect Texas sales taxes.  To kill the legislation this time, the governor would have to veto SB 1 which would unravel the state’s balanced budget.

Other sections of SB 1 that might be of interest to some taxpayers include:

• The annual August sales tax holiday weekend timing is changed to be “the Friday before the eighth day preceding the earliest date on which any school district may begin instruction…”
• New requirements for maintaining certain tax records for certain taxpayers (Article 4)
• New required prepayments of certain motor fuels taxes (Article 9)
• New required prepayments of certain alcoholic beverage taxes and fees (Article 10)
• A reduction in the cigarette tax stamping allowance (Article 11)
• Prepayment requirement for certain sales and use taxes (Article 13)
• Adding a $50 failure to file penalty in addition to other penalties for certain tax forms (Article 14)

CPAs and attorneys might find it interesting that SB 1 also provides that any attorneys employed by the attorney general are to be given full continuing legal education credit by the State Bar Association.  The bill does require the AG to train them.

The bill is 263 pages with numerous changes to tax collections and fiscal operations of the state.

If you’d like a brief rundown of the special session bills and what happened with each, check out the Texas Tribune’s  Sine Die Report: What Survived, What Died.

Franchise tax changes make it to conference

SB 1 by Sen. Duncan (R-Lubbock) is the fiscal matters bill that is essential for a balanced budget certification. Its regular-session version, SB 1811, included a number of changes to the franchise tax. When SB 1 left the Senate some of those changes were gone while others survived and that status remained until the bill reached the House floor, where the eliminated franchise tax provisions were reinstated.

SB 1 is now in conference committee being negotiated by Sens. Duncan, Deuell, Hinojosa, Shapiro, Williams and Reps. Pitts, Eissler, Geren, Otto, Villarreal.  Here are the franchise tax items in the bill as it went to conference:

• Extension of the $1million minimum revenue threshold for two years until Dec. 31, 2013
• Extension of the deadline to use pre-margin tax credits until Dec. 31, 2016
• Adding apparel rental entities as retailers if classified in SIC Codes 5999 and 7299
• Excluding payments to live entertainers from total revenue when made by live entertainment companies (defined in the bill)
• Excluding payments to non-employee delivery contractors from total revenue by qualified logistics companies (defined in the bill)

CPA summary: 2011 regular legislative session

Click here to read a summary of the 2011 regular legislative session as it played out for CPAs.

Special Session includes some items of interest to CPAs

With no state budget in place by the May 30, 2011 adjournment of the regular session of the 82nd Texas Legislature, Gov. Perry immediately called legislators into Special Session on May 31, 2011.  Only the governor can determine what’s on the agenda for the special session and he has decided on the following items so far:

• Legislation relating to fiscal matters necessary for the implementation of House Bill No. 1 as passed by the 82nd Legislature, Regular Session, including measures that will allow school districts to operate more efficiently.
• Legislation relating to health care cost containment, access to services through managed care, and the creation of economic and structural incentives to improve the quality of Medicaid services.
• Legislation relating to congressional redistricting.
• Legislation relating to the operation of the Texas Windstorm Insurance Association.
• Legislation relating to the abolition of sanctuary cities, the use of the federal Secure Communities program by law enforcement agencies, and the issuance of driver's licenses and personal identification certificates.

While none of these items specifically mention taxes, HB 1 as passed in the regular session and SB 1, which is the Special Session substitute, contain both franchise and sales tax issues.  SB 1 has already passed the Senate and is now being debated in the House floor as this is written.  The bill being debated includes an extension of the $1 million minimum revenue required to be subject to the franchise tax for two years until Dec. 21, 2013 and an extension of pre-margin tax credits for four years until Dec. 31, 2016.

Perry vetoed HB 2403 by CPA Rep. John Otto (R-Dayton), the so-called Amazon bill, which requires retailers with any operations in Texas to collect Texas sales taxes. Despite the veto, language identical to HB 2403 is included in SB 1 now being debated. In a press release today Perry urged legislators to eliminate that section of the bill.

This afternoon the House rejected an amendment that would have stripped the HB 2403 language from SB 1, despite Gov. Perry’s objection to the provision.  Perry still has a chance to get the provision eliminated in the Conference Committee likely to be appointed to rationalize Senate/House differences in the bill.

Goveror appoints new presiding officer and three CPAs and two public members to the Texas State Board of Public Accountancy.

Governor Perry announced the appointment of TSCPA member Carlos Barrera as the Presiding Officer for the Texas State Board of Public Accountancy. Barrera has two more years to serve on his six year term.

Perry also appointed TSCPA members Coalter Baker, John Broaddus and Rocky Duckworth to six year terms on the board. Baker has served on the board previously, including a time as the board’s presiding officer. Broaddus has served for many years on TSCPA’s Board of Directors, a three year term on the Executive Board, President of TSCPA's El Paso Chapter and in numerous committee leadership positions. Duckworth is a retired KPMG partner from Houston with extensive auditing experience with public companies and oil and gas entities.

Perry also reappointed public member Catherine Rodewald of Dallas to a full six year term. Rodewald was previously served two partial terms on the board. Perry appointed new public member, Jonathan Cluck of Fair Oaks Ranch, to a six year term. Cluck is an attorney.

Congratulations to all.

Check the Governor’s website for more information about the appointees.

Attention Texas Franchise Tax Preparers: New Filing Method for 2011

The Texas Comptroller's office has a new Franchise Tax Software Filing Process. This reporting process enables tax preparers to electronically transmit franchise tax returns using software purchased from approved software developers for 2011 (Drake, CCH, and TaxWorks). This software is designed to meet current business rules and reporting requirements.

The collaboration between the Comptroller's office and software developers resulted in an interactive program providing immediate feedback to the person submitting the return. Benefits to preparers include immediate return status response, built-in edits minimizing invalid data, and most important, line by line error identification.

The built-in edits and error messages streamline the reporting process, dramatically reducing the time to both process returns and update the taxpayer's account. he immediate feedback enables tax preparers to identify and correct errors promptly. This enables businesses to remain in good standing and helps ensure their uninterrupted ability to conduct business.

For more information on the franchise tax, contact the Texas Comptroller's Office at 1-800-252-1381. 

For questions related to Franchise Tax Web Service, please email XMLBusiness@cpa.state.tx.us

Small Business Tax Exemption is Temporary

The substitute HB 262 voted out of the Ways and Means committee was changed from the original bill concept and now the $1 million dollar floor for franchise taxes is only extended for two years, through Dec. 31, 2013.  Without additional legislation during the 2013 legislative session, the minimum revenue requirement would drop to $600,000 on Jan. 1, 2014.

House Ways and Means Votes Small Business Tax Exemption

Undaunted by a multibillion dollar budget deficit, the House Ways and Means committee voted in favor of HB 262 by Rep. Harvey Hilderbran (R-Kerrville), who chairs the committee, which makes the $1 million minimum revenue floor for franchise taxes permanent.  The Houston Chronicle reports that the price tag on the bill is approximately $150 million for the next biennium.  Small businesses have been lobbying for the bill.  Without passage of the bill the small business revenue minimum drops to $600,000.  In an earlier hearing on the bill Hilderbran stated he hoped to bring other bills that would fund the $150 million, but those bills have yet to materialize.