Senate Changes Margin Tax Technical Corrections Bill

Last week we reported on Sen. Ogden's committee substitute to HB 3928, the margin tax technical corrections bill.  Ogden's biggest bombshell was his proposal to change the apportionment method from Joyce to Finnegan.  We are happy to report that the bill that was finally voted from the Senate Finance committee did not include that change.  The new bill leaves the current (Joyce) apportionment method unchanged but it does require combined groups to report the total revenues that would have been included if the Finnegan method was in place.  The bill still includes a shocker - it creates a gross receipts tax of .675% as the Texas franchise tax.  That's right, if the bill passes the Texas franchise tax will become a .675% gross receipts tax.  But the taxpayer may elect to pay an alternative franchise tax called the "elective franchise tax" which is our now beloved margin tax.  This interesting twist may take the wind out of the sails for those planning to challenge the franchise tax as an income tax.  The bill clearly makes the franchise tax a gross receipts tax (not an income tax) but then gives the taxpayer the right to elect to pay the margin tax in lieu of the gross receipts tax.  So if a taxpayer challenges the margin tax successfully, they get to pay the gross receipts tax.  Business organizations are calling this a poison pill provision just to avoid the constitutional challenges.

The new bill includes most of the other changes made by Ogden's original committee substitute, including changing the common ownership percentage for combined group reporting from 80% to "more than 50%"  and providing for a small business tax discount for entities with revenues between $300,000 and $900,000.  The bill changes the anti-Sprint section to actually allow taxpayers to identify the franchise tax on an invoice to customers as long as it is after the fact (after the tax has been paid), is for the exact amount of the tax and includes a disclaimer that the state does not require the entity to collect the tax from the customer.  Capital gains and gains from the sales of commodities and securities are included as passive income.
 

Click here to read a bill summary.
 

Click here to read the proposed bill.