TSCPA Governmental Affairs

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.