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  H.B. No. 3928
 
 
 
 
AN ACT
  relating to technical changes to the revised franchise tax.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 171.0001, Tax Code, as effective January
  1, 2008, is amended by amending Subdivisions (6), (8), (9), (10),
  (15), and (17) and adding Subdivisions (11-a) and (13-a) to read as
  follows:
               (6)  "Client company" means:
                     (A)  a person that contracts with a license holder
  under Chapter 91 [has the meaning assigned by Section 91.001],
  Labor Code, and is assigned employees by the license holder under
  that contract; or
                     (B)  a client of a temporary employment service,
  as that term is defined by Section 93.001(2), Labor Code, to whom
  individuals are assigned for a purpose described by that
  subdivision.
               (8)  "Controlling interest" means:
                     (A)  for a corporation, either more than 50 [80]
  percent [or more], owned directly or indirectly, of the total
  combined voting power of all classes of stock of the corporation, or
  more than 50 [80] percent [or more], owned directly or indirectly,
  of the beneficial ownership interest in the voting stock of the
  corporation; [and]
                     (B)  for a partnership, association, trust, or
  other entity other than a limited liability company, more than 50 
  [80] percent [or more], owned directly or indirectly, of the
  capital, profits, or beneficial interest in the partnership,
  association, trust, or other entity; and
                     (C)  for a limited liability company, either more
  than 50 percent, owned directly or indirectly, of the total
  membership interest of the limited liability company or more than
  50 percent, owned directly or indirectly, of the beneficial
  ownership interest in the membership interest of the limited
  liability company.
               (9)  "Internal Revenue Code" means the Internal Revenue
  Code of 1986 in effect for the federal tax year beginning on January
  1, 2007 [2006], not including any changes made by federal law after
  that date, and any regulations adopted under that code applicable
  to that period.
               (10)  "Lending institution" means an entity that makes
  loans and:
                     (A)  is regulated by the Federal Reserve Board,
  the Office of the Comptroller of the Currency, the Federal Deposit
  Insurance Corporation, the Commodity Futures Trading Commission,
  the Office of Thrift Supervision, the Texas Department of Banking,
  the Office of Consumer Credit Commissioner, [the Department of
  Savings and Mortgage Lending,] the Credit Union Department, or any
  comparable regulatory body;
                     (B)  is licensed by, registered with, or otherwise
  regulated by the Department of Savings and Mortgage Lending;
                     (C)  is a "broker" or "dealer" as defined by the
  Securities Exchange Act of 1934 at 15 U.S.C. Section 78c; or
                     (D)  provides financing to unrelated parties
  solely for agricultural production.
               (11-a)  "Natural person" means a human being or the
  estate of a human being. The term does not include a purely legal
  entity given recognition as the possessor of rights, privileges, or
  responsibilities, such as a corporation, limited liability
  company, partnership, or trust.
               (13-a)  "Security," for purposes of Sections
  171.1011(g), 171.1011(g-2), and 171.106(f) only, has the meaning
  assigned by Section 475(c)(2), Internal Revenue Code, and includes
  instruments described by Sections 475(e)(2)(B), (C), and (D) of
  that code.
               (15)  "Staff leasing services company" means:
                     (A)  a business entity that offers staff leasing
  services, as that term is defined [has the meaning assigned] by
  Section 91.001, Labor Code; or
                     (B)  a temporary employment service, as that term
  is defined by Section 93.001, Labor Code.
               (17)  "Unitary business" means a single economic
  enterprise that is made up of separate parts of a single entity or
  of a commonly controlled group of entities that are sufficiently
  interdependent, integrated, and interrelated through their
  activities so as to provide a synergy and mutual benefit that
  produces a sharing or exchange of value among them and a significant
  flow of value to the separate parts. In determining whether a
  unitary business exists, the comptroller shall consider any
  relevant factor, including whether:
                     (A)  the activities of the group members[:
                           [(i)]  are in the same general line, such as
  manufacturing, wholesaling, retailing of tangible personal
  property, insurance, transportation, or finance; [or]
                     (B)  the activities of the group members [(ii)]
  are steps in a vertically structured enterprise or process, such as
  the steps involved in the production of natural resources,
  including exploration, mining, refining, and marketing; or [and]
                     (C) [(B)]  the members are functionally
  integrated through the exercise of strong centralized management,
  such as authority over purchasing, financing, product line,
  personnel, and marketing.
         SECTION 2.  Section 171.0002, Tax Code, as effective January
  1, 2008, is amended to read as follows:
         Sec. 171.0002.  DEFINITION OF TAXABLE ENTITY.  (a)  Except as
  otherwise provided by this section, "taxable entity" means a
  partnership, limited liability partnership, corporation, banking
  corporation, savings and loan association, limited liability
  company, business trust, professional association, business
  association, joint venture, joint stock company, holding company,
  or other legal entity. The term includes a combined group. A joint
  venture does not include joint operating or co-ownership
  arrangements meeting the requirements of Treasury Regulation
  Section 1.761-2(a)(3) that elect out of federal partnership
  treatment as provided by Section 761(a), Internal Revenue Code.
         (b)  "Taxable entity" does not include:
               (1)  a sole proprietorship;
               (2)  a general partnership:
                     (A)  the direct ownership of which is entirely
  composed of natural persons; and
                     (B)  the liability of which is not limited under a
  statute of this state or another state, including by registration
  as a limited liability partnership;
               (3)  a passive entity as defined by Section 171.0003;
  or
               (4)  an entity that is exempt from taxation under
  Subchapter B.
         (c)  "Taxable entity" does not include an entity that is:
               (1)  a grantor trust as defined by Sections 671 and
  7701(a)(30)(E), Internal Revenue Code, all of the grantors and
  beneficiaries of which are natural persons or charitable entities
  as described in Section 501(c)(3), Internal Revenue Code, excluding
  a trust taxable as a business entity pursuant to Treasury
  Regulation Section 301.7701-4(b);
               (2)  an estate of a natural person as defined by Section
  7701(a)(30)(D), Internal Revenue Code, excluding an estate taxable
  as a business entity pursuant to Treasury Regulation Section
  301.7701-4(b);
               (3)  an escrow;
               (4)  [a family limited partnership that is a passive
  entity in which at least 80 percent of the interests are held,
  directly or indirectly, by members of the same family, including an
  individual's ancestors, lineal descendants, spouse, and brothers
  and sisters by the whole or half blood, and the estate of any of
  these persons, and that is a limited partnership:
                     [(A)     formed pursuant to the Texas Revised Limited
  Partnership Act (Article 6132a-1, Vernon's Texas Civil Statutes);
                     [(B)     formed pursuant to the limited partnership
  law of any other state; or
                     [(C)     treated as a partnership for federal income
  tax purposes;
               [(5)     a passive investment partnership that is a
  passive entity and that is:
                     [(A)     formed pursuant to the Texas Revised Limited
  Partnership Act (Article 6132a-1, Vernon's Texas Civil Statutes);
                     [(B)     formed pursuant to the limited partnership
  law of any other state; or
                     [(C)     formed pursuant to the limited partnership
  laws of any foreign country;
               [(6)     a passive investment partnership that is a
  passive entity and is a general partnership;
               [(7)  a trust that is a passive entity:
                     [(A)     that is taxable as a trust under Section
  641, Internal Revenue Code;
                     [(B)     all of the beneficiaries of which are
  natural persons or charitable entities as defined in Section
  501(c)(3), Internal Revenue Code;
                     [(C)     that is not a trust taxable as a business
  entity pursuant to Treasury Regulation Section 301.7701-4(b); and
                     [(D)     that is organized as a trust and is
  described in Section 7701(a)(30)(E), Internal Revenue Code;
               [(8)]  a real estate investment trust (REIT) as defined
  by Section 856, Internal Revenue Code, and its "qualified REIT
  subsidiary" entities as defined by Section 856(i)(2), Internal
  Revenue Code, provided that:
                     (A)  a REIT with any amount of its assets in direct
  holdings of real estate, other than real estate it occupies for
  business purposes, as opposed to holding interests in limited
  partnerships or other entities that directly hold the real estate,
  is a taxable entity; and
                     (B)  a limited partnership or other entity that
  directly holds the real estate as described in Paragraph (A) is not
  exempt under this subdivision, without regard to whether a REIT
  holds an interest in it; [or]
               (5) [(9)]  a real estate mortgage investment conduit
  (REMIC), as defined by Section 860D, Internal Revenue Code;
               (6)  a nonprofit self-insurance trust created under
  Chapter 2212, Insurance Code, or a predecessor statute;
               (7)  a trust qualified under Section 401(a), Internal
  Revenue Code; or
               (8)  a trust or other entity that is exempt under
  Section 501(c)(9), Internal Revenue Code.
         (d)  An entity that can file as a sole proprietorship for
  federal tax purposes is not a sole proprietorship for purposes of
  Subsection (b)(1) and is not exempt under that subsection if the
  entity is formed in a manner under the statutes of this state, [or]
  another state, or a foreign country that limit the liability of the
  entity.
         SECTION 3.  Section 171.0003(a), Tax Code, as effective
  January 1, 2008, is amended to read as follows:
         (a)  An entity is a passive entity only if:
               (1)  the entity is a general or limited partnership or a
  trust, other than a business trust;
               (2)  during the period on which margin is based, the
  entity's federal gross income consists of at least 90 percent of the
  following income:
                     (A)  dividends, interest, foreign currency
  exchange gain, periodic and nonperiodic payments with respect to
  notional principal contracts, option premiums, cash settlement or
  termination payments with respect to a financial instrument, and
  income from a limited liability company;
                     (B)  distributive shares of partnership income to
  the extent that those distributive shares of income are greater
  than zero;
                     (C)  capital gains from the sale of real property,
  gains from the sale of commodities traded on a commodities
  exchange, and gains from the sale of securities; and
                     (D)  royalties, bonuses, or delay rental income
  from mineral properties and income from other nonoperating mineral
  interests; and
               (3)  the entity does not receive more than 10 percent of
  its federal gross income from conducting an active trade or
  business.
         SECTION 4.  Section 171.0004(e), Tax Code, as effective
  January 1, 2008, is amended to read as follows:
         (e)  For purposes of this section:
               (1)  the ownership of a royalty interest or a
  nonoperating working interest in mineral rights does not constitute
  conduct of an active trade or business; [and]
               (2)  payment of compensation to employees or
  independent contractors for financial or legal services reasonably
  necessary for the operation of the entity does not constitute
  conduct of an active trade or business; and
               (3)  holding a seat on the board of directors of an
  entity does not by itself constitute conduct of an active trade or
  business.
         SECTION 5.  Section 171.001, Tax Code, as effective January
  1, 2008, is amended by adding Subsection (c) to read as follows:
         (c)  The tax imposed under this section or Section 171.0011
  is not imposed on an entity if, during the period on which the
  report is based, the entity qualifies as a passive entity as defined
  by Section 171.0003.
         SECTION 6.  Sections 171.0011(a) and (b), Tax Code, as
  effective January 1, 2008, are amended to read as follows:
         (a)  Except as provided by Section 171.001(c) [Subsection
  (e)], an additional tax is imposed on a taxable entity that for any
  reason becomes no longer subject to the tax imposed under this
  chapter.
         (b)  The additional tax is equal to the appropriate rate
  under Section 171.002 of the taxable entity's taxable margin
  computed on the period beginning on the day after the last day for
  which the tax imposed on taxable margin or net taxable earned
  surplus was computed and ending on the date the taxable entity is no
  longer subject to the tax imposed under this chapter.
         SECTION 7.  Sections 171.002(a), (b), (c), and (d), Tax
  Code, as effective January 1, 2008, are amended to read as follows:
         (a)  Subject to Sections [Section] 171.003 and 171.1016 and
  except as provided by Subsection (b), the rate of the franchise tax
  is one percent [per year of privilege period] of taxable margin.
         (b)  Subject to Sections 171.003 and 171.1016, the [The] rate
  of the franchise tax is 0.5 percent [per year of privilege period]
  of taxable margin for those taxable entities primarily engaged in
  retail or wholesale trade.
         (c)  A taxable entity is primarily engaged in retail or
  wholesale trade only if:
               (1)  the total revenue from its activities in retail or
  wholesale trade is greater than the total revenue from its
  activities in trades other than the retail and wholesale trades;
               (2)  except as provided by Subsection (c-1), less than
  50 percent of the total revenue from activities in retail or
  wholesale trade comes from the sale of products it produces or
  products produced by an entity that is part of an affiliated group
  to which the taxable entity also belongs; and
               (3)  the taxable entity does not provide retail or
  wholesale utilities, including telecommunications services, [and]
  electricity, or gas.
         (d)  A taxable entity is not required to pay any tax and is
  not considered to owe any tax for a period if:
               (1)  the amount of tax computed for the taxable entity
  is less than $1,000; or
               (2)  the amount of the taxable entity's total revenue
  from its entire business is less than or equal to $300,000 or the
  amount determined under Section 171.006 per 12-month period on
  which margin is based.
         SECTION 8.  Subchapter A, Chapter 171, Tax Code, is amended
  by adding Section 171.0021 to read as follows:
         Sec. 171.0021.  DISCOUNTS FROM TAX LIABILITY FOR SMALL
  BUSINESSES. (a) A taxable entity is entitled to a discount of the
  tax imposed under this chapter that the taxable entity is required
  to pay after determining its taxable margin under Section 171.101,
  applying the appropriate rate of the tax under Section 171.002(a)
  or (b), and subtracting any other allowable credits, as follows:
               (1)  for a taxable entity for which the total revenue
  from its entire business is greater than $300,000 but less than
  $400,000, the taxable entity is entitled to a discount of 80
  percent;
               (2)  for a taxable entity for which the total revenue
  from its entire business is equal to or greater than $400,000 but
  less than $500,000, the taxable entity is entitled to a discount of
  60 percent;
               (3)  for a taxable entity for which the total revenue
  from its entire business is equal to or greater than $500,000 but
  less than $700,000, the taxable entity is entitled to a discount of
  40 percent; and
               (4)  for a taxable entity for which the total revenue
  from its entire business is equal to or greater than $700,000 but
  less than $900,000, the taxable entity is entitled to a discount of
  20 percent.
         (b)  The amounts under Subsection (a) are subject to
  adjustment as provided by Section 171.006.
         SECTION 9.  The heading to Section 171.006, Tax Code, as
  effective January 1, 2008, is amended to read as follows:
         Sec. 171.006.  ADJUSTMENT OF ELIGIBILITY FOR NO TAX DUE,
  DISCOUNTS, [EXEMPTION] AND COMPENSATION DEDUCTION.
         SECTION 10.  Section 171.006(b), Tax Code, as effective
  January 1, 2008, is amended to read as follows:
         (b)  Beginning in 2010 [2009], on January 1 of each
  even-numbered [odd-numbered] year, the amounts prescribed by
  Sections 171.002(d)(2), 171.0021, and 171.1013(c) are increased or
  decreased by an amount equal to the amount prescribed by those
  sections on December 31 of the preceding year multiplied by the
  percentage increase or decrease during the preceding state fiscal
  biennium in the consumer price index and rounded to the nearest
  $10,000.
         SECTION 11.  Section 171.101(d), Tax Code, as effective
  January 1, 2008, is amended to read as follows:
         (d)  An election under Subsection (a)(1)(B)(ii) shall be
  made by the taxable entity on its annual report and is effective
  only for that annual report.  A taxable entity shall notify the
  comptroller of its election not later than the due date of the
  annual [The election may be changed by filing an amended] report.
         SECTION 12.  Section 171.1011, Tax Code, as effective
  January 1, 2008, is amended by amending Subsections (b), (c), (d),
  (e), (g-3), (h), (n), and (o) and adding Subsections (g-4) and (t)
  to read as follows:
         (b)  In this section, a reference to an amount reportable as
  income [entered] on a line number on an Internal Revenue Service
  form is the amount entered to the extent the amount entered complies
  with federal income tax law and includes the corresponding amount
  entered on a variant of the form, or a subsequent form, with a
  different line number to the extent the amount entered complies
  with federal income tax law. [The comptroller shall adopt rules as
  necessary to accomplish the legislative intent prescribed by this
  subsection and Subsection (a).]
         (c)  Except as provided by this section, and subject to
  Section 171.1014, for the purpose of computing its taxable margin
  under Section 171.101, the total revenue of a taxable entity is:
               (1)  for a taxable entity treated for federal income
  tax purposes as a corporation, an amount computed by:
                     (A)  adding:
                           (i)  the amount reportable as income 
  [entered] on line 1c, Internal Revenue Service Form 1120; [and]
                           (ii)  the amounts reportable as income 
  [entered] on lines 4 through 10, Internal Revenue Service Form
  1120; and
                           (iii)  any total revenue reported by a lower
  tier entity as includable in the taxable entity's total revenue
  under Section 171.1015(b); and
                     (B)  subtracting:
                           (i)  bad debt expensed for federal income
  tax purposes that corresponds to items of gross receipts included
  in Subsection (c)(1)(A) for the current reporting period or a past
  reporting period;
                           (ii)  to the extent included in Subsection
  (c)(1)(A), foreign royalties and foreign dividends, including
  amounts determined under Section 78 or Sections 951-964, Internal
  Revenue Code;
                           (iii)  to the extent included in Subsection
  (c)(1)(A), net distributive income from a taxable entity 
  [partnerships and from trusts and limited liability companies]
  treated as a partnership or [partnerships for federal income tax
  purposes and net distributive income from limited liability
  companies and corporations treated] as an S corporation 
  [corporations] for federal income tax purposes;
                           (iv)  allowable deductions from Internal
  Revenue Service Form 1120, Schedule C, to the extent the relating
  dividend income is included in total revenue;
                           (v)  to the extent included in Subsection
  (c)(1)(A), items of income attributable to an entity that is a
  disregarded entity for federal income tax purposes; and
                           (vi)  to the extent included in Subsection
  (c)(1)(A), other amounts authorized by this section;
               (2)  for a taxable entity treated for federal income
  tax purposes as a partnership, an amount computed by:
                     (A)  adding:
                           (i)  the amount reportable as income 
  [entered] on line 1c, Internal Revenue Service Form 1065;
                           (ii)  the amounts reportable as income 
  [entered] on lines 4, 6, and [through] 7, Internal Revenue Service
  Form 1065; [and]
                           (iii)  the amounts reportable as income 
  [entered] on lines 3a and 5 [2] through 11, Internal Revenue Service
  Form 1065, Schedule K; [and]
                           (iv)  the amounts reportable as income on
  line 17, Internal Revenue Service Form 8825;
                           (v)  the amounts reportable as income on
  line 11, plus line 2 or line 45, Internal Revenue Service Form 1040,
  Schedule F; and
                           (vi)  any total revenue reported by a lower
  tier entity as includable in the taxable entity's total revenue
  under Section 171.1015(b); and
                     (B)  subtracting:
                           (i)  bad debt expensed for federal income
  tax purposes that corresponds to items of gross receipts included
  in Subsection (c)(2)(A) for the current reporting period or a past
  reporting period;
                           (ii)  to the extent included in Subsection
  (c)(2)(A), foreign royalties and foreign dividends, including
  amounts determined under Section 78 or Sections 951-964, Internal
  Revenue Code;
                           (iii)  to the extent included in Subsection
  (c)(2)(A), net distributive income from a taxable entity 
  [partnerships and from trusts and limited liability companies]
  treated as a partnership or [partnerships for federal income tax
  purposes and net distributive income from limited liability
  companies and corporations treated] as an S corporation 
  [corporations] for federal income tax purposes;
                           (iv)  to the extent included in Subsection
  (c)(2)(A), items of income attributable to an entity that is a
  disregarded entity for federal income tax purposes; and
                           (v)  to the extent included in Subsection
  (c)(2)(A), other amounts authorized by this section; or
               (3)  for a taxable entity other than a taxable entity
  treated for federal income tax purposes as a corporation or
  partnership, an amount determined in a manner substantially
  equivalent to the amount for Subdivision (1) or (2) determined by
  rules that the comptroller shall adopt.
         (d)  Subject to Section 171.1014, a taxable entity
  [corporation] that is part of a federal consolidated group shall
  compute its total revenue under Subsection (c) as if it had filed a
  separate return for federal income tax purposes.
         (e)  A taxable entity that owns an interest in a passive
  entity [that is not included in a group report under Section
  171.1014] shall exclude from [include in] the taxable entity's
  total revenue the taxable entity's share of the net income of the
  passive entity, but only to the extent the net income of the passive
  entity was [not] generated by the margin of any other taxable
  entity.
         (g-3)  A taxable entity that provides legal services shall
  exclude from its total revenue[, to the extent included under
  Subsection (c)(1)(A), (c)(2)(A), or (c)(3)]:
               (1)  to the extent included under Subsection (c)(1)(A),
  (c)(2)(A), or (c)(3), the following flow-through funds that are
  mandated by law, contract, or fiduciary duty to be distributed to
  the claimant by the claimant's attorney or to other entities on
  behalf of a claimant by the claimant's attorney:
                     (A)  damages due the claimant;
                     (B)  funds subject to a lien or other contractual
  obligation arising out of the representation, other than fees owed
  to the attorney;
                     (C)  funds subject to a subrogation interest or
  other third-party contractual claim; and
                     (D)  fees paid an attorney in the matter who is not
  a member, partner, shareholder, or employee of the taxable entity;
               (2)  to the extent included under Subsection (c)(1)(A),
  (c)(2)(A), or (c)(3), reimbursement of the taxable entity's
  expenses incurred in prosecuting a claimant's matter that are
  specific to the matter and that are not general operating expenses;
  and
               (3)  [the actual out-of-pocket expenses of the
  attorney, not to exceed] $500 per pro bono services case handled by
  the attorney, [of providing pro bono legal services to a person,]
  but only if the attorney maintains records of the pro bono services
  for auditing purposes in accordance with the manner in which those
  services are reported to the State Bar of Texas.
         (g-4)  A taxable entity that is a pharmacy cooperative shall
  exclude from its total revenue, to the extent included under
  Subsection (c)(1)(A), (c)(2)(A), or (c)(3), flow-through funds
  from rebates from pharmacy wholesalers that are distributed to the
  pharmacy cooperative's shareholders.
         (h)  If the taxable entity belongs to an affiliated group,
  the taxable entity may not exclude payments described by Subsection
  (f), (g), (g-1), (g-2), [or] (g-3), or (g-4) that are made to
  entities that are members of the affiliated group.
         (n)  Except as provided by Subsection (o), a taxable entity
  that is a health care provider shall exclude from its total
  revenue[, to the extent included under Subsection (c)(1)(A),
  (c)(2)(A), or (c)(3)]:
               (1)  to the extent included under Subsection (c)(1)(A),
  (c)(2)(A), or (c)(3), the total amount of payments the health care
  provider received:
                     (A)  under the Medicaid program, Medicare
  program, Indigent Health Care and Treatment Act (Chapter 61, Health
  and Safety Code), and Children's Health Insurance Program (CHIP);
                     (B)  for professional services provided in
  relation to a workers' compensation claim under Title 5, Labor
  Code; and
                     (C)  for professional services provided to a
  beneficiary rendered under the TRICARE military health system; and
               (2)  the actual cost to the health care provider for any
  uncompensated care provided, but only if the provider maintains
  records of the uncompensated care for auditing purposes and, if the
  provider later receives payment for all or part of that care, the
  provider adjusts the amount excluded for the tax year in which the
  payment is received.
         (o)  A health care provider that is a health care institution
  shall exclude from its total revenue[, to the extent included under
  Subsection (c)(1)(A), (c)(2)(A), or (c)(3),] 50 percent of the
  amounts described by Subsection (n).
         (t)  The comptroller shall adopt rules as necessary to
  accomplish the legislative intent prescribed by this section.
         SECTION 13.  Section 171.1011(l)(1), Tax Code, as effective
  January 1, 2008, is amended to read as follows:
               (1)  "Sales commission" means:
                     (A)  any form of compensation paid to a person for
  engaging in an act for which a license is required by Chapter 1101,
  Occupations Code; or [and]
                     (B)  compensation paid to a sales representative
  by a principal in an amount that is based on the amount or level of
  certain orders for or sales of the principal's product and that the
  principal is required to report on Internal Revenue Service Form
  1099-MISC.
         SECTION 14.  Section 171.1012(a)(3)(A), Tax Code, as
  effective January 1, 2008, is amended to read as follows:
                     (A)  "Tangible personal property" means:
                           (i)  personal property that can be seen,
  weighed, measured, felt, or touched or that is perceptible to the
  senses in any other manner;
                           (ii)  films, sound recordings, videotapes,
  live and prerecorded television and radio programs, books, and
  other similar property embodying words, ideas, concepts, images, or
  sound, without regard to the means or methods of distribution or the
  medium in which the property is embodied, [by the creator of the
  property] for which, as costs are incurred in producing the
  property, it is intended or is reasonably likely that any
  [tangible] medium in which the property is embodied will be
  mass-distributed by the creator or any one or more third parties in
  a form that is not substantially altered; and
                           (iii)  a computer program, as defined by
  Section 151.0031.
         SECTION 15.  Section 171.1012, Tax Code, as effective
  January 1, 2008, is amended by amending Subsections (c), (g), (h),
  and (k) and adding Subsection (o) to read as follows:
         (c)  The cost of goods sold includes all direct costs of
  acquiring or producing the goods, including:
               (1)  labor costs;
               (2)  cost of materials that are an integral part of
  specific property produced;
               (3)  cost of materials that are consumed in the
  ordinary course of performing production activities;
               (4)  handling costs, including costs attributable to
  processing, assembling, repackaging, and inbound transportation
  costs;
               (5)  storage costs, including the costs of carrying,
  storing, or warehousing property, subject to Subsection (e);
               (6)  depreciation, depletion, and amortization,
  reported on the federal income tax return on which the report under
  this chapter is based, to the extent associated with and necessary
  for the production of goods, including recovery described by
  Section 197, Internal Revenue Code;
               (7)  the cost of renting or leasing equipment,
  facilities, or real property directly used for the production of
  the goods, including pollution control equipment and intangible
  drilling and dry hole costs;
               (8)  the cost of repairing and maintaining equipment,
  facilities, or real property directly used for the production of
  the goods, including pollution control devices;
               (9)  costs attributable to research, experimental,
  engineering, and design activities directly related to the
  production of the goods, including all research or experimental
  expenditures described by Section 174, Internal Revenue Code;
               (10)  geological and geophysical costs incurred to
  identify and locate property that has the potential to produce
  minerals;
               (11)  taxes paid in relation to acquiring or producing
  any material, or taxes paid in relation to services that are a
  direct cost of production;
               (12)  the cost of producing or acquiring electricity
  sold; and
               (13)  a contribution to a partnership in which the
  taxable entity owns an interest that is used to fund activities, the
  costs of which would otherwise be treated as cost of goods sold of
  the partnership, but only to the extent that those costs are related
  to goods distributed to the taxable entity as goods-in-kind in the
  ordinary course of production activities rather than being sold.
         (g)  A taxable entity that is allowed a subtraction by this
  section for a cost of goods sold and that is subject to Section
  263A, 460, or 471, Internal Revenue Code, may [shall] capitalize
  that cost in the same manner and to the same extent that the taxable
  entity capitalized that cost on its federal income tax return or may
  expense those costs [is required or allowed to capitalize the cost
  under federal law and regulations], except for costs excluded under
  Subsection (e), or in accordance with Subsections (c), (d), and
  (f).  If the taxable entity elects to capitalize costs, it must
  capitalize each cost allowed under this section that it capitalized
  on its federal income tax return. If the taxable entity later
  elects to begin expensing a cost that may be allowed under this
  section as a cost of goods sold, the entity may not deduct any cost
  in ending inventory from a previous report. If the taxable entity
  elects to expense a cost of goods sold that may be allowed under
  this section, a cost incurred before the first day of the period on
  which the report is based may not be subtracted as a cost of goods
  sold. If the taxable entity elects to expense a cost of goods sold
  and later elects to capitalize that cost of goods sold, a cost
  expensed on a previous report may not be capitalized.
         (h)  A taxable entity shall determine its cost of goods sold,
  except as otherwise provided by this section, in accordance with
  the methods used on the federal income tax return on which the
  report under this chapter is based [permitted by federal statutes
  and regulations]. This subsection does not affect the type or
  category of cost of goods sold that may be subtracted under this
  section.
         (k)  Notwithstanding any other provision of this section, if
  the taxable entity is a lending institution 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)  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.
         SECTION 16.  Section 171.1013, Tax Code, as effective
  January 1, 2008, is amended by amending Subsections (a), (b), and
  (c) and adding Subsection (b-1) to read as follows:
         (a)  Except as otherwise provided by this section, "wages and
  cash compensation" means the amount entered in the Medicare wages
  and tips box of Internal Revenue Service Form W-2 or any subsequent
  form with a different number or designation that substantially
  provides the same information. The term also includes, to the
  extent not included above:
               (1)  net distributive income from a taxable entity
  treated as a partnership [partnerships and from trusts and limited
  liability companies treated as partnerships] for federal income tax
  purposes, but only if the person receiving the distribution is a
  natural person;
               (2)  net distributive income from limited liability
  companies and corporations treated as S corporations for federal
  income tax purposes, but only if the person receiving the
  distribution is a natural person; [and]
               (3)  stock awards and stock options deducted for
  federal income tax purposes; and
               (4)  net distributive income from a limited liability
  company treated as a sole proprietorship for federal income tax
  purposes, but only if the person receiving the distribution is a
  natural person.
         (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 may subtract an amount 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 [to the extent deductible for federal income tax
  purposes].
         (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 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)  Notwithstanding the actual amount of wages and cash
  compensation paid by a taxable entity to its officers, directors,
  owners, partners, and employees, a taxable entity may not include
  more than $300,000, or the amount determined under Section 171.006,
  per 12-month period on which margin is based, for any person in the
  amount of wages and cash compensation it determines under this
  section [Section 171.101]. If a person is paid by more than one
  entity of a combined group, the combined group may not subtract in
  relation to that person a total of more than $300,000, or the amount
  determined under Section 171.006, per 12-month period on which
  margin is based.
         SECTION 17.  Section 171.1014, Tax Code, as effective
  January 1, 2008, is amended by amending Subsections (b), (d), and
  (f) and adding Subsections (d-1), (h), and (i) to read as follows:
         (b)  The combined group is a single taxable entity for
  purposes of the application of the tax imposed under this chapter,
  including Section 171.002(d).
         (d)  For purposes of Section 171.101, a combined group shall
  make an election to subtract either cost of goods sold or
  compensation that applies to all of its members. Regardless of the
  election, the taxable margin of the combined group may not exceed 70
  percent of the combined group's total revenue from its entire
  business, as provided by Section 171.101(a)(1)(A).
         (d-1)  A member of a combined group may claim as cost of goods
  sold those costs that qualify under Section 171.1012 if the goods
  for which the costs are incurred are owned by another member of the
  combined group.
         (f)  For purposes of Section 171.101, a combined group 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).
         (h)  Each taxable entity that is part of a combined group
  report shall, for purposes of determining margin and apportionment,
  include its activities for the same period used by the combined
  group.
         (i)  Each member of the combined group shall be jointly and
  severally liable for the tax of the combined group.
         SECTION 18.  Section 171.1015, Tax Code, as effective
  January 1, 2008, is amended to read as follows:
         Sec. 171.1015.  REPORTING FOR CERTAIN PARTNERSHIPS IN TIERED
  PARTNERSHIP ARRANGEMENT. (a) In this section, "tiered partnership
  arrangement" means an ownership structure in which any [all] of the
  interests in one taxable entity treated as a partnership or 
  [partnership, trust, or limited liability company that is treated
  for federal income taxes as a partnership or a limited liability
  company treated as] an S corporation for federal income tax
  purposes (a "lower tier entity" [an "upper tier partnership"]) are
  owned by one or more other taxable entities (an "upper [a "lower]
  tier entity").  A tiered partnership arrangement may have two or
  more tiers.
         (b)  In addition to the tax it is required to pay under this
  chapter on its own taxable margin, a taxable entity that is an upper
  [a lower] tier entity may include, for purposes of calculating its
  own taxable margin, the total revenue [pay the tax on the taxable
  margin] of a lower tier entity [higher tier partnership] if the
  lower tier entity [higher tier partnership] submits a report to the
  comptroller showing the amount of total revenue [taxable margin]
  that each upper [lower] tier entity that owns it should include
  within the upper [lower] tier entity's own taxable margin
  calculation, according to the ownership [profits] interest of the
  upper [lower] tier entity. [An upper tier partnership is not
  required to pay tax under this chapter on any taxable margin
  reported under this section.]
         (c)  This section does not apply to that percentage of the
  total revenue [taxable margin] attributable to an upper [a lower]
  tier entity by a lower tier entity [an upper tier partnership] if
  the upper [lower] tier entity is not subject to the tax under this
  chapter. In this case, the lower tier entity [higher tier
  partnership] is liable for the tax on its taxable margin.
         (d)  Section 171.002(d) does not apply to an upper tier
  entity if, before the attribution of any total revenue by a lower
  tier entity to an upper tier entity under this section, the lower
  tier entity does not meet the criteria of Section 171.002(d)(1) or
  (d)(2).
         (e)  The comptroller shall adopt rules to administer this
  section.
         SECTION 19.  Subchapter A, Chapter 171, Tax Code, is amended
  by adding Section 171.1016 to read as follows:
         Sec. 171.1016.  E-Z COMPUTATION AND RATE. (a)
  Notwithstanding any other provision of this chapter, a taxable
  entity whose total revenue from its entire business is not more than
  $10 million may elect to pay the tax imposed under this chapter in
  the amount computed and at the rate provided by this section rather
  than in the amount computed and at the tax rate provided by Section
  171.002.
         (b)  The amount of the tax for which a taxable entity that
  elects to pay the tax as provided by this section is liable is
  computed by:
               (1)  determining the taxable entity's total revenue
  from its entire business, as determined under Section 171.1011;
               (2)  apportioning the amount computed under
  Subdivision (1) to this state, as provided by Section 171.106, to
  determine the taxable entity's apportioned total revenue; and
               (3)  multiplying the amount computed under Subdivision
  (2) by the rate of 0.575 percent.
         (c)  A taxable entity that elects to pay the tax as provided
  by this section may not take a credit, deduction, or other
  adjustment that is not specifically authorized by this section.
         (d)  Section 171.0021 applies to a taxable entity that elects
  to pay the tax as provided by this section.
         (e)  A reference in this chapter or other law to the rate of
  the franchise tax means, as appropriate, the rate under Section
  171.002 or, for a taxable entity that elects to pay the tax as
  provided by this section, the rate under this section.
         SECTION 20.  Section 171.103, Tax Code, as effective January
  1, 2008, is amended by adding Subsections (c) and (d) to read as
  follows:
         (c)  A taxable entity that is a combined group shall include
  in a report filed under Section 171.201 or 171.202, for each member
  of the combined group that does not have nexus with this state for
  the purpose of taxation:
               (1)  the gross receipts computed under Subsection (a);
  and
               (2)  the gross receipts computed under Subsection (a)
  that are subject to taxation in another state under a throwback law
  or regulation.
         (d)  The information required by Subsection (c) may be used
  for informational purposes only.  The comptroller shall adopt rules
  as necessary to enforce the reporting requirement prescribed by
  Subsection (c).
         SECTION 21.  Section 171.1055(b), Tax Code, as effective
  January 1, 2008, is amended to read as follows:
         (b)  In apportioning margin, receipts derived from
  transactions between individual members of a combined group that
  are excluded under Section 171.1014(c)(3) may not be included in
  the receipts of the taxable entity from its business done in this
  state as determined under Section 171.103, except that receipts
  ultimately derived from the sale of tangible personal property
  between individual members of a combined group where one member
  party to the transaction does not have nexus in this state shall be
  included in the receipts of the taxable entity from its business
  done in this state as determined under Section 171.103 to the extent
  that the member of the combined group that does not have nexus in
  this state resells the tangible personal property without
  substantial modification to a purchaser in this state.  "Receipts
  ultimately derived from the sale" means the amount paid for the
  tangible personal property by the third party purchaser.
         SECTION 22.  Section 171.106, Tax Code, as effective January
  1, 2008, is amended by adding Subsection (f) to read as follows:
         (f)  Notwithstanding Section 171.1055, if a loan or security
  is treated as inventory of the seller for federal income tax
  purposes, the gross proceeds of the sale of that loan or security
  are considered gross receipts.
         SECTION 23.  Section 171.111, Tax Code, as effective January
  1, 2008, is amended to read as follows:
         Sec. 171.111.  TEMPORARY CREDIT ON TAXABLE MARGIN.  (a)  On
  the first report originally due under this chapter on or after
  January 1, 2008, [Not later than March 1, 2007,] a taxable entity
  must [may] notify the comptroller in writing of its intent to
  [preserve its right to] take a credit in an amount allowed by this
  section on the tax due on taxable margin. The taxable entity may
  thereafter elect to claim the credit for the current year and future
  year at or before the original due date of any report due after
  January 1, 2008 [2007], until the taxable entity revokes the
  election or this section expires, whichever is earlier. A taxable
  entity may claim the credit for not more than 20 consecutive
  privilege periods beginning with the first report originally due
  under this chapter on or after January 1, 2008 [2007]. A taxable
  entity may make only one election under this section and the
  election may not be conveyed, assigned, or transferred to another
  entity.
         (b)  The credit allowed under this section for any privilege
  period is computed by:
               (1)  determining the amount of the business loss
  carryforwards of the taxable entity under Section 171.110(e), as
  that section applied to annual reports originally due before
  January 1, 2008, that were not exhausted on a report originally due
  under this chapter before January 1, 2008[, as of the end of the
  taxable entity's accounting year ending in 2006, of the difference
  between (i) the taxable entity's deductible temporary differences
  and net operating loss carryforwards, net of related valuation
  allowance amounts, shown on the taxable entity's books and records
  on the last day of its taxable year ending in 2006, and (ii) the
  taxable entity's taxable temporary differences as shown on those
  books and records on that date. The amount of other net deferred
  tax items may be less than zero. For the purpose of computing the
  amount of the taxable entity's other net deferred tax items, any
  credit carryforward allowed under this chapter shall be excluded
  from the amount of deductible temporary differences to the extent
  such credit carryforward amount, net of any related valuation
  allowance amount, is otherwise included in the taxable entity's
  deductible temporary differences, net of related valuation
  allowance amounts, shown on the taxable entity's books and records
  on the last day of the taxable entity's taxable year ending in
  2006];
               (2)  [apportioning the amount determined under
  Subdivision (1) to this state in the same manner taxable margin is
  apportioned under Section 171.106 on the first report due on or
  after January 1, 2007;
               [(3)]  multiplying the amount determined under
  Subdivision (1) [(2)]  by:
                     (A)  2.25 [10] percent for reports originally due
  on or after January 1, 2008, and before January 1, 2018; and
                     (B)  7.75 percent for reports originally due on or
  after January 1, 2018, and before September 1, 2027; and
               (3) [(4)]  multiplying the amount determined under
  Subdivision (2) [(3)] by 4.5 percent [the tax rate prescribed by
  Section 171.002(a)(2)].
         (c)  [A taxable entity that notifies the comptroller of its
  intent to preserve its right to take a credit allowed by this
  section shall submit with its notice of intent a statement of the
  amount determined under Subsection (b)(1).] The comptroller may
  request that the taxable entity submit, with each [in the] annual
  report [for each succeeding privilege period] in which the taxable
  entity is eligible to take a credit, information relating to the
  amount determined under Subsection (b)(1). The taxable entity
  shall submit in the form and content the comptroller requires any
  information relating to [the assets and liabilities that determine
  the amount of the credit,] the amount determined under Subsection
  (b)(1)[,] or any other matter relevant to the computation of the
  credit for which the taxable entity is eligible.
         (d)  A credit that a taxable entity is entitled to under this
  section may [does] not be conveyed [convey], [and may not be]
  assigned, or transferred[, in relation to a transaction in which
  the taxable entity is purchased by another entity].  A taxable
  entity loses the right to claim the credit if the entity changes
  combined groups after June 30, 2007.
         (d-1)  A taxable entity, other than a combined group, may not
  claim the credit under this section unless the taxable entity was,
  on May 1, 2006, subject to the tax imposed by this chapter as this
  chapter existed on that date. A taxable entity that is a combined
  group may claim the credit for each member entity that was, on May
  1, 2006, subject to the tax imposed by this chapter as this chapter
  existed on that date and shall compute the amount of the credit for
  that member as provided by this section.
         (d-2)  The amount of credit claimed, including any unused
  credit carried forward, may not exceed the amount of franchise tax
  due for the report.  Unused credits may not be carried forward to
  reports originally due on or after September 1, 2027.
         (e)  This section expires September 1, 2027 [2026].
         SECTION 24.  Section 171.1121(b), Tax Code, as effective
  January 1, 2008, is amended to read as follows:
         (b)  Except as otherwise provided by this section, a taxable
  entity shall use the same accounting methods to apportion margin as
  used in computing margin [reportable federal taxable income].
         SECTION 25.  Section 171.1532(b), Tax Code, as effective
  January 1, 2008, is amended to read as follows:
         (b)  The tax covering the regular annual period, other than a
  regular annual period included on the initial report, is based on
  the business done by the taxable entity during the period beginning
  with the day after the last date upon which taxable margin or net
  taxable earned surplus on a previous report was based and ending
  with its last accounting period ending date for federal income tax
  purposes in the year before the year in which the report is
  originally due.
         SECTION 26.  Section 171.201(a), Tax Code, as effective
  January 1, 2008, is amended to read as follows:
         (a)  Except as provided by Section 171.2022, a taxable entity
  on which the franchise tax is imposed shall file an initial report
  with the comptroller containing:
               (1)  financial information of the taxable entity
  necessary to compute the tax under this chapter [showing the
  financial condition of the taxable entity on the day that is the
  last day of a calendar month and that is nearest to the end of the
  taxable entity's first year of business];
               (2)  the name and address of:
                     (A)  each officer, director, and manager of the
  taxable entity;
                     (B)  for a limited partnership, each general
  partner;
                     (C)  for a general partnership or limited
  liability partnership, each managing partner or, if there is not a
  managing partner, each partner; or
                     (D)  for a trust, each trustee;
               (3)  the name and address of the agent of the taxable
  entity designated under Section 171.354; and
               (4)  other information required by the comptroller.
         SECTION 27.  Sections 171.203(a), (b), (d), and (e), Tax
  Code, as effective January 1, 2008, are amended to read as follows:
         (a)  A corporation or limited liability company on which the
  franchise tax is imposed, regardless of whether the corporation or
  limited liability company is required to pay any tax, shall file a
  report with the comptroller containing:
               (1)  the name of each corporation or limited liability
  company in which the corporation or limited liability company
  filing the report owns a 10 percent or greater interest and the
  percentage owned by the corporation or limited liability company;
               (2)  the name of each corporation or limited liability
  company that owns a 10 percent or greater interest in the
  corporation or limited liability company filing the report;
               (3)  the name, title, and mailing address of each
  person who is an officer or director of the corporation or limited
  liability company on the date the report is filed and the expiration
  date of each person's term as an officer or director, if any;
               (4)  the name and address of the agent of the
  corporation or limited liability company designated under Section
  171.354; and
               (5)  the address of the corporation's or limited
  liability company's principal office and principal place of
  business.
         (b)  The corporation or limited liability company shall file
  the report once a year on a form prescribed by the comptroller.
         (d)  The corporation or limited liability company shall send
  a copy of the report to each person named in the report under
  Subsection (a)(3) who is not currently employed by the corporation
  or limited liability company or a related corporation or limited
  liability company listed in Subsection (a)(1) or (2). An officer or
  director of the corporation or limited liability company or another
  authorized person must sign the report under a certification that:
               (1)  all information contained in the report is true
  and correct to the best of the person's knowledge; and
               (2)  a copy of the report has been mailed to each person
  identified in this subsection on the date the return is filed.
         (e)  If a person's name is included in a report under
  Subsection (a)(3) and the person is not an officer or director of
  the corporation or limited liability company on the date the report
  is filed, the person may file with the comptroller a sworn statement
  disclaiming the person's status as shown on the report. The
  comptroller shall maintain a record of statements filed under this
  subsection and shall make that information available on request
  using the same procedures the comptroller uses for other requests
  for public information.
         SECTION 28.  Section 171.204, Tax Code, as effective January
  1, 2008, is amended by adding Subsection (c) to read as follows:
         (c)  The comptroller may require any entity to file
  information as necessary to verify that the entity is not subject to
  the tax imposed under this chapter.
         SECTION 29.  Subchapter E, Chapter 171, Tax Code, is amended
  by adding Section 171.2125 to read as follows:
         Sec. 171.2125.  CALCULATING COST OF GOODS OR COMPENSATION IN
  STAFF LEASING ARRANGEMENTS.  In calculating cost of goods sold or
  compensation, a taxable entity that is a client company of a staff
  leasing services company shall rely on information provided by the
  staff leasing services company on a form promulgated by the
  comptroller or an invoice.
         SECTION 30.  Subchapter E, Chapter 171, Tax Code, is amended
  by adding Section 171.214 to read as follows:
         Sec. 171.214.  BUSINESS TAX ADVISORY COMMITTEE. (a) The
  Business Tax Advisory Committee is created.  The committee is
  composed of:
               (1)  two members of the house of representatives,
  appointed by the speaker of the house of representatives;
               (2)  two members of the senate, appointed by the
  lieutenant governor; and
               (3)  the following persons appointed by the
  comptroller:
                     (A)  at least five residents of this state who are
  engaged in a private business, as either an employee or an owner,
  that is subject to taxation under this chapter; and
                     (B)  at least two residents of this state with
  expertise in state business taxation.
         (b)  The comptroller shall determine the number of residents
  appointed under Subsection (a)(3).
         (c)  The comptroller is the presiding officer of the advisory
  committee.
         (d)  The advisory committee shall conduct a biennial study of
  the effects of the tax imposed under this chapter on businesses in
  this state.  The study must take into consideration:
               (1)  the relative share of the tax paid by industry and
  by size of business;
               (2)  how the incidence of the tax compares with the
  economic makeup of this state's business economy;
               (3)  how the tax compares in structure and in amounts
  paid to the business taxes imposed by other states;
               (4)  the effect of the tax on the economic climate of
  this state, including the effect on capital investment and job
  creation;
               (5)  any factors that result in the tax not operating as
  intended; and
               (6)  any other item presented by the comptroller or by a
  majority of the committee.
         (e)  The comptroller by rule shall establish procedures for
  the functions of the advisory committee, including procedures
  requiring the advisory committee to issue a report on its findings
  to the speaker of the house of representatives, the lieutenant
  governor, and the governor not later than the date each regular
  session of the legislature begins.
         (f)  This section expires January 31, 2013.
         SECTION 31.  Subchapter G, Chapter 171, Tax Code, is amended
  by adding Sections 171.3015 and 171.3125 to read as follows:
         Sec. 171.3015.  FORFEITURE OF CERTIFICATE OR REGISTRATION OF
  TAXABLE ENTITY.  The comptroller may, for the same reasons and using
  the same procedures the comptroller uses in relation to the
  forfeiture of a corporation's charter or certificate of authority,
  forfeit the certificate or registration of a taxable entity.
         Sec. 171.3125.  REVIVAL OF CERTIFICATE OR REGISTRATION OF
  TAXABLE ENTITY AFTER FORFEITURE BY SECRETARY OF STATE.  (a)  The
  secretary of state may, using the same procedures the secretary
  uses in relation to the revival of a corporation's charter or
  certificate, revive the certificate or registration of a taxable
  entity.
         (b)  The secretary of state may adopt rules to implement this
  section.
         SECTION 32.  Section 171.309, Tax Code, is amended to read as
  follows:
         Sec. 171.309.  FORFEITURE BY SECRETARY OF STATE. The
  secretary of state may forfeit the charter, [or] certificate, or
  registration of a taxable entity [of authority of a corporation]
  if:
               (1)  the secretary receives the comptroller's
  certification under Section 171.302 [of this code]; and
               (2)  the taxable entity [corporation] does not revive
  its forfeited [corporate] privileges within 120 days after the date
  that the [corporate] privileges were forfeited[; and
               [(3)     the corporation does not have assets from which a
  judgment for any tax, penalty, or court costs imposed by this
  chapter may be satisfied].
         SECTION 33.  Section 17, Chapter 1, Acts of the 79th
  Legislature, 3rd Called Session, 2006, is amended to read as
  follows:
         Sec. 17.  [(a)     The repeal of Section 171.111, Tax Code, by
  this Act does not affect a credit that accrued under that section
  before the effective date of this Act.
         [(b)]  A corporation that has any unused credits established
  [accrued] before the effective date of this Act under Section
  171.111, Tax Code, may claim those unused credits on or with the tax
  report for the period in which the credits were established
  [accrued], and the former law under which the corporation
  established [accrued] the credits is continued in effect for
  purposes of determining the amount of the credits the corporation
  may claim and the manner in which the corporation may claim the
  credits.
         SECTION 34.  Sections 18(b) through (f), Chapter 1, Acts of
  the 79th Legislature, 3rd Called Session, 2006, are amended to read
  as follows:
         (b)  This section does not affect a credit authorized by a
  provision listed in Subsection (a) of this section that was
  established [accrued] under Chapter 171, Tax Code, before the
  effective date of this Act or a credit that continues to accrue
  under Section 19 of this Act.
         (c)  A corporation that has any unused credits established
  [accrued] before the effective date of this Act under a provision
  other than Subchapter O, P, or Q, Chapter 171, Tax Code, may claim
  those unused credits on or with the tax report for the period in
  which the credits were established [accrued], and the former law
  under which the corporation established [accrued] the credits is
  continued in effect for purposes of determining the amount of the
  credits the corporation may claim and the manner in which the
  corporation may claim the credits.
         (d)  A corporation that has any unused credits established
  [accrued] before the effective date of this Act under Subchapter O,
  Chapter 171, Tax Code, may claim those unused credits on or with the
  tax report for the period in which the credit was established
  [accrued]. However, if the corporation was allowed to carry
  forward unused credits under that subchapter, the corporation may
  continue to apply those credits on or with each consecutive report
  until the earlier of the date the credit would have expired under
  the terms of Subchapter O, Chapter 171, Tax Code, had it continued
  in existence, or December 31, 2027, and the former law under which
  the corporation established [accrued] the credits is continued in
  effect for purposes of determining the amount of the credits the
  corporation may claim and the manner in which the corporation may
  claim the credits.
         (e)  A corporation that has any unused credits established
  [accrued] before the effective date of this Act under Subchapter P,
  Chapter 171, Tax Code, may claim those unused credits on or with the
  tax report for the period in which the credit was established
  [accrued]. However, if the corporation was allowed to carry
  forward unused credits under that subchapter, the corporation may
  continue to apply those credits on or with each consecutive report
  until the earlier of the date the credit would have expired under
  the terms of Subchapter P, Chapter 171, Tax Code, had it continued
  in existence, or December 31, 2012, and the former law under which
  the corporation established [accrued] the credits is continued in
  effect for purposes of determining the amount of the credits the
  corporation may claim and the manner in which the corporation may
  claim the credits.
         (f)  A corporation that has any unused credits established
  [accrued] before the effective date of this Act under Subchapter Q,
  Chapter 171, Tax Code, may claim those unused credits on or with the
  tax report for the period in which the credit was established
  [accrued]. However, if the corporation was allowed to carry
  forward unused credits under that subchapter, the corporation may
  continue to apply those credits on or with each consecutive report
  until the earlier of the date the credit would have expired under
  the terms of Subchapter Q, Chapter 171, Tax Code, had it continued
  in existence, or December 31, 2012, and the former law under which
  the corporation established [accrued] the credits is continued in
  effect for purposes of determining the amount of the credits the
  corporation may claim and the manner in which the corporation may
  claim the credits.
         SECTION 35.  (a)  Section 22, Chapter 1, Acts of the 79th
  Legislature, 3rd Called Session, 2006, is amended by amending
  Subsection (b) and adding Subsections (b-1), (b-2), and (g) to read
  as follows:
         (b)  For an entity becoming subject to the franchise tax
  under this Act:
               (1)  margin or gross receipts occurring before June 1,
  2006, may not be considered for purposes of determining taxable
  margin or for apportionment purposes; and
               (2)  an entity subject to the franchise tax on January
  1, 2008, that was not previously subject to the tax and for which
  January 1, 2008, is not the beginning date, shall file an annual
  report due May 15, 2008, based on the period:
                     (A)  if the entity has an accounting period that
  ends on or after January 1, 2007, and before June 1, 2007:
                           (i)  beginning on the later of:
                                 (a)  June 1, 2006; or
                                 (b)  the date the entity was organized
  in this state or, if a foreign entity, the date it began doing
  business in this state; and
                           (ii)  ending on the date that accounting
  period ends in 2007;
                     (B)  if the entity has an accounting period that
  ends on or after June 1, 2007, and before December 31, 2007:
                           (i)  beginning on the date that accounting
  period begins; and
                           (ii)  ending on the date that accounting
  period ends in 2007; and
                     (C)  if the entity has an accounting period that
  ends on December 31, 2007, or if the entity does not have an
  accounting period that ends in 2007:
                           (i)  beginning on the later of:
                                 (a)  January 1, 2007; or
                                 (b)  the date the entity was organized
  in the state or, if a foreign entity, the date it began doing
  business in this state; and
                           (ii)  ending on December 31, 2007[; and
               [(3)     an entity subject to the franchise tax as it
  existed before the effective date of this Act at any time after
  December 31, 2006, and before January 1, 2008, but not subject to
  the franchise tax on January 1, 2008, shall file a final report for
  the privilege of doing business at any time after June 30, 2007, and
  before January 1, 2008, based on the period:
                     [(A)  beginning on the later of:
                           [(i)  January 1, 2007; or
                           [(ii)     the date the entity was organized in
  this state or, if a foreign entity, the date it began doing business
  in this state; and
                     [(B)     ending on the date the entity became no
  longer subject to the franchise tax].
         (b-1)  This subsection applies to an entity that:
               (1)  is not doing business in this state on January 1,
  2008;
               (2)  would be subject to the franchise tax as amended by
  this Act if it were doing business in this state on or after January
  1, 2008, but would not have been subject to the franchise tax as it
  existed before being amended by this Act; and
               (3)  was doing business in this state at any time after
  June 30, 2007, and before January 1, 2008.
         (b-2)  An entity to which Subsection (b-1) applies shall, for
  the privilege of doing business in this state at any time after June
  30, 2007, and before January 1, 2008, file a final report and pay an
  additional tax equal to the appropriate rate under Section 171.002,
  Tax Code, as amended by this Act, of the entity's taxable margin
  based on the period:
               (1)  beginning on the later of:
                     (A)  January 1, 2007; or
                     (B)  the date the entity was organized in this
  state or, if a foreign entity, the date it began doing business in
  this state; and
               (2)  ending on the date the entity became no longer
  subject to the tax.
         (g)  Except as provided by Subsections (b-1) and (b-2) of
  this section, an entity becoming subject to the franchise tax under
  this Act that is part of a combined group report shall, for purposes
  of determining margin and apportionment, include its activity for
  the same period used by the combined group.
         (b)  This section takes effect immediately if this Act
  receives a vote of two-thirds of all the members elected to each
  house, as provided by Section 39, Article III, Texas Constitution.  
  If this Act does not receive the vote necessary for immediate
  effect, this section takes effect September 1, 2007.
         SECTION 36.  Sections 23(b) and (f), Chapter 1, Acts of the
  79th Legislature, 3rd Called Session, 2006, are amended to read as
  follows:
         (b)  The information report required under this section must
  contain the same information that an entity required to file the
  report would have submitted in its report due to the comptroller in
  2006 under Chapter 171, Tax Code, if the changes made by this Act to
  Chapter 171, Tax Code, had been in effect January 1, 2006. The
  information report shall also contain the total of maintenance and
  operations school property taxes paid by the entity to school
  districts in Texas in the 2005 [, 2006, and 2007] tax year [years].
  The comptroller shall provide the forms and instructions to the
  entities required to file a report under this section.
         (f)  The comptroller:
               (1)  shall identify the entities described by
  Subsection (d) of this section;
               (2)  shall prepare all forms and instructions required
  for those entities to file their information reports as required by
  this section;
               (3)  shall provide those forms and instructions to
  those entities on or after November 15, 2006, but before December 2,
  2006;
               (4)  shall require the entities to submit their
  information reports on or before February 15, 2007[, and February
  15, 2008];
               (5)  may not grant any extensions for filing the
  information reports; and
               (6)  shall report to the governor, the lieutenant
  governor, and the members of the legislature, on or before April 1,
  2007, [and April 1, 2008,] the results of the information reports,
  stating the amount of revenue generated by the tax under Chapter
  171, Tax Code, [in each year,] the amount that would have been
  generated from the entities submitting information reports under
  this section if the changes made by this Act to Chapter 171, Tax
  Code, had been in effect January 1, 2006, and the school maintenance
  and operations property taxes paid by the entities in the 2005 [,
  2006, and 2007] tax year [years].
         SECTION 37.  The following provisions of the Tax Code are
  repealed:
               (1)  Section 171.0011(e), as effective January 1, 2008;
               (2)  Section 171.1011(p)(4-b), as effective January 1,
  2008;
               (3)  Section 171.1014(g), as effective January 1, 2008;
  and
               (4)  Section 171.2035, as effective January 1, 2008.
         SECTION 38.  This Act applies only to a report originally due
  on or after the effective date of this Act.
         SECTION 39.  The taxation method provided by Section
  171.002, Tax Code, as amended by this Act, and the taxation method
  provided by Section 171.1016, Tax Code, as added by this Act, are
  not severable, and neither provision would have been enacted
  without the other. If the taxation method provided by Section
  171.002, Tax Code, as amended by this Act, is held invalid, the
  taxation method provided by Section 171.1016, Tax Code, as added by
  this Act, is also invalid.
         SECTION 40.  Except as otherwise provided by this Act, this
  Act takes effect January 1, 2008.
 
 
  ______________________________ ______________________________
     President of the Senate Speaker of the House     
 
 
         I certify that H.B. No. 3928 was passed by the House on May 2,
  2007, by the following vote:  Yeas 138, Nays 3, 2 present, not
  voting; that the House refused to concur in Senate amendments to
  H.B. No. 3928 on May 23, 2007, and requested the appointment of a
  conference committee to consider the differences between the two
  houses; and that the House adopted the conference committee report
  on H.B. No. 3928 on May 26, 2007, by the following vote:  Yeas 136,
  Nays 5, 3 present, not voting.
 
  ______________________________
  Chief Clerk of the House   
 
         I certify that H.B. No. 3928 was passed by the Senate, with
  amendments, on May 18, 2007, by the following vote:  Yeas 28, Nays
  1; at the request of the House, the Senate appointed a conference
  committee to consider the differences between the two houses; and
  that the Senate adopted the conference committee report on H.B. No.
  3928 on May 26, 2007, by the following vote:  Yeas 30, Nays 0.
 
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
   
           __________________
                Governor