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  83R23240 BEF-D
 
  By: Hilderbran, et al. H.B. No. 500
 
  Substitute the following for H.B. No. 500:
 
  By:  Hilderbran C.S.H.B. No. 500
 
 
 
A BILL TO BE ENTITLED
 
AN ACT
  relating to the computation of the franchise tax, including certain
  exclusions from the tax.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 171.0001(12), Tax Code, is amended to
  read as follows:
               (12)  "Retail trade" means:
                     (A)  the activities described in Division G of the
  1987 Standard Industrial Classification Manual published by the
  federal Office of Management and Budget; [and]
                     (B)  apparel rental activities classified as
  Industry 5999 or 7299 of the 1987 Standard Industrial
  Classification Manual published by the federal Office of Management
  and Budget;
                     (C)  the activities classified as Industry Group
  753 of the 1987 Standard Industrial Classification Manual published
  by the federal Office of Management and Budget; and
                     (D)  rental-purchase agreement activities
  regulated by Chapter 92, Business & Commerce Code.
         SECTION 2.  Section 171.002, Tax Code, is amended by adding
  Subsection (c-2) to read as follows:
         (c-2)  Subsection (c)(2) does not apply to total revenue from
  activities in a trade that rents or leases tangible personal
  property as described by Industry Group 735 of the Standard
  Industrial Classification Manual published by the United States
  Department of Labor.
         SECTION 3.  Section 171.006(b), Tax Code, is amended to read
  as follows:
         (b)  Beginning in 2010, on January 1 of each even-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 4.  Section 171.101(a), Tax Code, is amended to read
  as follows:
         (a)  The taxable margin of a taxable entity is computed by:
               (1)  determining the taxable entity's margin, which is
  the lesser of:
                     (A)  65 percent [70 percent] of the taxable
  entity's total revenue from its entire business, as determined
  under Section 171.1011; or
                     (B)  an amount computed by:
                           (i)  determining the taxable entity's total
  revenue from its entire business, under Section 171.1011;
                           (ii)  subtracting, at the election of the
  taxable entity, either:
                                 (a)  cost of goods sold, as determined
  under Section 171.1012; or
                                 (b)  compensation, as determined under
  Section 171.1013; and
                           (iii)  subtracting, in addition to any
  subtractions made under Subparagraph (ii)(a) or (b), compensation,
  as determined under Section 171.1013, paid to an individual during
  the period the individual is serving on active duty as a member of
  the armed forces of the United States if the individual is a
  resident of this state at the time the individual is ordered to
  active duty and the cost of training a replacement for the
  individual;
               (2)  apportioning the taxable entity's margin to this
  state as provided by Section 171.106 to determine the taxable
  entity's apportioned margin; and
               (3)  subtracting from the amount computed under
  Subdivision (2) any other allowable deductions to determine the
  taxable entity's taxable margin.
         SECTION 5.  Section 171.1011, Tax Code, is amended by
  amending Subsection (g) and adding Subsections (g-8), (g-9),
  (g-10), (g-11), (u), (v), (w-1), and (x) to read as follows:
         (g)  A taxable entity shall exclude from its total revenue,
  to the extent included under Subsection (c)(1)(A), (c)(2)(A), or
  (c)(3), only the following flow-through funds that are mandated by
  contract or subcontract to be distributed to other entities:
               (1)  sales commissions to nonemployees, including
  split-fee real estate commissions;
               (2)  the tax basis as determined under the Internal
  Revenue Code of securities underwritten; and
               (3)  subcontracting payments made under a contract or
  subcontract entered into [handled] by the taxable entity to provide
  services, labor, or materials in connection with the actual or
  proposed design, construction, remodeling, remediation, or repair
  of improvements on real property or the location of the boundaries
  of real property.
         (g-8)  A taxable entity that is primarily engaged in the
  business of transporting aggregates shall exclude from its total
  revenue, to the extent included under Subsection (c)(1)(A),
  (c)(2)(A), or (c)(3), subcontracting payments made by the taxable
  entity to nonemployee agents for the performance of delivery
  services on behalf of the taxable entity. In this subsection,
  "aggregates" means any commonly recognized construction material
  removed or extracted from the earth, including dimension stone,
  crushed and broken limestone, crushed and broken granite, other
  crushed and broken stone, construction sand and gravel, industrial
  sand, dirt, soil, cementitious material, and caliche.
         (g-9)  A taxable entity that is a landlord of commercial
  property shall exclude from its total revenue, to the extent
  included under Subsection (c)(1)(A), (2)(A), or (3), payments,
  excluding expenses for interest and depreciation and other expenses
  not listed in this subsection, received from a tenant of the
  property for ad valorem taxes and any tax or excise imposed on
  rents.
         (g-10)  A taxable entity that is primarily engaged in the
  business of transporting barite shall exclude from its total
  revenue, to the extent included under Subsection (c)(1)(A),
  (c)(2)(A), or (c)(3), subcontracting payments made by the taxable
  entity to nonemployee agents for the performance of transportation
  services on behalf of the taxable entity. For purposes of this
  subsection, "barite" means barium sulfate (BaSO4), a mineral used
  as a weighing agent in oil and gas exploration.
         (g-11)  A taxable entity that is primarily engaged in the
  business of performing landman services shall exclude from its
  total revenue, to the extent included under Subsection (c)(1)(A),
  (c)(2)(A), or (c)(3), subcontracting payments made by the taxable
  entity to nonemployees for the performance of landman services on
  behalf of the taxable entity.  In this subsection, "landman
  services" means:
               (1)  performing title searches for the purpose of
  determining ownership of or curing title defects related to oil,
  gas, or other related mineral or petroleum interests;
               (2)  negotiating the acquisition or divestiture of
  mineral rights for the purpose of the exploration, development, or
  production of oil, gas, or other related mineral or petroleum
  interests; or
               (3)  negotiating or managing the negotiation of
  contracts or other agreements related to the ownership of mineral
  interests for the exploration, exploitation, disposition,
  development, or production of oil, gas, or other related mineral or
  petroleum interests.
         (u)  A taxable entity that is a physician practice shall
  exclude from its total revenue the actual cost paid by the taxable
  entity for a vaccine.
         (v)  A taxable entity primarily engaged in the business of
  transporting commodities by waterways that does not subtract cost
  of goods sold in computing its taxable margin shall exclude from its
  total revenue direct costs of providing inbound and outbound
  transportation services by intrastate or interstate waterways to
  the same extent that a taxable entity that sells in the ordinary
  course of business real or tangible personal property would be
  authorized by Section 171.1012 to subtract those costs as costs of
  goods sold in computing its taxable margin.
         (w-1)  A taxable entity primarily engaged in the business of
  providing services as an agricultural aircraft operation, as
  defined by 14 C.F.R. Section 137.3, shall exclude from its total
  revenue the cost of labor, equipment, fuel, and materials used in
  providing those services.
         (x)  A taxable entity that is registered as a motor carrier
  under Chapter 643, Transportation Code, shall exclude from its
  total revenue, to the extent included under Subsection (c)(1)(A),
  (c)(2)(A), or (c)(3), flow-through revenue derived from taxes and
  fees.
         SECTION 6.  Section 171.1011(p), Tax Code, is amended by
  amending Subdivision (4-a) and adding Subdivisions (4-b) and (8) to
  read as follows:
               (4-a)  "Physician practice" means an entity that:
                     (A)  is owned entirely by one or more individuals
  licensed to practice medicine in this state under Subtitle B, Title
  3, Occupations Code; and
                     (B)  offers services, the provision of which is
  considered practicing medicine as defined by Section
  151.002(a)(13), Occupations Code.
               (4-b)  "Pro bono services" means the direct provision
  of legal services to the poor, without an expectation of
  compensation.
               (8)  "Vaccine" means a preparation or suspension of
  dead, live attenuated, or live fully virulent viruses or bacteria,
  or of antigenic proteins derived from them, used to prevent,
  ameliorate, or treat an infectious disease.
         SECTION 7.  Section 171.1012, Tax Code, is amended by adding
  Subsection (q) to read as follows:
         (q)  Notwithstanding Subsection (i) or any other provision
  of this section, a taxable entity that is primarily engaged in the
  business of harvesting trees for wood may subtract as cost of goods
  sold the direct costs of acquiring or producing the timber for the
  wood that are specified by this subsection or otherwise described
  by this section, regardless of whether the taxable entity owns the
  land from which the trees are harvested, the harvested timber, or
  the wood resulting from the harvested timber. For purposes of this
  subsection, direct costs include costs of:
               (1)  moving harvesting equipment;
               (2)  severing timber;
               (3)  transporting timber to and from a mill or
  designated delivery point;
               (4)  obtaining, using, storing, or maintaining
  equipment necessary for an activity described by Subdivision (1),
  (2), or (3); and
               (5)  other supplies, labor, freight, and fuel necessary
  for an activity described by Subdivision (1), (2), or (3).
         SECTION 8.  Section 171.1014(d), Tax Code, is amended to
  read as follows:
         (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 65
  percent [70 percent] of the combined group's total revenue from its
  entire business, as provided by Section 171.101(a)(1)(A).
         SECTION 9.  Section 171.106, Tax Code, is amended by adding
  Subsection (g) to read follows:
         (g)  A receipt from Internet hosting as defined by Section
  151.108(a) is a receipt from business done in this state only if the
  customer to whom the service is provided is located in this state.
         SECTION 10.  Sections 171.0021 and 171.1016(d), Tax Code,
  are repealed.
         SECTION 11.  Section 1(c), Chapter 286 (H.B. 4765), Acts of
  the 81st Legislature, Regular Session, 2009, as amended by Section
  37.01, Chapter 4 (S.B. 1), Acts of the 82nd Legislature, 1st Called
  Session, 2011, is repealed.
         SECTION 12.  Section 2, Chapter 286 (H.B. 4765), Acts of the
  81st Legislature, Regular Session, 2009, as amended by Section
  37.02, Chapter 4 (S.B. 1), Acts of the 82nd Legislature, 1st Called
  Session, 2011, and which amended former Subsection (d), Section
  171.002, Tax Code, is repealed.
         SECTION 13.  Section 3, Chapter 286 (H.B. 4765), Acts of the
  81st Legislature, Regular Session, 2009, as amended by Section
  37.03, Chapter 4 (S.B. 1), Acts of the 82nd Legislature, 1st Called
  Session, 2011, and which amended former Subsection (a), Section
  171.0021, Tax Code, is repealed.
         SECTION 14.  This Act applies only to a report originally due
  on or after the effective date of this Act.
         SECTION 15.  This Act takes effect January 1, 2014.