Tax News

CCH (cch.taxgroup.com) reports:

Governor Rick Perry signed H.B. 3928, which makes numerous changes to the Texas business margin tax, on June 15, 2007. The business margin tax is a revised calculation of the franchise tax enacted by the Legislature in 2006 to become effective January 1, 2008.
The law includes the following additional provisions:
-- a discount for small businesses with total revenue between $300,000 and $900,000 calculated by applying a sliding scale ranging from an 80% discount for taxable entities with total revenue less than $400,000, to a 20% discount for taxable entities with total revenue greater than $700,000 but less than $900,000;
-- an "E-Z computation and rate," which is an optional alternative method for calculating tax for businesses with total revenue of $10 million or less whereby a qualified taxable entity calculates tax by multiplying appportioned total revenue by 0.575%;
-- calculation of the temporary credit on taxable margin by (1) determining the amount of the business loss carryforwards of the taxable entity as required for taxable reports originally due before January 1, 2008, that were not exhausted on a report originally due before January 1, 2008; (2) multiplying that amount by 2.25% for reports originally due on or after January 1, 2008, and before January 1, 2018; and 7.75% for reports originally due on or after January 1, 2018, and before September 1, 2027; and (3) multiplying the amount obtained under (2) by 4.5%;
-- a change in the due date for notifying the Comptroller of Public Accounts of the taxpayer's intent to utilize the temporary credit on taxable margin to the first report originally due on or after January 1, 2008 (under H.B. 3, Laws 2006, the due date was March 1, 2007; a subsequent regulation changed the date to September 1, 2007);
-- an additional compensation deduction for small employers who initiate health care coverage equal to 50% of costs for the first year of coverage and 25% of costs for the second year of coverage;
-- the inclusion of gross rental income of taxable partnerships instead of net rental income when determining total revenue;
-- reduction of the amount of control required for inclusion of a related entity in a combined group from 80% to "more than 50%";
-- the inclusion of a limited liability partnership as a taxable entity subject to the business margin tax;
-- the exclusion of nonprofit self-insurance trusts, trusts qualified under IRC §401(a), and trusts or entities exempt under IRC §501(c)(9) from the definition of "taxable entity";
-- the joint and several liability of each member of a combined group for the tax of the combined group;
-- inclusion of the net distributive income from a limited liability company treated as a sole proprietorship for federal income tax purposes as "wages and cash compensation" if the person receiving the distribution is a natural person;
-- conformity to the IRC as it existed on January 1, 2007;
-- the filing of an annual public information report by a limited liability company; and
-- the creation of a Business Tax Advisory Committee to conduct a biennial study of the effects of the business margin tax.
H.B. 3928, Laws 2007, effective January 1, 2008.