A fiscal note dated May 9, 2015 anticipates a two-year net impact to General Revenue Related Funds from CSHB 2637 of $0 through the biennium ending August 31, 2017.

However, the bill will have a direct impact of a revenue loss to the Property Tax Relief Fund of $660,000 for the 2016-17 biennium. Any loss to the Property Tax Relief Fund must be made up with an equal amount of General Revenue to fund the Foundation School Program.

House Bill 2637 would amend Section 171.106 of the Tax Code relating to the apportionment of margin to the state of Texas for the purpose of determining the taxable margin regarding the franchise tax.

House Bill 2637 would provide that a portion of a taxable entity's receipts from the sale of locomotives sold for use in interstate commerce are receipts from business done in this state. The portion would be determined by multiplying the taxable entity's total receipts from the sale of locomotives sold for interstate commerce by the fraction of the number of miles of railway tracks in the state of Texas by the number of miles of railway tracks in the United States.

The bill would define locomotive as self-propelled railroad equipment consisting of one or more units designed to operate on stationary steel rails or electromagnetic guideways.

According to current law regarding the apportionment of margin to this state (Section 171.106) for the purpose of the franchise tax, a taxable entity's margin is apportioned to this state to determine the amount of tax imposed under Section 171.002 by multiplying the margin by a fraction, the numerator of which is the taxable entity's gross receipts from business done in this state, as determined under Section 171.103 (determination of gross receipts from business done in this state for margin), and the denominator of which is the taxable entity's gross receipts from its entire business, as determined under Section 171.105 (determination of gross receipts from entire business for margin).

The franchise tax and particularly the computation to calculate the taxable margin of a taxable entity for the purpose of the tax are already very complicated. House Bill 2637 would add to the complexity of the tax. As a consequence, are neutral on this bill.

A better, long-term solution that could benefit everyone though would be to repeal or even phaseout the franchise tax.