84(R) - 2015
House Ways & Means
House Ways & Means
Relating to the computation of cost of goods sold for purposes of the franchise tax by taxable entities that transport ready-mixed concrete; adding a provision subject to a criminal penalty.
A fiscal note dated May 9, 2015 anticipates a two-year net impact to General Revenue Related Funds from CSHB 3923 of $0 through the biennium ending August 31, 2017.
It adds though that the bill will have a direct impact of a revenue loss to the Property Tax Relief Fund of $2,628,000 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 3923 would amend Section 171.1012 of the Tax Code relating to the determination of cost of goods sold for the purpose of the franchise tax, to provide that a taxable entity that transports ready-mixed concrete may subtract as cost of goods sold distribution costs regardless of whether the taxable entity owns
the ready-mixed concrete.
Vote Recommendation Notes
Under current law, the cost of goods sold as calculated for the purpose of the franchise tax, does not include distribution costs, including outbound transportation costs (Section 171.1012(e)(3) of the Tax Code), or, as pointed out by the bill itself, rehandling costs (Section 171.1012(e)(6) of the Tax Code).
The statement of purpose for House Bill 3923 indicates that the bill seeks to acknowledge the unique nature of the concrete manufacturing process and to allow that manufacturing process and the specialized equipment it requires to be taken into account in the computation of a taxable entity's cost of goods sold for purposes of determining the entity's franchise tax liability.
House Bill 3923 would hence make an exception from current law for one particular industry.
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 3923 would add to the complexity of the tax, but only to provide tax relief to a small portion of taxable entities. As a consequence, we do not support House Bill 3923.
A better, long-term solution that could benefit everyone would be to repeal or even phaseout the franchise tax.