84(R) - 2015
Economic & Small Business Development
Relating to an exemption from the franchise tax and certain filing fees for certain businesses owned by veterans during an initial period of operation in the state.
A fiscal note dated May 15, 2015 anticipates a negative two-year net impact to General Revenue Related Funds from SB 1049 as engrossed of $4,000 through the biennium ending August 31, 2017.
Additionally, the bill will have a direct impact of a revenue loss to the Property Tax Relief Fund of ($520,000) 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.
First fiscal note:
A fiscal note dated April 20, 2015 anticipates a two-year net impact to General Revenue Related Funds of f $0 through the biennium ending August 31, 2017.
The fiscal note adds that the bill will have a direct impact of a revenue loss to the Property Tax Relief Fund of $700,000 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.
Two amendments were introduced and adopted on the Senate floor.
One amendment would amend Section 171.0001(4) of the Tax Code to redefine "beginning date" as it is currently defined, but effective January 1, 2020. It would amend similarly Section 171.063(g) of the Tax Code, regarding the withdrawal of a corporation's federal tax exemption. Finally, the amendment would repeal the bill's provisions related to a new veteran-owned business on January 1, 2020. The repeal would not affect a qualified new veteran-owned business that started before January 1, 2020.
Another amendment would change the date from September 1, 2015, to January 1, 2016 on which a new business first begins doing business in Texas.
First chamber analysis:
Senate Bill 1049 would amend Chapter 171 of the Tax Code related to the Franchise Tax to change the definition of "beginning date." It would add that for a taxable entity that qualifies as a new veteran-owned business, the beginning date for the entity for the purpose of the chapter would be the fifth anniversary of the date on which the taxable entity began doing business in the state of Texas, or the date the taxable entity ceases to qualify as a new veteran-owned business.
Senate Bill 1049 would define a new veteran-owned business as a new business in which each owner is a natural person who served in and was honorably discharged from a branch of the United States Forces and provides verification to the comptroller of the person’s service and discharge. Senate Bill 1049 would require that the Texas Veterans Commission provide written verification of that status in a form required by the comptroller. To be considered a new business, the entity would also have to be chartered, organized or formed in the state of Texas, and first begin doing business in the state on or after September 2015.
Senate Bill 1049 would provide an exemption from the franchise tax to a new veteran-owned business until the earlier of the fifth anniversary of the date on which the taxable entity begins doing business in the state, or the date the taxable entity ceases to qualify as a new veteran-owned business.
Senate Bill 1049 would allow the comptroller to require that such a taxable entity exempt of the franchise tax file an information report stating the entity's beginning date as defined by this bill for this entity, and any other information the comptroller deems necessary, except for asking the entity to report or compute its margin.
Senate Bill 1049 amend Chapter 12 of the Business Organizations Code to require that the Secretary of State waive all fees imposed under Subchapter D, Chapter 4 for a new veteran-owned business until the earlier of the fifth anniversary of the date on which the taxable entity begins doing business in the state, or the date the taxable entity ceases to qualify as a new veteran-owned business.
Vote Recommendation Notes
Although one of the introduced amendments would repeal the provisions of this new exemption on January 1, 2020, this does not alter our position. We continue to oppose the bill.
The second chamber sponsors are Representative Kenneth Sheets, Representative Dwayne Bohac, and Representative Dennis Bonnen.
First chamber recommendation:
Senate Bill 1049 would create the status of new veteran-owned business, in order to exempt businesses owned by veterans from the franchise tax for up to five years after they have been created.
While we understand that the bill is aimed at encouraging entrepreneurship among Texas veterans, and the franchise tax is a complex and unfair tax, creating an additional exemption for a particular type of businesses would not only make the tax code more complex, it would also favor a particular group of businesses above others, something which is beyond the scope of a limited government.
The franchise tax costs money and time to all businesses to comply with and to file - whether they ultimately pay it or not. The franchise tax is a bad tax that has has not served the citizens of this state well, and this is why we favor a complete repeal or a phaseout of the tax, instead of creating more specialty exemptions.
As a consequence, we cannot support Senate Bill 1049.