84(R) - 2015
Relating to a deduction under the franchise tax for certain contracts with the federal government.
A fiscal note dated May 7, 2015 anticipate an two-year net impact to General Revenue Related Funds from CSSB 514 of $0 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 $32,705,000 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.
Senate Bill 514 would amend Chapter 171 of the Tax Code related to the franchise tax to add that any costs not already subtracted as costs of goods sold and that are properly allowable under Federal Acquisition Regulation (48 C.F.R. Chapter 1), or a successor regulation, for contracts, or subcontracts supporting those contracts, for the sale of goods or services to the federal government by a taxable entity that is a party to at least one contract subject to the requirements of 48 C.F.R. Chapter 2, can be subtracted from the entity's total revenue from its entire business for the purpose of determining the taxable entity's margin.
Vote Recommendation Notes
Senate Bill 514 would allow certain taxable entities that contract with the federal government to deduct certain costs related to these contracts in order to adjust their taxable margins. According to the statement of intent for the bill these entities mainly pertain to the aerospace and defense 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. Senate Bill 514 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 Senate Bill 514.
A better, long-term solution that could benefit everyone though would be to repeal or even phaseout the franchise tax.