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Under current law, an entity is considered a passive entity if the entity is a general or limited partnership or trust. The entity may also accumulate 90 percent of its federal gross income from dividends, distributive shares of partnership income, capital gains from the sale of real property, or royalties.
HB 3345 amends Tax Code relating to the definition of passive entities when filing franchise taxes. The bill would add an exclusion for interest from income made by a person in the business of making loans to the general public from the definition of a passive entity.
HB 3345 neither uplifts nor offends our liberty principles and we remain neutral. Rather than tinkering with qualifications for franchise tax exemptions it would be better to phase the franchise tax out entirely over a period of time. This would benefit all businesses subject to the tax, grow the economy, and get rid of a system which picks winners and losers in the economy by creating special exemptions that are available to some businesses but not all.