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Relating to a deduction under the franchise tax for certain
contracts with the federal government.
Estimated Two-year Net Impact to General Revenue Related Funds for HB 1607, Committee
Report 1st House, Substituted: an impact of $0 through the biennium ending August 31, 2021.
Additionally, the bill will have a direct impact of a revenue loss to the Property Tax Relief
Fund of ($12,693,000) for the 2020-21 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
HB 1607 would create a statutory definition of "aerospace costs" which would include any costs not already subtracted from the franchise tax due report, provided certain qualifications are met, for contracts, or subcontracts supporting those contracts, for the sale of goods or services to the federal government by a taxable entity in the aerospace industry. Taxable entities would be allowed to deduct aerospace costs from the franchise tax incrementally over a period of several years. In the first year aerospace costs would be 20% deductible. Beginning with the report due on or after January 1, 2024 the costs would be 100% deductible.
Effectively, this would make the cost of federal contracts exempt from franchise taxation incrementally until it becomes 100% deductible in 2024.
Texas Action opposes HB 1607 for violating the principles of limited government and free markets by using the tax code to benefit and incentivize a particular industry. A better, long-term solution that would benefit everyone subject to this tax would be to repeal or phase out the franchise tax over time.