34 TAC §3.544
The Comptroller of Public Accounts proposes an amendment
to §3.544, concerning reports and payments. The proposed amendment to
subsection (a)(1)(A)(ii), which deletes the reference to the date a foreign
corporation's certificate of authority takes effect for purpose of determining
the beginning date for foreign corporations, reflects a legislative change
made by House Bill 2424, 78th Legislative Session, 2003. The proposed amendment
to subsection (a)(1)(B) provides an updated example of an initial report for
clarification purposes. The proposed amendment to subsection (h)(2) concerning
certain Public Information Report filings, specifies that these reports may
be filed electronically, in accordance with House Bill 2424, 78th Legislature,
2003. The proposed amendment to subsection (i) sets out the requirement that
a corporation must report within 120 days the results of certain administrative
proceedings that affect the corporation's franchise tax liability, as specified
in House Bill 2425, 78th Legislature, 2003.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the rule will be in effect, there will be no significant
revenue impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years
the rule is in effect, the public benefit anticipated as a result of enforcing
the rule will be in providing current information concerning reporting requirements.
This rule is adopted under Tax Code, Title 2, and does not require a statement
of fiscal implications for small businesses. There is no significant anticipated
economic cost to individuals who are required to comply with the proposed
rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under Tax Code, §111.002, which
provides the comptroller with the authority to prescribe, adopt, and enforce
rules relating to the administration and enforcement of the provisions of
Tax Code, Title 2.
The amendment implements Tax Code §171.001(b)(2)(B), 171.152, 171.203,
and 111.206.
§3.544.Reports and Payments.
(a)
Reports and due dates.
(1)
Each domestic and foreign corporation subject to the franchise
tax levied by [
the
] Tax Code, §171.001, must file an initial
franchise tax report, and thereafter an annual franchise tax report, and at
the same time must pay the franchise tax and any applicable penalties and
interest due by the corporation. It is the responsibility of a receiver to
file franchise tax reports and pay the franchise tax of a corporation in receivership.
A debtor in possession or the appointed trustee or receiver of a corporation
in reorganization or arrangement proceedings under the Bankruptcy Act is responsible
for filing franchise tax reports and paying the franchise tax prior to confirming
and consummating the plan of reorganization or arrangement.
(A)
"Beginning date" means:
(i)
for a corporation chartered in this state, the date on
which the corporation's charter takes effect; and
(ii)
for a foreign corporation, the [
earlier of the
]
date on which[
:
]
[(I)
the corporation's certificate of authority
takes effect; or ]
[
(II)
]
the corporation begins doing business in
this state.
(B)
Both the initial report and payment of the tax due, if
any, are due no later than 89 days after the first anniversary date of the
beginning date. The initial franchise tax report and payment are for the privilege
periods beginning on the beginning date and ending on December 31 following
the first anniversary of the beginning date. For example, if a Texas corporation
is chartered on June 1,
2002
[
1992
], the payment due
with the initial report will be for the privilege periods from June 1,
2002
[
1992
]-December 31,
2003
[
1993
].
In addition, when the first anniversary occurs during the period from October
4 through December 31, there must also be computed and paid with the initial
report an additional year's tax for the privilege period beginning on January
1 following the first anniversary and ending on the following December 31.
For example, if a Texas corporation is chartered on November 1,
2002
[
1992
], the payment due with the initial report will be
for the privilege periods from November 1,
2002
[
1992
]-December
31,
2004
[
1994
]. The taxable capital component of the
tax computed on the initial report is based on the financial condition as
of the last accounting period ending date that is at least six months after
the beginning date and at least 60 days before the original due date. If there
is no such ending date, then the initial report is based on the financial
condition on the last day of the calendar month nearest to the end of the
corporation's first year of business. The earned surplus component of the
tax computed on the initial report is based on the business done during the
period beginning on the beginning date and ending on the last accounting period
ending date for federal income tax purposes that is at least 60 days before
the original due date of the initial report, or, if there is no such ending
date, then ending on the day that is the last day of the calendar month nearest
to the end of the corporation's first year of business.
(C)
The annual franchise tax report must be filed and the tax
paid no later than May 15 of each year. The annual tax is paid for the privilege
period of the calendar year in which the report is due. The taxable capital
component of the tax computed on an annual report is based on the financial
condition as of the last day of the last accounting period ending in the calendar
year before the calendar year in which the tax is originally due. If there
is no accounting period ending in the previous calendar year, then the taxable
capital component should be based on the financial condition as of December
31 of the previous calendar year. The earned surplus component of the tax
computed on an annual report is based on the business done during the period
beginning with the day after the last date upon which the earned surplus component
was based on a previous report, and ending with the last accounting period
ending date for federal income tax purposes ending in the calendar year before
the calendar year in which the report is originally due. For the 1992 annual
report, the earned surplus component is based on the business done during
the period beginning with the day after the date upon which the previous report
was based, and ending with the last accounting period ending date for federal
income tax purposes ending in 1991. A corporation
that
[
which
] uses a 52-53 week accounting year end and has an accounting year ending
the first four days of January of the year in which the annual report is originally
due may use the preceding December 31 as the date through which taxable earned
surplus is computed.
(D)
See §3.565 of this title (relating to Survivors of
Mergers) for special rules concerning corporations
that
[
which
] are survivors of mergers.
(E)
See §3.545 of this title (relating to Extensions)
for extensions of time to file an annual report.
(F)
See §3.567 of this title (relating to Additional Tax
on Earned Surplus) for information concerning the additional tax imposed by
[
the
] Tax Code, §171.0011.
(G)
See §3.572 of this title (relating to 1992 Transition)
for transitional information concerning tax rates and privilege periods as
a result of certain legislative changes.
(2)
The postmark date (or meter-mark if there is no postmark)
on the envelope in which the report or payment is received determines the
date of filing.
(3)
An information report must be filed, even if no tax is
due. A corporation must file an initial report as the information report for
the privilege periods covered by an initial report. A corporation must file
an annual report as an information report for a regular annual privilege period
not covered by an initial report.
(4)
For reports originally due on or after January 1, 2000,
a corporation will not owe any tax if the gross receipts from its entire business
for both taxable capital and taxable earned surplus are each less than $150,000
during the accounting period upon which the report is based. A corporation
that does not owe any tax under this subsection must file an information report
as authorized by subsection (a)(3) of this section.
(A)
For purposes of computing gross receipts from its entire
business for taxable earned surplus under this subsection, a corporation must
include any gross receipts that would otherwise be excluded from the apportionment
factor under [
the
] Tax Code, §171.1061, concerning the allocation
of certain taxable earned surplus to this state.
(B)
A corporation whose gross receipts from its entire business
for taxable capital are $150,000 or greater will be required to compute its
tax on both tax base components as provided for under [
the
] Tax
Code, §171.002(b), even though its gross receipts from its entire business
for taxable earned surplus are less than $150,000. For example, if a corporation's
gross receipts from its entire business for taxable capital are $175,000 and
its gross receipts from its entire business for taxable earned surplus are
$125,000, the corporation must compute its tax on both taxable capital and
taxable earned surplus.
(C)
A corporation whose gross receipts from its entire business
for taxable earned surplus are $150,000 or greater will be required to compute
its tax on both tax base components as provided for under [
the
]
Tax Code, §171.002(b), even though its gross receipts from its entire
business for taxable capital are less than $150,000. For example, if a corporation's
gross receipts from its entire business for taxable earned surplus are $175,000
and its gross receipts from its entire business for taxable capital are $125,000,
the corporation must compute its tax on both taxable capital and taxable earned
surplus.
(b)
Penalty and interest on delinquent taxes.
(1)
[
The
] Tax Code, §171.362, imposes a 5.0%
penalty on the amount of franchise tax due by a corporation
that
[
which
] fails to report or pay the tax when due. If any part of the tax
is not reported or paid within 30 days after the due date, an additional 5.0%
penalty is imposed on the amount of tax unpaid. There is a minimum penalty
of $1.00. Delinquent taxes accrue interest beginning 60 days after the due
date. For example, if payment is made on the 61st day after the due date,
one day's interest is due.
(A)
For reports originally due on or before December 31, 1999,
the following rates of interest are in effect as indicated. Simple interest
accrues at an annual rate of 6.0% through March 31, 1980; at an annual rate
of 7.0% from April 1, 1980-December 31, 1981; and, beginning January 1, 1982,
at 10% per annum, for taxes due before September 1, 1991. For taxes due on
or after September 1, 1991, simple interest accrues at an annual rate of 12%
on all delinquent taxes.
(B)
For reports originally due on or after January 1, 2000,
the annual rate of interest on delinquent taxes is the prime rate plus one
percent, as published in The Wall Street Journal on the first day of each
calendar year that is not a Saturday, Sunday, or legal holiday.
(2)
When a corporation is issued an audit assessment or other
underpayment notice based on a deficiency, penalties under [
the
]
Tax Code, §171.362, and interest are applied as of the date that the
underpaid tax was originally due, including any extensions, not from the date
of the deficiency determination or date the deficiency determination is final.
(3)
A deficiency determination is final 30 days after the date
on which the service of the notice of the determination is completed. Service
by mail is complete when the notice is deposited with the United States Postal
Service.
(A)
The amount of a determination is due and payable 10 days
after it becomes final. If the amount of the determination is not paid within
10 days after the day it became final, a penalty under [
the
] Tax
Code, §111.0081, of 10% of the tax assessed will be added. For example,
if a deficiency determination is made in the amount of $1,000 tax (plus the
initial penalty and interest), but the total amount of the deficiency is not
paid until the 41st day after the deficiency notice is served, $1,200 plus
interest would be due (i.e., $1,000 tax, $100 initial penalty for not paying
when originally due, $100 penalty for not paying deficiency determination
within 10 days after it became final, plus interest accrued to the date of
payment at the applicable statutory rate).
(B)
A petition for redetermination must be filed within 30
days after the date on which the service of the notice of determination is
completed, or the redetermination is barred.
(C)
A decision of the comptroller on a petition for redetermination
becomes final 20 days after service on the petitioner of the notice of the
decision. The amount of a determination is due and payable 20 days after a
comptroller's decision is final. If the amount of the determination is not
paid within 20 days after the day the decision becomes final, a penalty under
[
the
] Tax Code, §111.0081 of 10% of the tax assessed will
be added. Using the previous example, on the 41st day after service of the
comptroller's decision, $1,200 plus interest would be due (i.e., $1,000 tax,
$100 initial penalty, $100 additional penalty and the applicable accrued interest).
(4)
A jeopardy determination is final 20 days after the date
on which the service of the notice is completed unless a petition for redetermination
is filed before the determination becomes final. Service by mail is complete
when the notice is deposited with the United States Postal Service. The amount
of the determination is due and payable immediately. If the amount determined
is not paid within 20 days from the date of service, a penalty, under [
the
] Tax Code, §111.022, of 10% of the amount of tax and interest
assessed will be added.
(5)
If the comptroller determines that a corporation exercised
reasonable diligence to comply with the statutory filing or payment requirements,
the comptroller may waive penalties or interest for the late filing of a report
or for a late payment. The corporation requesting waiver must furnish a detailed
description of the circumstances
that
[
which
] caused
the late filing or late payment and the diligence exercised by the corporation
in attempting to comply with the statutory requirements. See §3.5 of
this title (relating to Waiver of Penalty or Interest) for additional information.
(6)
If a corporation fails to comply with Tax Code, §171.212,
the corporation is liable for a penalty of 10% of the tax that should have
been reported and had not previously been reported to the comptroller under §171.212.
This penalty is in addition to any other penalty provided by law and is effective
for audits or other adjustments by the Internal Revenue Service or a competent
authority other than the Internal Revenue Service that became final on or
after June 20, 1997.
(c)
Consolidated reporting. A consolidated or combined report
is not allowed.
(d)
Amended reports. In filing an amended report, the corporation
must type or print on the report, immediately above the corporation name,
the phrase "Amended Report." The report should be forwarded with a cover letter
of explanation, with enclosures necessary to support the amendment. Applicable
penalties and interest must be reported and paid along with any additional
amount of tax shown to be due on the amended report. See subsection (i) of
this section for information concerning the statute of limitations.
(1)
A corporation may file an amended report for the purpose
of correcting a mathematical or other error in a report or for the purpose
of supporting a claim for refund.
(2)
A corporation
that
[
which
] has been
audited by the Internal Revenue Service must file an amended franchise tax
report within 120 days after the Revenue Agent's Report (RAR) is final, if
the RAR results in changes to earned surplus amounts reported for franchise
tax purposes. An RAR is final when all administrative appeals with the Internal
Revenue Service have been exhausted or waived. An administrative appeal with
the Internal Revenue Service does not include an action or proceeding in the
United States Tax Court or any other federal court.
(3)
A corporation whose net taxable earned surplus is changed
as a result of an audit or other adjustment by a competent authority other
than the Internal Revenue Service must file an amended franchise tax report
within 120 days after the adjustment is final. An adjustment is final when
all administrative or other appeals have been exhausted or waived. For the
purposes of this section, a competent authority includes, but is not limited
to, the United States Tax Court, United States District Courts, United States
Courts of Appeals, and United States Supreme Court.
(4)
A corporation must file an amended franchise tax report
within 120 days after the corporation files an amended federal income tax
return that changes the corporation's net taxable earned surplus. A corporation
is considered to have filed an amended federal income tax return if the corporation
is a member of an affiliated group during a period in which an amended consolidated
federal income tax return is filed.
(5)
Because the 10% penalty provided for in Tax Code, §171.212
only applies to deficiencies, failure to file an amended return in which a
refund would result will not cause a 10% penalty to be imposed.
(e)
Comptroller. During the course of an audit or other examination
of a corporation's franchise tax account, the comptroller may examine financial
statements, working papers, registers, memoranda, contracts, corporate minutes,
and any other business papers used in connection with its accounting system.
In connection with his examination, the comptroller may also examine any of
the corporation's officers or employees under oath.
(f)
Jeopardy determination. Beginning with reports originally
due on or after May 15, 1996, the payment of a jeopardy determination, issued
to a corporation for an estimated tax liability shall not satisfy the reporting
requirements set forth in the Tax Code, Chapter 171, Subchapter E.
(g)
Rate. An annual tax rate of $6.70 per $1,000 of net taxable
capital and an annual minimum tax of $150 applies to May 1, 1988-April 30,
1990, of any tax period.
(h)
Public information report. Each corporation on which the
franchise tax is imposed must file a public information report as described
in Tax Code, §171.203.
(1)
A public information report is due at the same time each
initial and annual report is due.
(2)
Beginning with reports originally due on or after January
1, 1996, an officer or director of the corporation must sign the public information
report under a certification that:
(A)
all information contained in the report is true and correct
to the best of the officer's knowledge; and
(B)
a copy of the report has been mailed to each person named
in the report who is an officer or director and who is not employed by the
corporation or a related (at least 10% ownership) corporation on the date
the report is filed.
(C)
A report that is filed electronically
complies with the signature and certification requirements of this provision.
(3)
Beginning with reports originally due on or after January
1, 1998, in addition to an officer or director, another authorized person
may sign the public information report for purposes of satisfying the signature
requirement.
(4)
Failure to sign or file a public information report shall
result in the forfeiture of corporate privileges as provided by Tax Code, §171.251.
If the corporate privileges are forfeited, each officer or director of the
corporation may be liable for each debt of the corporation that is created
or incurred in Texas after the date on which the report is due and before
the corporate privileges are revived, as provided by Tax Code, §171.255.
(5)
The provisions of paragraph (4) of this subsection concerning
forfeiture of corporate privileges do not apply to a banking corporation or
a savings and loan association, as defined in Tax Code, §171.001.
(i)
Statute of limitations. Effective September 1, 1995, a
final determination resulting from an Internal Revenue Service administrative
proceeding (including, effective September 1, 1997, an audit), or a judicial
proceeding arising from an administrative proceeding, that affects the amount
of franchise tax liability must be reported to the comptroller before the
expiration of 60 days after the day on which the determination becomes final.
Effective June 20, 2003, a final determination that affects the amount of
franchise tax liability must be reported to the comptroller before the expiration
of 120 days after the day on which the determination becomes final.
See
[
the
] Tax Code, §111.206.
(j)
Effective date. This section applies to reports originally
due on or after January 1, 1992, unless otherwise specified.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on January 12, 2004.
TRD-200400173
Martin Cherry
Chief Deputy General Counsel
Comptroller of Public Accounts
Earliest possible date of adoption: February 22, 2004
For further information, please call: (512) 475-0387
34 TAC §3.580
The Comptroller of Public Accounts proposes an amendment
to §3.580, concerning credit for hiring persons with disabilities. In
accordance with House Bill 2424, 78th Legislature, 2003, subsection (c)(2)
is to be amended to provide revised limitation guidelines for the credit.
James LeBas, Chief Revenue Estimator, has determined that for the first
five-year period the rule will be in effect, there will be no significant
revenue impact on the state or units of local government.
Mr. LeBas also has determined that for each year of the first five years
the rule is in effect, the public benefit anticipated as a result of enforcing
the rule will be in providing information on claiming a franchise tax credit
for hiring persons with disabilities. This rule is adopted under Tax Code,
Title 2, and does not require a statement of fiscal implications for small
businesses. There is no significant anticipated economic cost to individuals
who are required to comply with the proposed rule.
Comments on the proposal may be submitted to Bryant K. Lomax, Manager,
Tax Policy Division, P.O. Box 13528, Austin, Texas 78711.
This amendment is proposed under Tax Code, §111.002, which
provides the comptroller with the authority to prescribe, adopt, and enforce
rules relating to the administration and enforcement of the provisions of
Tax Code, Title 2.
The amendment implements Tax Code §§171.851-171.856.
§3.580.Credit for Hiring Persons with Disabilities.
(a)
Effective date. This section is effective for reports originally
due on or after January 1, 2002, and applies only to wages paid after December
31, 2001.
(b)
Credit. Subject to other provisions in this section, a
corporation may claim a credit on its franchise tax report for 10% of the
wages that the corporation pays to each employee who meets the following qualifications:
(1)
the employee, when hired, is either
(A)
eligible under 42 U.S.C. §1382 for supplemental security
income benefits on the basis of disability or blindness; or
(B)
a recipient of social security disability insurance benefits;
(2)
the employee is originally employed after December 31,
2001, for a position that is located or based in Texas and remains continuously
employed with the corporation in a position that is located or based in Texas
for at least six months;
(3)
the employee earns at least the minimum wage;
(4)
the employee works an average of at least 20 hours a week;
and
(5)
the employee receives the same benefits that the corporation
provides to its other workers.
(c)
Limitations.
(1)
A corporation may claim the credit only for wages that
the corporation has paid to a qualified employee:
(A)
for a position that is located or based in Texas; and
(B)
for work that is performed before the second anniversary
date of that qualified employee's original date of employment.
(2)
For reports originally due before January 1, 2004,
a
[
A
] corporation may not claim a credit that exceeds 50%
of the amount of net franchise tax due, after any other applicable credits
are taken, for the report on which the credit is claimed.
For reports
due on or after January 1, 2004, a corporation may not claim a credit that
exceeds 50% of the amount of franchise tax due, before any other applicable
tax credits are taken, for the report on which the credit is claimed.
(d)
Accounting period. The corporation must use the period
upon which earned surplus is based to determine which wages will be considered
in computing the credit, even if the tax due on net taxable capital exceeds
the tax due on net taxable earned surplus.
(e)
Application for Credit. A corporation must claim the credit
on forms that the comptroller requires and must file the forms with the franchise
tax report on which the credit is claimed.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on January 12, 2004.
TRD-200400174
Martin Cherry
Chief Deputy General Counsel
Comptroller of Public Accounts
Earliest possible date of adoption: February 22, 2004
For further information, please call: (512) 475-0387