TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER V. FRANCHISE TAX

34 TAC §3.574

The Comptroller of Public Accounts adopts new §3.574, concerning margin: new veteran-owned businesses, without changes to the proposed text as published in the October 21, 2016, issue of the Texas Register (41 TexReg 8253).

This section implements Senate Bill 1049, 84th Legislature, 2015, effective January 1, 2016, which amended Tax Code, Chapter 171, to provide that qualifying new veteran-owned businesses are not subject to the franchise tax during an initial 5-year period of operation in Texas.

Throughout the section, the comptroller interprets the phrase "begins doing business in Texas" as used in SB 1049 to mean the date a new veteran-owned business is chartered, organized, or otherwise formed in Texas. As defined in SB 1049, a new veteran-owned business must be a Texas entity. Interpreting its formation date as the date a new veteran-owned business "begins doing business in Texas" is consistent with the imposition of franchise tax on all Texas entities from the date of formation. This interpretation is also consistent with the SB 1049 provision that allows for a 5-year waiver of fees collected by the Secretary of State for new veteran-owned businesses based on the entity's date of formation. Further, this interpretation provides a clear and unambiguous beginning date for new veteran-owned businesses that will make it easier for the owners to comply with their franchise tax obligations.

Subsection (a) provides the effective date of the provisions in this section as established in SB 1049.

Subsection (b) provides definitions for certain terms used throughout the section. Paragraph (1) defines the term "beginning date" for a taxable entity that qualifies as a new veteran-owned business as the fifth anniversary of the date the entity is chartered, organized, or otherwise formed in Texas or the date the entity ceases to qualify as a new veteran-owned business. Paragraph (1) also includes an example for illustration. Paragraph (2) defines "Letter of Verification of Veteran's Honorable Discharge." This is the written verification Texas Veterans Commission issues to a veteran, under Tax Code, §171.0005(b), for the comptroller to verify the veteran's discharge status. Paragraph (3) defines the term "new business" and is taken from the definition of the term "new veteran-owned business" in Tax Code, §171.0005, with changes. The statutory definition of new business only requires that a qualifying business begins doing business in Texas on or after January 1, 2016; however, SB 1049 also provides that this statutory provision expires effective January 1, 2020. The comptroller's definition of new business, therefore, requires that a qualifying business is chartered, organized, or otherwise formed in Texas on or after January 1, 2016, and before January 1, 2020. Paragraph (4) defines the term "new veteran-owned business" and is taken directly from Tax Code, §171.0005.

Subsection (c) provides that the franchise tax is not imposed on a qualifying new veteran-owned business for an initial five-year period provided that the business continues to qualify as a new veteran-owned business during that period.

Subsection (d) requires a qualifying new veteran-owned business to verify that all of the owners of its business are qualifying veterans. Paragraph (1) lists the documents required for verification. Paragraph (2) specifies when a taxable entity must submit the required documents to the secretary of state and when a taxable entity must submit the required documents to the comptroller.

Subsection (e) provides the reporting requirements for a qualifying new veteran-owned business. A taxable entity that meets all the qualifications of a new veteran-owned business is required to file a No Tax Due Report for each reporting period that the franchise tax is not imposed on the taxable entity to verify that the entity continues to qualify as a new veteran-owned business. The comptroller is authorized to require this information under Tax Code, §171.204(d). Paragraph (1) provides that, under Tax Code, §171.362(f), a $50 penalty will be assessed if the No Tax Due Report is not filed as required. Paragraph (2) provides that a qualifying new veteran-owned business may not file a franchise tax report with a combined group because the franchise tax is not imposed on qualifying veteran-owned businesses and they are, therefore, not subject to the combined reporting requirement during an initial five-year period. Paragraph (3) provides that a qualifying new veteran-owned business is not required to file a Public Information Report or an Ownership Information Report under Tax Code, §171.203 because the franchise tax is not imposed on qualifying veteran-owned businesses for an initial five-year period.

Subsection (f) provides the franchise tax beginning date for a qualifying new veteran-owned business that is exempt from franchise tax under Tax Code, §171.063, and subsequently has its federal tax exemption withdrawn. Paragraph (1) provides the beginning date if the new veteran-owned business loses its federal tax exemption before its first five years of business have elapsed. Paragraph (2) provides the beginning date if the new veteran-owned business loses its federal tax exemption after its first five years of business have elapsed.

Subsection (g) provides the expiration date of the provisions in this section as established in SB 1049.

No comments were received regarding adoption of the new section.

This new section is adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture) 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, and taxes, fees, or other charges which the comptroller administers under the law.

This new section implements Tax Code, §§171.0001 (General Definitions), 171.0005 (Definition of New Veteran-Owned Business), 171.001 (Tax Imposed), 171.063 (Exemption-Nonprofit Corporation Exempt from Federal Income Tax), and 171.204 (Information Report).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on November 30, 2016.

TRD-201606106

Don Neal

Chief Deputy General Counsel

Comptroller of Public Accounts

Effective date: December 20, 2016

Proposal publication date: October 21, 2016

For further information, please call: (512) 475-0387


SUBCHAPTER Y. CONTROLLED SUBSTANCES TAX

34 TAC §3.682

The Comptroller of Public Accounts adopts the repeal of §3.682, concerning tax payment certificates, without changes to the proposed text as published in the October 28, 2016, issue of the Texas Register (41 TexReg 8511). The repeal implements House Bill 1905, 84th Legislative Session, 2015. Section 36 of House Bill 1905 repealed Tax Code, Chapter 159 (Controlled Substances Tax), effective September 1, 2015.

No comments were received regarding adoption of the repeal.

The repeal is adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), 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 (State Taxation).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on November 30, 2016.

TRD-201606107

Don Neal

Chief Deputy General Counsel

Comptroller of Public Accounts

Effective date: December 20, 2016

Proposal publication date: October 28, 2016

For further information, please call: (512) 475-0387


34 TAC §3.683

The Comptroller of Public Accounts adopts the repeal of §3.683, concerning jeopardy determinations, without changes to the proposed text as published in the October 28, 2016, issue of the Texas Register (41 TexReg 8511). The repeal implements House Bill 1905, 84th Legislative Session, 2015. Section 36 of House Bill 1905 repealed Tax Code, Chapter 159 (Controlled Substances Tax), effective September 1, 2015.

No comments were received regarding adoption of the repeal.

The repeal is adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), 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 (State Taxation).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on November 30, 2016.

TRD-201606108

Don Neal

Chief Deputy General Counsel

Comptroller of Public Accounts

Effective date: December 20, 2016

Proposal publication date: October 28, 2016

For further information, please call: (512) 475-0382


CHAPTER 18. TOBACCO SETTLEMENT PERMANENT TRUST ACCOUNT

34 TAC §18.1, §18.2

The Comptroller of Public Accounts adopts amendments to §18.1, concerning purpose and definitions and §18.2, concerning trust account distributions, without changes to the proposed text as published in the October 28, 2016, issue of the Texas Register (41 TexReg 8513).

The amendment to §18.1 corrects the format of the definitions to make them consistent with the format of other definitions in this title and adds a definition of "investment policy statement." The investment policy statement will be posted on the Texas Treasury Safekeeping Trust Company's website.

The amendment to §18.2 clarifies the formula for calculating the actual distribution amount in order to provide for predictable, stable, and sustainable distributions over time while maintaining the inflation adjusted value of the corpus.

No comments were received regarding adoption of the amendments.

The amendments are adopted under Government Code, §403.1041(h), which authorizes the comptroller to adopt rules related to the management and implementation of the trust account.

The amendments implement Government Code, §403.1041(h).

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on December 1, 2016.

TRD-201606109

Don Neal

Chief Deputy General Counsel

Comptroller of Public Accounts

Effective date: December 21, 2016

Proposal publication date: October 28, 2016

For further information, please call: (512) 475-0387