While the 2015 Texas Legislature gave taxpayers a significant franchise tax (margin tax) rate cut and repealed some smaller taxes (some of which had not been collected in years), it otherwise left much of the Texas tax code otherwise unchanged. Below, we’ll tell you about the changes the Texas Legislature made and provide links to the underlying bills.
The big tax cut. The franchise tax rate for most taxpayers is reduced from one percent to 0.75 percent. The franchise tax rate for retailers and wholesalers is reduced from 0.5 percent to 0.375 percent. The franchise tax rate for taxpayers using the E-Z Computation is reduced from 0.575 percent to 0.331 percent, and taxpayers with no more than $20 million in total revenue may pay using the E-Z Computation. Previously, only taxpayers with no more than $10 million in total revenue could pay using the E-Z Computation. (HB 32)
- $200 professional fee for attorneys, CPAs, and certain other professionals. (HB 7)
- Tax on alcoholic beverages served on trains and planes. (HB 1905)
- Controlled substances tax. (HB 1905)
- Crude petroleum production tax. (SB 757)
- Sulfur production tax. (SB 757)
- Excise tax on fireworks. (SB 761)
- Inheritance tax. (SB 752)
Big aircraft “clarification” bill. (SB 1396):
- The purchase of an aircraft qualifies for the sale for resale exemption if purchased for the purpose of leasing or renting the aircraft. Leasing or renting the aircraft includes the transfer of operational control under a written lease for consideration. Such a purchase would qualify for the sale for resale exemption regardless of whether the purchaser also used the aircraft, so long as more than 50 percent of the aircraft’s departures are made under the operational control of lessees other than the purchaser under a written lease.
- A transaction between related entities is exempt from sales tax if the same transaction between unrelated entities would also be exempt.
- Aircraft brought to Texas for the purpose of being completed, repaired, remodeled, or restored are not subject to use tax.
- No presumption that an aircraft is subject to Texas use tax if brought into Texas by someone who did not acquire it directly from a seller by means of a purchase.
- An aircraft brought into Texas from out of state is not subject to Texas sales and use tax if it made more than half of its departures from locations outside Texas for a year after either the acquisition of the aircraft or the aircraft’s first flight, whichever date is later.
- Sales tax exemption for “certificated or licensed carriers,” is only available to those authorized under Parts 121, 125, 133, and 135 of the FAA regulations. (Overturns Cirrus Exploration Co. v. Combs, et al., which held that a carrier authorized under Part 91 qualified for the exemption).
Sales and Use Tax
- Classifies certain sales of software to hosting providers as sales for resale. (SB 755)
- Excludes services performed by public insurance adjusters from taxable insurance services. (HB 1841)
- Exempts from sales and use tax telecommunications services used for the navigation of farm and ranch machinery and equipment. (SB 140)
- Exempts digital transmission equipment purchased by radio stations from sales and use tax. (HB 2507)
- Exempts vending machine sales by non-profits from sales and use tax if machine is stocked by individuals with special needs as part of a skills and education program that the nonprofit operates. (HB 2313)
- Extends the temporary sales and use tax exemption for qualifying large data centers from 15 to 20 years. (HB 2712).
- Creates a sales tax holiday for emergency preparation supplies. (SB 904)
- “Clarifies” that sales of motor vehicles from manufacturers to dealers are not retail sales subject to motor vehicle sales and use tax. (HB 2400)
- “Clarifies” that private school bus companies qualify for exemption from motor vehicle sales tax for school buses used to provide transportation services to school districts. (SB 724)
- Allows municipalities to increase and decrease their local sales and use tax rates. (HB 157)
- Allocates sales and use tax from sporting goods sales for parks and wildlife purposes only. (HB 158)
Franchise Tax (Margin Tax)
- Apportions income from licensing or distributing programming or film programming as non-Texas sales unless the broadcaster’s customer is domiciled in Texas. (HB 2896)
- Exempts new veteran-owned businesses from franchise tax for five years. (SB 1049)
- Requires limited partnerships and professional associations to file a public information report with their franchise tax report, but eliminates the requirement that they file a report with the secretary of state. (HB 2891)
- Allows electronic filing of a franchise tax public information report. (SB 1364)
- State Office of Administrative Hearings changes – eliminates the Comptroller’s prior approval for tax judges to work on other cases, removes the Comptroller’s authority to evaluate judge performance, and ends the Comptroller’s obligation to provide input on Comptroller priorities to SOAH. (HB 2154)
- Allows Comptroller to use estimates in annual report on the effectiveness of exemptions, exclusions, etc. if actual data isn’t available. (HB 1261)
If you think that any of these Legislative changes may affect your business, you may wish to seek the advice of a Texas tax professional, such as a Texas tax attorney, to determine how these laws may affect you.