Texas Tax Changes

 On July 19, 2011, Texas Governor Rick Perry signed S1, the omnibus fiscal matters bill, which contains numerous tax provisions. Key provisions, effective September 28, 2011, unless otherwise noted, are briefly outlined below:

Franchise tax changes

  • Extends the small business franchise tax exemption for businesses with less than $1 million in revenue through December 31, 2013 and the lowering of the exemption to businesses with less than $600,000 in revenue applies beginning January 1, 2014.
  • Postpones until January 1, 2014, the effective date for the Tax Code provisions removing the franchise tax discounts for a taxable entity that has no tax liability as a result of the revised revenue threshold for incurring a tax liability and increasing from $500,000 to $600,000 the minimum amount of a taxable entity’s total revenue for a taxable entity entitled to a 40% discount.
  • Changes the latest date that a corporation can carry forward unused franchise tax credits established under former franchise tax law for certain job creation activities, or for certain capital investments, to the earlier of the date the credit would have expired under former law had it continued in existence, or December 31, 2016.
  • Adds apparel rental activities to the definition of “retail trade” for franchise tax purposes, effective January 1, 2012.
  • Provides an additional penalty of $50, which is imposed on a taxable entity that fails to file a required report and is assessed without regard to whether the taxable entity subsequently files the report or whether any taxes were due from the taxable entity for the reporting period under the required report, effective October 1, 2011.

Nexus provisions – Effective January 1, 2012, and applies to entities with online subsidiaries or affiliates of retailers with stores or other facilities in Texas:

  • Expands the definition of a “retailer engaged in business in Texas” to include a retailer that holds a substantial ownership interest in, or is owned in whole or substantial part by, a person who maintains a location in Texas from which business is conducted and if:

    • the retailer sells the same (or substantially similar line of products) as the person with the location in Texas and sells those products under a business name that is the same as, (or substantially similar to), the business name of the person with the location in the state; or
    • the facilities or employees of the person with the location in this state are used to advertise, promote or facilitate sales by the retailer to consumers,  including receiving or exchanging returned merchandise.     
  • Provides that a “retailer engaged in business in Texas” includes a retailer that holds a substantial ownership interest in, or is owned in whole or substantial part by, a person who maintains a distribution center, warehouse or similar location in Texas and delivers property sold by the retailer to consumers.

    • “Ownership” includes direct ownership, common ownership and indirect ownership through a parent entity, subsidiary or affiliate. “Substantial” means ownership of at least 50%.
  • Expands the definitions of “seller” and “retailer” to include a person who, under an agreement with another person, is entrusted with possession of tangible personal property with respect to which the other person has title or another ownership interest, and is authorized to sell, lease or rent the property without additional action by the person having title to or another ownership interest in the property.

Additional sales and use tax changes

  • Provides that a taxpayer who in August 2013 is required to pay sales and use taxes on or before the 20th day of that month, who pays the taxes by electronic funds transfer, and who does not prepay as provided by state law, must remit an additional tax prepayment of 25% of the amount the taxpayer is otherwise required to remit during August 2013. The taxpayer can then take a credit in the amount of the additional payment against the next payment due.
  • Changes the date of the sales tax holiday weekend from the third Friday in August to the Friday before the eighth day preceding the earliest date on which any school district, other than a district operating a year-round system, may begin instruction.

Property tax changes

  • Decreases the unclaimed property dormancy period for utility deposits from 18 months to one year.
  • Allows unmarried surviving spouses of deceased disabled veterans to pay property taxes on their homesteads in quarterly payments, effective January 1, 2012.

Motor fuel tax changes – A prepayment of motor fuel taxes equal to 25% of July 2013 taxes due August 28, 2013, with a credit allowed against the next tax payment due.

Recordkeeping requirements – The time taxpayers must maintain records to substantiate and verify a claim regarding the taxes, penalties and interest is at least four years. The circumstances under which records must be kept longer than four years are provided. These changes are effective October 1, 2011.

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