(a) Effective date. This section is effective January
1, 2016.
(b) Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
(1) Beginning date--
(A) For a taxable entity that qualifies as a new veteran-owned
business, the earlier of:
(i) the fifth anniversary of the date on which the
taxable entity was chartered, organized, or otherwise formed in Texas;
or
(ii) the date the taxable entity ceases to qualify
as a new veteran-owned business.
(B) For example, if a qualifying entity files its certificate
of formation with the secretary of state on June 1, 2016, and remains
wholly-owned by honorably discharged veterans throughout its first
five years of business, the entity becomes subject to franchise tax
June 1, 2021. If one of the owners of this same new veteran-owned
business sells his or her ownership percentage to anyone other than
a qualifying veteran on December 31, 2017, the entity no longer qualifies
as a new veteran-owned business and becomes subject to franchise tax
January 1, 2018.
(2) Letter of Verification of Veteran's Honorable Discharge--A
letter issued by the Texas Veterans Commission, upon request by a
veteran, verifying the honorable discharge of the veteran.
(3) New business--A taxable entity that is chartered,
organized, or otherwise formed in Texas on or after January 1, 2016,
and before January 1, 2020.
(4) New veteran-owned business--A taxable entity that
is a new business in which each owner is a natural person who:
(A) served in and was honorably discharged from a branch
of the United States armed forces; and
(B) provides verification to the comptroller of the
person's service and discharge, as required by subsection (d) of this
section.
(c) Tax not imposed. The franchise tax is not imposed
on a taxable entity that qualifies as a new veteran-owned business
until the earlier of:
(1) the fifth anniversary of the date on which the
taxable entity was chartered, organized, or otherwise formed in Texas;
or
(2) the date the taxable entity ceases to qualify as
a new veteran-owned business.
(d) Verification. A taxable entity that qualifies as
a new veteran-owned business must verify that it is owned entirely
by qualifying veterans.
(1) Required documents. A taxable entity must submit
the following documents as required in paragraph (2) of this subsection:
(A) a "Letter of Verification of Veteran's Honorable
Discharge" from the Texas Veterans Commission for each owner of the
business; and
(B) comptroller Form 05-904, Certification of New Veteran-Owned
Business, or any successor to the form promulgated by the comptroller.
(2) Submission. A taxable entity must submit the required
documents identified in paragraph (1) of this subsection to the:
(A) secretary of state, if the taxable entity is formed
with the secretary of state on or after January 1, 2016; or
(B) comptroller, along with the appropriate comptroller
franchise tax questionnaire, if necessary, if the taxable entity is
not required to file a certificate of formation with the secretary
of state.
(e) Reporting requirement for a new veteran-owned business.
A taxable entity that meets all of 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.
(1) A qualifying new veteran-owned business that fails
to file a No Tax Due Report as required shall pay a penalty of $50
under Tax Code, §171.362(f).
(2) A qualifying new veteran-owned business may not
file with a combined group for each reporting period that the franchise
tax is not imposed.
(3) A qualifying new veteran-owned business is not
required to file a Public Information Report or an Ownership Information
Report for each reporting period that the franchise tax is not imposed.
(f) Beginning date upon withdrawal of federal tax exemption.
A qualifying new veteran-owned business that is exempt from franchise
tax under Tax Code, §171.063 (Exemption for a Non-profit Corporation
Exempt from Federal Income Tax) and subsequently has its federal tax
exemption withdrawn by the Internal Revenue Service for failure to
qualify or maintain its qualification for the exemption has a beginning
date:
(1) as provided in subsection (b)(1) of this section
if:
(A) in the absence of the federal tax exemption, the
franchise tax would not have been imposed on the taxable entity under
subsection (c) of this section; and
(B) the effective date of the withdrawal is before
the beginning date determined under subsection (b)(1) of this section;
or
(2) that is the effective date of the withdrawal, if
either paragraph (1)(A) or (B) of this subsection does not apply.
(g) Expiration. The provisions of this section expire
January 1, 2020; however, a business that first qualifies as a new
veteran-owned business before January 1, 2020, continues to qualify
as a new veteran-owned business as provided by this section.
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