| (a) Effective date. The provisions of this section apply to franchise tax reports originally due on or after January 1, 2008. (b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Assigned employee--Has the meaning assigned by Labor Code, §91.001. (2) Client company-- (A) a person that contracts with a license holder under Labor Code, Chapter 91, and is assigned employees by the license holder under that contract; or (B) a client of a temporary employment service, as that term is defined by Labor Code, §93.001(2), to whom individuals are assigned for a purpose described by that subdivision. (3) Management company--A corporation, limited liability company or other limited liability entity that conducts all or part of the active trade or business of another entity (the managed entity) in exchange for: (A) a management fee; and (B) reimbursement of specified costs incurred in the conduct of the active trade or business of the managed entity. (4) Natural person--A human being or the estate of a human being. The term does not include a purely legal entity given recognition as the possessor of rights, privileges, or responsibilities, such as a corporation, limited liability company, partnership, or trust. (5) Net distributive income--The net amount of income, gain, deduction, or loss relating to a pass-through entity or disregarded entity reportable to the owners for the tax year of the entity. (6) Small employer--An entity defined in Insurance Code, §1501.002. (7) Staff leasing services company--A business entity that offers staff leasing services as that term is defined by Labor Code, §91.001, or temporary employment service as that term is defined by Labor Code, §93.001. (8) Undocumented worker--A person who is not lawfully entitled to be present and employed in the United States. (9) Wages and cash compensation-- (A) the amount entered in the Medicare wages and tips box of Internal Revenue Service Form W-2 or any subsequent form with a different number or designation that substantially provides the same information; (B) the amount of net distributive income, regardless of whether cash or property pertaining to such income is actually distributed, from one of the following entities to partners or owners during the accounting period but only if the person receiving the amount is a natural person: (i) taxable entities treated as partnerships for federal income tax purposes; (ii) limited liability companies and corporations treated as S corporations for federal income tax purposes; and (iii) limited liability companies treated as sole proprietorships for federal income tax purposes; (C) stock awards and stock options deducted for federal income tax purposes, to the extent not included in subparagraph (A) of this paragraph. (c) Compensation. Subject to Tax Code, §171.1014, a taxable entity that elects to subtract compensation for the purpose of computing its taxable margin under Tax Code, §171.101, may subtract an amount equal to: (1) subject to subsection (d) of this section, all wages and cash compensation paid by a taxable entity to its officers, directors, owners, partners and employees. The taxable entity cannot subtract more than $300,000, or the amount determined under Tax Code, §171.006, for any one person in wages and cash compensation it determines under Tax Code, §171.101. See §3.590 of this title (relating to Margin: Combined Reporting); and (2) subject to subsection (e) of this section, the cost of all benefits the taxable entity provides to its officers, directors, owners, partners, and employees; (d) Compensation - excluded items. Compensation does not include: (1) payments to independent contractors on Forms 1099; (2) exclusions from revenue. See §3.587 of this title (relating to Margin: Total Revenue). Compensation related to any amount excluded from total revenue may not be included in the determination of compensation. The compensation related to an amount excluded from revenue must be determined on a reasonable basis; (3) an employer's share of payroll taxes; (4) wages or cash compensation paid to an employee whose primary employment is directly associated with the operation of a facility that is located on property owned or leased by the federal government, and managed or operated primarily to house members of the armed forces of the United States. See §3.587 of this title; and (5) wages or cash compensation paid to undocumented workers. (e) Benefits. A taxable entity is allowed to subtract the cost of all benefits to the extent deductible for federal income tax purposes that it provides to its officers, directors, owners, partners, and employees. (1) The term "benefits" includes employer contributions made to: (A) employees' health savings accounts; (B) health care (for example, this would include contributions to the cost of health insurance); (C) retirement; and (D) workers' compensation. (2) The term "benefits" does not include the following: (A) amounts included in the definition of wages and cash compensation; (B) discounts on the price of the taxable entity's merchandise or services sold to the taxpayer's employees, officers, or directors, partners, or owners that are not available to other customers; (C) payroll taxes. (For example, "payroll taxes" would include payments to state and federal unemployment compensation funds and payments under the Federal Insurance Contributions Act, Chapter 21 of Subtitle C of the Internal Revenue Code, §§3101 - 3128, the Railroad Retirement Tax Act, Chapter 22 of Subtitle C of the Internal Revenue Code, §§3201 - 3233); and (D) working condition amounts provided so employees can perform their jobs. (Examples of working condition benefits include an employee's use of a company car for business, job-related education provided to an employee, and travel reimbursement.) (3) The cost of benefits does not include the amount paid by an employee. (f) Staff leasing companies. See §3.587 of this title. (1) A staff leasing company cannot subtract the following payments for assigned employees: (A) wages and cash compensation; (B) payroll taxes; and (C) employee benefits including workers' compensation. (2) A client company can subtract the following amounts for assigned employees: (A) wages and cash compensation; and (B) benefits. (3) A client company cannot subtract the following: (A) an administrative fee; and (B) other costs. (4) A staff leasing company shall determine compensation only for the taxable entity's own employees who are not assigned employees. (g) Management company. See §3.587 of this title. (1) A taxable entity that is a management company may not include as wages and cash compensation any amounts reimbursed by a managed entity. (2) A taxable entity that is a managed entity may subtract wages and cash compensation that are reimbursed to the management company. (3) A management company shall determine compensation for only those wages and compensation payments that are not reimbursed by a managed entity. (h) Small employers. This subsection applies to a taxable entity that is a small employer and that has not provided health care benefits to any of its employees in the calendar year preceding the beginning date of its reporting period. Subject to Tax Code, §171.1014, a taxable entity to which this subsection applies that elects to subtract compensation for the purpose of computing its taxable margin under Tax Code, §171.101, may subtract the following health care benefits: (1) amounts as provided under subsection (c) of this section; (2) for the first 12-month period on which margin is based and in which the taxable entity provides health care benefits to all of its employees, an additional amount equal to 50% of the cost of health care benefits provided to its employees for that period; and (3) for the second 12-month period on which margin is based and in which the taxable entity provides health care benefits to all of its employees, an additional amount equal to 25% of the cost of health care benefits provided to its employees for that period. (4) The term "provide" does not include amounts paid by the employee, officer, director, etc. |
