HBA-TYH H.B. 563 76(R) BILL ANALYSIS Office of House Bill AnalysisH.B. 563 By: Oliveira Ways & Means 3/2/1999 Introduced BACKGROUND AND PURPOSE Many areas of the state, including the Rio Grande Valley area along the U.S./Mexico border, experience the economic problems of high unemployment and low per capita income. In the border area, the unemployment rate is in the double digits and the per capita income lags behind the rest of the state. Tax incentives can attract businesses and jobs. H.B. 563 establishes franchise and sales tax credits and refunds for job creation, worker training, and machinery and equipment purchases by businesses in certain industries in high unemployment and very high unemployment counties of Texas. RULEMAKING AUTHORITY It is the opinion of the Office of House Bill Analysis that rulemaking authority is expressly delegated to the Comptroller of Public Accounts of the State of Texas in SECTION 1 (Section 111.358, Tax Code) of this bill. SECTION BY SECTION ANALYSIS SECTION 1. Amends Chapter 111, Tax Code, by adding Subchapter G, as follows: SUBCHAPTER G. BUSINESS TAX INCENTIVES IN CERTAIN AREAS Sec. 111.351. DEFINITIONS. Defines "group health benefit plan," "high unemployment county," "qualified business," and "very high unemployment county." Sec. 111.352. TYPES OF BUSINESSES THAT QUALIFY FOR TAX EXEMPTION. Provides that a business qualifies for a tax refund or credit under this subchapter if the business otherwise complies with this subchapter, is located or conducts business in a high unemployment county or very high unemployment county, and is in one of the specified categories of the 1987 Standard Industrial Classification Manual published by the federal Office of Management and Budget. Sec. 111.353. STATE TAX REFUND OR CREDIT. Entitles a qualified business to a refund in the amount allowed by this subchapter of state sales and use taxes imposed under Chapter 151 (Limited Sales, Excise, and Use Tax) and paid by the business, and a credit in the amount allowed by this subchapter against the franchise tax imposed under Chapter 171 (Franchise Tax). Provides that a business may qualify under more than one provision of this subchapter and, notwithstanding any other provision of this subchapter, a refund or credit may not exceed the amount of net state sales and use taxes paid by the qualified business in the year in which the refund is requested or the amount of franchise tax due for the report on which the credit is claimed. Sec. 111.354. REFUND OR CREDIT FOR JOB CREATION. (a) Defines "new permanent employee." (b) Authorizes a qualified business to claim a refund or credit under this section only if: the business hires at least one new permanent employee to work in a high unemployment or very high unemployment county; the new permanent employee remains continuously employed with the business for at least one year; the new permanent employee performs duties directly related to the business classification under which the business qualified under Section 111.352; the business pays the new permanent employee the wage required by Subsection (d); the business had, for at least 40 weeks during the year in which the business hired the new permanent employee, at least five full-time employees at the location at which the new permanent employee works; and the new permanent employee is not hired to replace a previous employee. (c) Provides that, notwithstanding Subdivision (b)(1), a qualified business that is a central administrative office must hire at least 40 new permanent employees to be eligible for the refund or credit. Provides that, for purposes of determining the amount of a refund or credit under Subsection (f), each block of 40 new permanent employees is considered one new permanent employee. (d) Provides that a qualified business located in a high unemployment county must pay the new permanent employee a wage that is at least equal to 110 percent of the annualized average weekly wage in the county. Provides that a qualified business located in a very high unemployment area must pay the new permanent employee a wage that is at least equal to the annualized average weekly wage in the county. (e) Provides that an employee hired to fill a position transferred from another area of the state is not considered to be a permanent new employee for purposes of this section. Provides that, if a qualified business transfers a position for which the business is receiving a refund or credit under this section to another high unemployment or very high unemployment county, the transfer does not affect the refund or credit. (f) Entitles a qualified business located in a high unemployment county to a total refund or credit of $5,000 for each new permanent employee. Entitles a qualified business located in a very high unemployment county to a total refund or credit of $10,000 for each new permanent employee. Provides that the business must take each refund or credit in four equal installments. (g) Authorizes a qualified business to determine whether to apply for a refund or credit, or both, provided that the total amount claimed does not exceed the amount the business is entitled to receive under Subsection (f). (h) Provides that a refund or credit related to a particular new permanent employee of a qualified business expires if the number of full-time employees working at that employee's location falls below the number of employees at that location on the day after that employee was hired. Sec. 111.355. REFUND OR CREDIT FOR WORKER TRAINING. (a) Authorizes a qualified business to claim a refund or credit under this section only if: the business trains, during a tax year, at least five full-time employees who work at a location at which the business is eligible to claim a refund or credit under Section 111.356; the employees are not classified as exempt under the Fair Labor Standards Act of 1938 (29 U.S.C. Section 201 et seq., as amended); the employees perform duties directly related to the business classification under which the business qualified under Section 111.352; the business pays the employees the wage required by Subsection (b) after training is completed; the employees are covered by a group health benefit plan for which the business pays at least 80 percent of the premiums; and the business pays all costs of the training and receives no reimbursement for that training under any other state or federal law. (b) Provides that a qualified business located in a high unemployment county must pay the trained employees a wage that is at least equal to 110 percent of the annualized average weekly wage in the county. Provides that a qualified business located in a very high unemployment county must pay the trained employees a wage that is at least equal to the annualized average weekly wage in the county. (c) Entitles a qualified business located in a high unemployment county to a total refund or credit of $500 for each trained employee. Provides that a qualified business located in a very high unemployment county is entitled to a total refund or credit of $1,000 for each trained employee. (d) Authorizes a qualified business to determine whether to apply for a refund or credit, or both, provided the total amount does not exceed the amount the business is entitled to receive under Subsection (c). (e) Provides that, notwithstanding any other provision of this section, a qualified business is not entitled to a refund or credit related to a particular trained employee if, before the business applies for the refund or credit under Section 111.357, the number of full-time employees working at that employee's location falls below the number of employees at that location on the day after that employee completed the training. Sec. 111.356. REFUND OR CREDIT FOR MACHINERY AND EQUIPMENT. (a) Defines "base year" and "machinery and equipment." (b) Authorizes a qualified business to claim a refund or credit only if the business purchases or leases machinery and equipment that is used or designed to be used by the business for a purpose directly related to the business classification under which the business qualified in Section 111.352 (Types of Businesses that Qualify for Tax Exemption), and was purchased, leased, or transferred into this state at cost less depreciation and placed into service in a high unemployment or very high unemployment county by the business. (c) Provides that for purposes of computing the amount of the refund or credit under Subsection (e), a qualified business that places machinery and equipment into service in a high unemployment county has an applicable threshold of $250,000, and a qualified business that places machinery and equipment into service in a very high unemployment county has an applicable threshold of $0. (d) Provides that for purposes of computing the amount of the refund or credit under Subsection (e), a qualified business' eligible investment is the lesser of the cost of the machinery and equipment described by Subsection (b) purchased or leased in a tax year, or the amount by which the cost of all the business' machinery and equipment in service at that location on the last day of the tax year exceeds the cost of all the business' machinery and equipment in service at that location on the last day of the base year. (e) Entitles a qualified business to a total refund or credit equal to seven percent of the difference between the business' eligible investment and applicable threshold. Provides that the business must take the refund or credit in seven equal installments. (f) Authorizes a qualified business to determine whether to apply for a refund or credit, or both, if the total amount does not exceed the amount to which the business is entitled under Subsection (e). (g) Provides that a refund or credit related to particular equipment and machinery expires on the day the qualified business disposes of it, takes it out of service, or moves it out of this state. (h) Authorizes the qualified business to claim for that tax year the portion of the installment that the business would otherwise be entitled to claim if a refund or credit expires under Subsection (g). Prohibits the refund or credit from exceeding 50 percent of the state sales and use taxes and franchise taxes due for that tax year. Sec. 111.357. PROCEDURE FOR CLAIMING REFUND OR CREDIT. (a) Provides that an application for a refund or credit must be made to the Comptroller of Public Accounts of the State of Texas (comptroller) on a form prescribed by the comptroller. (b) Provides that a qualified business must provide any information the comptroller needs to determine the validity of an application. Provides that the burden of establishing entitlement to and the value of the refund or credit is on the business. (c) Provides that a qualified business must apply for a refund of state sales and use taxes under this subchapter before August 1 of the year after the tax year in which the business becomes eligible for the refund. Provides that a business must apply for a credit against franchise taxes under this subchapter on or with the report for the next privilege period after the period in which the business becomes eligible for the credit. Prohibits a qualified business from applying for the refund or credit for the tax year in which the business becomes eligible. (d) Provides that a refund payable under this subchapter does not earn interest. Sec. 111.358. COMPTROLLER POWERS AND DUTIES. (a) Requires the comptroller to adopt rules and forms for the administration of this subchapter. (b) Authorizes the comptroller to conduct any audit necessary for the enforcement or administration of this subchapter. SECTION 2. Authorizes a qualified business to claim a refund or credit under Subchapter G, Chapter 111, Tax Code, only for new permanent employees hired, employees trained, and machinery and equipment purchased or leased, on or after the effective date of this Act. SECTION 3. Provides that this Act takes effect January 1, 2000, only if the constitutional amendment proposed by __.J.R. No.__, 76th Legislature, Regular Session, 1999, is approved by the voters. SECTION 4. Emergency clause. Effective date: upon passage.