Allcat V Combs, Reply Brief On The Merits - Filed: 10/13/2011

No.
11-0589
_______________________________________________

In The

Supreme Court of Texas
_______________________________________________

IN RE ALLCAT CLAIMS SERVICE, L.P. AND JOHN WEAKLY,
Relators.

RELATORS REPLY BRIEF

James F. Martens
jmartens@textaxlaw.com
State Bar No. 13050720
Michael B. Seay
mseay@textaxlaw.com
Lacy L. Leonard
lleonard@textaxlaw.com
Amanda M. Traphagan
atraphagan@textaxlaw.com
MARTENS, SEAY, & TODD
301 Congress Avenue, Suite 1950
Austin, Texas 78701
Tele: (512) 542-9898
Fax: (512) 542-9899

ATTORNEYS FOR RELATORS,
ALLCAT CLAIMS SERVICE, L.P.
AND JOHN WEAKLY
FILED
IN THE SUPREME COURT
OF TEXAS
11 October 13 P4:16
BLAKE. A. HAWTHORNE
CLERK

No. 11-0589
_______________________________________________

In The

Supreme Court of Texas
_______________________________________________

Relators.

RELATORS REPLY BRIEF

James F. Martens
Michael B. Seay
mseay@textaxlaw.com
Lacy L. Leonard
Amanda M. Traphagan
MARTENS, SEAY, & TODD
Austin, Texas 78701
Tele: (512) 542-9898
Fax: (512) 542-9899

AND JOHN WEAKLY

i

TABLE OF CONTENTS

TABLE OF CONTENTS ..................................................................................................... i
TABLE OF AUTHORITIES ............................................................................................. vii
SUMMARY OF ARGUMENT ........................................................................................... 1
ARGUMENT ....................................................................................................................... 2
I. This Court Does Not Need to Choose: It May Apply Love v. Wilcox and
Assert Jurisdiction under HB 3s Special and Limited Grant of Original
Mandamus Jurisdiction.................................................................................. 2
A. This Courts Existing Precedent Allows It to Exercise Jurisdiction

Here. ................................................................................................... 2
B. Article V, Section 8 Provides an Alternative Basis for This Courts

Jurisdiction. ........................................................................................ 5
C. This Court Has Exclusive Original Jurisdiction Over Only the Rare
Constitutional Challenges that Qualify for Mandamus Relief. .......... 6
II. The Revised Franchise Tax Is Imposed on a Persons Share of Partnership

. . . Income. Therefore, it Violates the Bullock Amendment. .................... 9
A. The Plain Text of the Bullock Amendment Prohibits a Tax on a

Persons Share of Partnership Income, and This Court Should Reject
Respondents Request to Ignore It. .................................................... 9
1. Respondents Improperly Construe the Meaning of the

Including Phrase. ..................................................................... 10
2. This Court Should Reject Respondents Invitation to Reject the

Plain Text of the Bullock Amendment in Favor of the Ballot
Language. .................................................................................... 11

ii
B. The Revised Franchise Tax Burdens a Partners Share of Income
When Earned, Regardless of Whether the Partnership Makes a Cash
Distribution. ...................................................................................... 13
C. The Revised Franchise Tax Is an Income Tax. ............................ 14
D. This Court Should Reject Respondents Straw Man Argument

about Federal Income Tax and Instead Follow Relators Argument
under Controlling Texas Law. .......................................................... 16
E. Relators Historical Evidence Provides This Court Important

Context Surrounding the Bullock Amendment and the Intentions of
Those Who Approved It. .................................................................. 20
F. Relators Request Limited Relief. ..................................................... 24
III. This Courts Focus Should Be on Relators Bullock Amendment Claim. . 24
PRAYER ........................................................................................................................... 25
CERTIFICATE OF SERVICE .......................................................................................... 27

APPENDIX (filed with Original Petition):

1. Act of May 2, 2006, 79
th
Leg., 3
rd
C.S., H.B. 3

2. Summary of Bill Stages and Actions on House Bill 3

3. Press Release, Office of the Governor, Gov. Perry (April 17, 2006)

4. Bill Summary of House Bill 3

5. Act of June 15, 2007, 80th Leg., R.S., H.B. 3928, 39

6. Affidavit of John Weakly, 7/27/11
A. Relators' Tax Documents
i. Checks for Payment of 2008 Franchise Taxes (p.1-2)
ii. Relevant Pages of Allcat's 2008 Form 1065 (p. 3-9)
iii. Relevant Pages of Mr. Weakly's 2008 Form 1040 (p. 10-12)
iv. Allcat's 2008 Texas Franchise Tax Report (p. 13-14)
v. Allcat's 2009 Texas Franchise Tax Report (p. 15-16)
vi. Allcat's 2008 protest payment check (p. 17)

iii
vii. Allcat's 2009 protest payment check (p. 18)

7. Election Details Report regarding Bullock Amendment

8. Letter from Carole Keeton Strayhorn to Rick Perry (May 15, 2006)

9. Letter from Carole Keeton Strayhorn to Rick Perry (May 2, 2006)

10. Letter from Carole Keeton Strayhorn to Greg Abbott (Apr. 21, 2006)

11. BLACK'S LAW DICTIONARY (8th ed. 2004) ("income tax" and "net income")

12. WI Tax Bulletin 156 (April 2008)

13. KS DOR Opinion Letter No. O-2008-004 (Sept. 2, 2008)

14. KS DOR Opinion Letter No. O-2009-005 (Mar. 24, 2009)

15. MO DOR Letter Ruling LR 5309 (Dec. 12, 2008)

16. SC Rev. Rul. 09-10 (Jul. 17, 2009)

17. CA Technical Advice Memorandum 2011-03 (Apr. 13, 2011)

18. Minutes of the August 2, 2006 Board Meeting on Potential FSP: Texas
Franchise Tax

19. Comptroller Letter No. 201008001L, "Franchise Tax and the Construction
Industry"

20. Texas Open Records Act Request Response

SUPPLEMENTAL APPENDIX (filed with Relators Brief on the Merits):

1. TEX. CONST. art. VIII, 24

2. TEX. CONST. art. V, 3

3. Tex. Gov't Code 22.002

4. Tex. Tax Code 141.001, art. II

5. Tex. Tax Code 171.101

iv




9. A&T Consultants, Inc. v. Sharp, 904 S.W.2d 668 (Tex. 1995)

10. Love v. Wilcox, 28 S.W.2d 515 (Tex. 1930)

11. J. Michael Kennedy, Doomsday Budget Shows Texas the Cost of Not
Raising Taxes: A Huge Deficit Looms as a Result of Court-Ordered
Funding of Social Services. The Unthinkable May Occur: An Income Levy,
L.A. Times, May 22, 1991

12. Bullock Details Tax Plan, Income Levy Could Reduce Other State Fees,
Proposal Says, Dallas Morning News, Mar. 29, 1991

13. Clay Robison, Income Tax Bill Would Lift Burden From Poor, Legislator
Says, Houston Chronicle, Apr. 24, 1991

14. Mark Tatge, Corporations Brace for State Income Tax, Dallas Morning
News, Mar. 23, 1991

15. Ross Ramsey, House Leaders Study Variety of Possibilities for New Tax
Plan, Houston Chronicle, Jul. 31, 1991

16. Ross Ramsey, Taxes for Cigarettes, Gas May Be Increased/Hybrid
Corporate Levy Also Considered, Houston Chronicle, Aug. 8, 1991

17. Ross Ramsey and R.G. Ratcliffe, Grapping with Texas Finances/Senate
OKs State Budget, Tax Measure/Deadline Looms Tonight for House to
Follow Suit, Houston Chronicle, Aug. 13, 1991

18. Michele Kay, Tax Issue Drawing Little Agreement, Austin American-
Statesman, Mar. 24, 1991

19. Franchise Tax on Small Firms Opposed, Dallas Morning News, Jul. 25,
1991

20. Tax Reform: Lawmakers Should Revamp the Franchise Tax, Dallas
Morning News, Jul. 31, 1991

v
21. Laylan Copelin, Tax Bill Heightens Old Fears, Austin American-
Statesman, Aug. 4, 1991

22. House Committee Report on HB 11, 72
nd
Legislature, First Called Session,
1991

23. Bob Bullock, et. al. to Ann Richards and Gibson Lewis, Jul 23, 1991, Bob
Bullock Collection, Lt. Governor Series, 1991-1992, Correspondence,
Elected Officials, Gov. Ann Richards, Baylor Collections of Political
Materials, Baylor University, Waco, Texas

24. Bob Bullock to Ann Richards, Jul. 19, 1991, Bob Bullock Collection, Lt.
Governor Series, 1991-1992, Correspondence, Elected Officials, Gov. Ann
Richards, Baylor Collections of Political Materials, Baylor University,
Waco, Texas

25. Bob Bullock, Corporations and Partnerships Should Not Be Taxed the
Same, Austin American-Statesman, Aug. 1, 1991

26. Bob Bullock, Leave Corporations Alone, Dallas Morning News, Aug. 4,
1991

27. Ross Ramsey, Legislators OK $34.6 Billion Budget, Houston Chronicle,
Aug. 11, 1991

28. Press Release, Office of the Governor, Gov. Perry Names 24-Member
Texas Tax Reform Commission (Nov. 4, 2005)

29. Texas Tax Reform Commission, Tax Fairness: Property Tax Relief for
Texans, March 29, 2006

30. Draft legislation proposed by Texas Tax Reform Commission

31. Multistate Tax Commission, Member States

32. Jack P. Friedman, ed., Barrons Dictionary of Business Terms 429 (2d ed.
1994)

33. BLACKS LAW DICTIONARY 1136 (8
th
ed. 2004)

34. Instructions for Completing Franchise Tax Reports Originally Due on or
After January 1, 1992 and Before January 1, 2008

vi
35. Financial Account Standards Board, Summary of Statement No. 109

36. NEV. CONST., art. 10, 1

37. Julia Rathgeber and Richard P. Sanchez, Senate Research Center, to John
Keel, Lt. Governors Office, Apr. 23, 1993, Bob Bullock Collection, Lt.
Governor Series, 1993, Issues, Revenue Income Tax, Baylor Collections
of Political Materials, Baylor University, Waco, Texas

SECOND SUPPLEMENTAL APPENDIX:

1. Defendants Plea to the Jurisdiction and Original Answer, Rent-A-Center,
Inc. v. Combs, No. D-1-GN-001059, 250th Judicial Dist. of Travis County,
Tex.

2. Paul Neiffer, Think Savings Account for Partners Capital Account, Farm
CPA Today, Jul. 11, 2011

3. Senate Research Center Report on Tex. H.B. 3, 73rd Leg., R.S., Apr. 28,
2005

4. Transcript of Hearing on Tex. H.B. 3 Before the House Ways & Means
Comm., 79th Leg., 3rd Sp. Sess., Apr. 10, 2006)

vii

TABLE OF AUTHORITIES

Constitutional Provisions

TEX. CONST. art. V, 3 .................................................................................................... 5, 6

TEX. CONST. art. V, 8 ........................................................................................................ 5

TEX. CONST. art. VIII, 1(c) ....................................................................................... 11, 13

TEX. CONST. art. VIII, 24(a) ............... 1, 4, 6, 9, 11, 12, 13, 14, 18, 19, 20, 21, 22, 23, 24

TEX. CONST. art XVI, 1 .................................................................................................... 2

Statutes

26 U.S.C. 170 ................................................................................................................. 15

26 U.S.C. 174(a)(3) ........................................................................................................ 15

26 U.S.C. 174(c) ............................................................................................................. 15

26 U.S.C. 174(m) ............................................................................................................ 15

26 U.S.C. 263 ................................................................................................................. 15

26 U.S.C. 263(A) ............................................................................................................ 15

26 U.S.C. 264 ................................................................................................................. 15

26 U.S.C. 267 ................................................................................................................. 15

26 U.S.C. 274 ................................................................................................................. 15

26 U.S.C. 275 ................................................................................................................. 15

26 U.S.C. 276 ................................................................................................................. 15

26 U.S.C. 279 ................................................................................................................. 15

viii
Tex. Bus. Orgs. Code Ann. 1.002(68) (West 2009) ........................................... 14, 17, 19

Tex. Bus. Orgs. Code Ann. 152.056 (West 2009) .......................................................... 18

Tex. Bus. Orgs. Code Ann. 152.202(a) (West 2009) ............................. 14, 17, 18, 19, 20

Tex. Civ. Prac. & Rem. Code 37.009 (West 2009) ........................................................ 25

Tex. Govt Code Ann. 311.026 (West 2009) ................................................................. 18

Tex. Gov't Code Ann. 22.002 (West 2009) ...................................................................... 7

Tex. Gov't Code Ann. 22.002(c) (West 2009) ................................................................. 6

Tex. Rev. Civ. Stat. Ann. Art. 6132(b), 1.10(13) ............................................... 14, 17, 19

Tex. Rev. Civ. Stat. Ann. Art. 6132b, 4.01(b).................................................... 14, 17, 19

Tex. Tax Code Ann. 141.001 (West 2009) .................................................................... 15

Tex. Tax Code Ann. 171.1011(g)(3) (West 2009) ......................................................... 25

Tex. Tax Code Ann. 171.1012 (West 2009) .................................................................. 25

Tex. Tax. Code 171.110 (repealed effective Jan. 1, 2008) ............................................. 15

Cases

A & T Consultants v. Sharp,
904 S.W.2d 668 (Tex. 1995) ............................................................................................... 4

Chenault v. Phillips,
914 S.W.2d 140 (Tex. 1996) ............................................................................................... 8

Corsicana Cotton Mills v. Sheppard,
71 S.W.2d 247 (Tex. 1934) ......................................................................................... 2, 3, 4

Dawson v. Kentucky Distilleries & Warehouse Co.,
255 U.S. 288 (1921) .......................................................................................................... 15

Federal Land Bank v. Bismarck Lumber Co.,
314 U.S. 95 (1941) ............................................................................................................ 10

ix
Galveston, Harrisburg & San Antonio Railway Co. v. Texas,
210 U.S. 217 (1908) ......................................................................................................... 15

Hanson v. Jordan,
198 S.W.2d 262 (Tex. 1946) ............................................................................................. 10

Hardy v. Hannah,
849 S.W.2d 355 (Tex. App.Austin 1992, writ denied) ................................................. 12

Helvering v. F. & R. Lazarus & Co.,
308 U.S. 252 (1939) .......................................................................................................... 16

Helvering v. Morgans, Inc.,
293 U.S. 121 (1934) .......................................................................................................... 10

INOVA Diagnostics, Inc. v. Strayhorn,
166 S.W.3d 394 (Tex. App.Austin 2005, pet. denied) .................................................. 16

Lane v. Ross,
249 S.W.2d 591 (Tex. 1952) ............................................................................... 1, 2, 3, 4, 5

Love v. Wilcox,
28 S.W.2d 515 (Tex. 1930) ......................................................................... 1, 2, 3, 4, 5, 6, 8

Phelps Dodge Corp. v. N.L.R.B.,
313 U.S. 177 (1941) .......................................................................................................... 10

R.R. Commn v. Sterling Oil & Ref. Co.,
218 S.W.2d 415 (Tex. 1949) ............................................................................................. 11

Rylander v. B & A Mktg.,
997 S.W.2d 326 (Tex. App.Austin 1999, no pet.) ......................................................... 16

Suburban Utility Corporation v. Public Utility Commission of Texas,
652 S.W.2d 358 (Tex. 1983) ............................................................................................. 17

Travelers Ins. Co. v. Marshall,
76 S.W.2d 1007 (Tex. 1934) ............................................................................................. 20

Trinova Corp. v. Michigan Dept of Treasury,
498 U.S. 358 (1991) .......................................................................................................... 15

x
U.S. v. OBrien,
391 U.S. 367 (1968) .......................................................................................................... 21

Union Cent. Life Ins. Co. v. Mann,
158 S.W.2d 477 (Tex. 1941) ............................................................................................... 4

Winger v. Pianka,
831 S.W.2d 853 (Tex. App.Austin 1992, writ denied) ................................................. 12

Other Authorities

Act of May 2, 2006, 79th Leg., 3rd C.S., H.B. 3, 24 ....................................... 1, 2, 3, 5, 8

Act of May 9, 1961, 57th R.S., ch. 158 ............................................................................. 18

BLACKS LAW DICTIONARY 763 (6
th
ed. 1990) ................................................................. 16

Bob Bullock to Ann Richards, Jul. 19, 1991, Bob Bullock Collection, Lt. Governor
Series, 1991-1992, Correspondence, Elected Officials, Gov. Ann Richards, Baylor
Collections of Political Materials, Baylor University, Waco, Texas .................... 11, 21, 22

Bob Bullock, Corporations and Partnerships Should Not Be Taxed the Same, Austin
American-Statesman, Aug. 1, 1991 ....................................................................... 12, 21, 22

Bob Bullock, et. al. to Ann Richards and Gibson Lewis, Jul. 23, 1991, Bob Bullock
Collection, Lt. Governor Series, 1991-1992, Correspondence, Elected Officials, Gov.
Ann Richards, Baylor Collections of Political Materials, Baylor University, Waco, Texas
........................................................................................................................... 9, 11, 21, 22

Bob Bullock, Leave Corporations Alone, Dallas Morning News, Aug. 4, 1991 .. 12, 21, 22

Committee Substitute H. B. 11, 72nd Leg., 1st C.S., Article 13 (1991) ............................. 9

Hearing on Tex. H.B. 3 Before the House Ways & Means Comm., 79th Leg., 3rd Sp.
Sess. (April 10, 2006) .................................................................................................. 23, 24

Joe R. Greenhill, The Constitutional Amendment Giving Criminal Jurisdiction to the
Texas Courts of Civil Appeals and Recognizing the Inherent Power of the Texas Supreme
Court, 33 Tex. Tech L. Rev. 377 (2002) ............................................................................. 5

Letter from Carole Keeton Strayhorn to Greg Abbott (Apr. 21, 2006) ............................... 3

xi
Letter from Carole Keeton Strayhorn to Rick Perry (May 15, 2006) ................................. 3

Letter from Carole Keeton Strayhorn to Rick Perry (May 2, 2006) ................................... 3

Paul Neiffer, Think Savings Account for Partners Capital Account, Farm CPA Today,
Jul. 11, 2011 ....................................................................................................................... 17

Rent-A-Center, Inc. v. Combs, No. D-1-GN-001059, 250th Judicial Dist. of Travis
County, Tex. ........................................................................................................................ 8

Senate Research Center Report on H.B. 3, 73rd Leg., R.S., Apr. 28, 2005 ...................... 23

Tex. H.B. 278, 72nd Leg., R.S. 53 (1991) ...................................................................... 20

Tex. S.J.R. 36, 66th Leg. (1979) ......................................................................................... 5

1
SUMMARY OF ARGUMENT

This Court has the constitutional power to hear this case and does not need to
overturn precedent to do so. Both Love v. Wilcox and Lane v. Ross support the
constitutionality of Section 24 of House Bill 3. These cases recognize the Legislatures
well-established power to confer original jurisdiction on this Court to issue writs of
mandamus. Exercising jurisdiction here will not require this Court to exercise
jurisdiction over all challenges to the constitutionality of statutes only those, like this
one, that meet the special requirements to qualify for this Courts original mandamus
jurisdiction.
Upon exercising jurisdiction, this Court should find that the franchise tax violates
the Bullock Amendment. In arguing otherwise, Respondents ignore the controlling text
of the Bullock Amendment, applicable Texas law, and the historical context in which the
Bullock Amendment arose. Instead, they immediately draw the Courts attention away
from the plain text to the ballot language, from which they bootstrap their business
entities argument. And why? Because if this Court follows the Bullock Amendments
plain language, Respondents lose: this tax is imposed on a persons share of partnership
. . . income, which belongs to the partner the moment it is earned.
Further, the revised franchise tax is an income tax. Respondents do not seriously
contest this they instead insist this Court need not decide it. Their only
counterarguments have no legal basis. Respondents do not even bother to address the
numerous authorities and arguments in Relators initial brief establishing that the revised
franchise tax is an income tax. Moreover, they fail to address the financial harm that

2
multistate taxpayers will suffer if this Court reclassifies the franchise tax as a tax imposed
on anything other than net income.
ARGUMENT

I. THIS COURT DOES NOT NEED TO CHOOSE: IT MAY APPLY LOVE V. WILCOX
AND ASSERT JURISDICTION UNDER HB 3S SPECIAL AND LIMITED GRANT OF
ORIGINAL MANDAMUS JURISDICTION.

A. This Courts Existing Precedent Allows It to Exercise Jurisdiction
Here.

This Court does not need to overturn its own precedent to exercise jurisdiction
here. Both Love v. Wilcox and Lane v. Ross support the constitutionality of Section 24 of
House Bill 3. These cases recognize the Legislatures well-established power to confer
original jurisdiction on this Court to issue writs of mandamus. Both cases also recognize
this Courts correlative power to grant injunctive relief to enforce writs of mandamus.
Consistent with this authority, the Legislature conferred jurisdiction on this Court to grant
mandamus relief here and to enforce it through its injunctive power. This is the precise
relief Relators seek here.
Relators ask this Court to enforce the Comptroller and Attorney Generals
mandatory duty to preserve, protect and defend the Constitution of Texas (TEX. CONST.
art XVI, 1) by enjoining the enforcement of an unconstitutional statute. This Court has
recognized that our executive officers are duty-bound to enforce the Texas Constitution
and refrain from enforcing unconstitutional laws. As this Court wrote in Corsicana
Cotton Mills v. Sheppard, [w]hen a legislative act requires an officer to perform a
ministerial duty, he should perform it if the act is not unconstitutional. If the legislative

3
act is in contravention of the Constitution, the officer should obey the Constitution. 71
S.W.2d 247, 251 (Tex. 1934). The enactment of 24 (acknowledging the likelihood of a
constitutional challenge to the revised franchise tax) and its attendant 120-day resolution
period, along with Comptroller Strayhorns contemporaneous comments about the
unconstitutionality of the revised franchise tax, demonstrate that the Comptroller and
Attorney General were on notice that enforcing the 2006 taxing statute may well
contravene the Texas Constitution. (Appx. 8, 9, & 10).
Love v. Wilcox directly parallels this case. In Love, the relator sought a writ of
mandamus compelling the State and County Democratic Executive Committees to desist
and refrain from enforcing certain resolutions adopted by the Committee, which the
relator argued violated the law. 28 S.W.2d 515, 516 (Tex. 1930). This Court agreed and
granted a writ of mandamus commanding the committees to desist and refrain from
enforcing those unlawful resolutions. Id. at 526. The Love Court wrote that we find no
warrant for saying that the Legislature exceeded its authority in making it possible for
this court to take original jurisdiction to issue the writ of mandamus when there is urgent
necessity for the exercise of the courts authority to maintain and protect the general
rights and the important interests of the state and of the people. Id. at 521. Here, as in
Love, the Legislature granted this Court original mandamus jurisdiction to prevent the
enforcement of an unlawful statute.
Lane v. Ross follows Love. Lane does not hold that a request for injunctive relief
nullifies this Courts jurisdiction over an otherwise-valid mandamus claim. In fact, this
Court confirmed that in cases in which this courts jurisdiction to issue a writ of

4
mandamus has attached, the court necessarily has correlative authority to issue a writ of
injunction to make the writ of mandamus effective. Lane v. Ross, 249 S.W.2d 591, 593
(Tex. 1952). Lane stands only for the proposition that this Court does not have original
jurisdiction to issue a writ of injunction when a relator has not otherwise established a
right to mandamus relief. Id. There, the relator had not established a right to mandamus
relief because [a] writ of mandamus will not issue to compel an officer to do that which
he is willing to do and intends to do. Id. (emphasis added). Here, however, Relators
have an established right to mandamus relief: The Comptroller and Attorney General
have clearly demonstrated an unwillingness to comply with the Bullock Amendment, and
Relators seek a writ of mandamus to compel them to do so. Relators seek injunctive
relief only to make this mandamus relief effective.
Thus, contrary to Respondents theory, this Court does not need to overrule Love
and Lane in order to exercise jurisdiction here. In reality, it is Respondents argument
that would require this Court to overrule its own precedent. To adopt Respondents
positions, this Court would have to overrule A & T Consultants v. Sharp, 904 S.W.2d 668
(Tex. 1995) and the long line of cases it follows holding that this Court alone is the
proper forum when a relator seeks to compel an executive officer to perform duties
imposed by law. This line of cases includes mandamus proceedings compelling the
Comptroller to refund illegally-assessed taxes. Id. at 673 (citing Union Cent. Life Ins.
Co. v. Mann, 158 S.W.2d 477 (Tex. 1941) and Corsicana Cotton Mills v. Sheppard, 71
S.W.2d 247 (1934)).

5
Even if this Court thought that exercising jurisdiction here might violate Love and
Lane, the Court would still have jurisdiction. Love and Lane predate the 1980
amendments to Article V, 3 of the Texas Constitution, which broadened this Courts
jurisdiction. Tex. S.J.R. 36, 66th Leg. (1979) (effective Nov. 4, 1980). These
amendments confer to this Court a reservoir of inherent and residual jurisdiction. Article
V, 3 now reads: [t]he Supreme Court shall exercise the judicial power of the state
except as otherwise provided by this Constitution. Previously, it stated that [t]he
Supreme Court shall have appellate jurisdiction only except as herein specified . . .
(emphasis added). The scope of this Courts jurisdiction was expanded by the removal of
the limitation to only appellate jurisdiction in 1980. See Joe R. Greenhill, The
Constitutional Amendment Giving Criminal Jurisdiction to the Texas Courts of Civil
Appeals and Recognizing the Inherent Power of the Texas Supreme Court, 33 Tex. Tech.
L. Rev. 377, 391-92 (2002). Consequently, this Courts original jurisdiction authority is
more expansive now than it was when Love and Lane were decided.
B. Article V, Section 8 Provides an Alternative Basis for This Courts
Jurisdiction.

Relators agree with Respondents that Article V, 8 of the Texas Constitution may
provide this Court with an independent basis to exercise jurisdiction over this case.
Article V, 8 reinforces the Legislatures authority under Article V, 3 to confer
original jurisdiction on this Court. However, this Court need not overrule Love and Lane
to exercise jurisdiction in this case, regardless of which constitutional provisions
ultimately permit Section 24s jurisdictional grant.

6
C. This Court Has Exclusive Original Jurisdiction Over Only the Rare
Constitutional Challenges that Qualify for Mandamus Relief.

Respondents alarmingly claim that Relators jurisdictional argument has no
limiting principal and would allow future parties [to] bring virtually any constitutional
challenge directly in this court. (Resp. Brf., p. 8). This parade of horribles ignores the
law: Accepting the Legislatures limited grant of original jurisdiction here would not
confer original jurisdiction over every challenge to the constitutionality of a statute.
Article V, 3 of the Texas Constitution and Texas Government Code 22.002(c) allow
this Court to exercise jurisdiction over only those rare constitutional challenges that
qualify for its original mandamus relief. In Love v. Wilcox, this Court stated these
requirements:
1. the claim must not be dependent upon the determination of any
doubtful question of fact;

2. mandamus must be a proper or necessary process for enforcement of
the right asserted; and

3. there must be some strong and special reason for the exercise of this
extraordinary original jurisdiction, such as questions which are of
general public interest and call for a speedy determination.

28 S.W.2d at 519.

Few challenges to the constitutionality of statutes will satisfy these requirements.
To begin with, most constitutional claims, including the examples Respondents provide,
require factual determinations. Here, no factual determination is required because this
Court must only construe the plain language of the Bullock Amendment and apply that to
the revised franchise taxing statute to determine that the statute violates the Texas

7
Constitution. Other constitutional claims would not qualify because the law already
provides an adequate remedy at law. Respondents examples bear this out as well: they
originated in district court because, unlike here, there was no legislative statement
limiting original and exclusive jurisdiction to this Court. Because the Legislature has
clearly mandated that Relators particular constitutional challenge in this limited context
must originate with this Court and must be decided by this Court within 120 days,
Relators have no other adequate remedy at law. Here, an issuance of writ of mandamus
by this Court provides a necessary and proper means of enforcing Relators rights, but
that will not be true in every constitutional challenge.
Other constitutional claims also do not present the pressing need for a speedy
resolution. Respondents examples illustrate this point as well. There is no imminent
pressing need to determine, for example, whether strip club patrons should each pay $5 to
obtain the entertainment they desire. Contrarily, under the specific circumstances
presented here, the Legislature has made clear its intent that the constitutional challenge
brought by Relators, which affects important rights of individuals across the State of
Texas, shall be determined, exclusively and speedily, by this Court.
These limitations have, for several decades, prevented the parade of horribles
threatened by Respondents, and nothing about the Courts exercise of jurisdiction will
change that moving forward. Since Section 22.002 was amended in 1980, this Court has
broadly been conferred original jurisdiction over mandamus (and other compulsory writ)
actions against a confined group of state executive officers. Yet, there has not been a
flood of original matters filed with this Court as predicted by Respondents, and this case

8
will not set a precedent for such a flood in the future. Just as this case must satisfy the
constraints espoused in Love v. Wilcox, so too must any other case seeking relief within
this Courts original and exclusive jurisdiction.
Respondents also mischaracterize this Courts decision in Chenault v. Phillips,
914 S.W.2d 140 (Tex. 1996). There, the Court did not hold that it could never have
original mandamus jurisdiction over the constitutionality of a statute. It held only that the
relators did not establish that their particular constitutional challenge fell within the
Courts original jurisdiction. Id. at 142. The difference here is obvious. Unlike the
present case, no statute or constitutional provision in Chenault limited jurisdiction to this
Court. Id. at 141. Moreover, the Court found no compelling reason to exercise
original mandamus jurisdiction over the claim. Id. at 142. Other constitutional claims
would be no different. The unique nature of this case presents a compelling reason for
the Court to exercise jurisdiction here. The Legislature recognized this by conferring
original and exclusive jurisdiction on this Court.
And last but not least, Respondents sing a different tune in district court. In Rent-
A-Center, Inc. v. Combs, No. D-1-GN-001059, 250th Judicial Dist. of Travis County,
Tex., the Comptroller and Attorney filed a Plea to the Jurisdiction (2nd Supp. Appx 1)
seeking to have the district court action thrown out based on their claim that 24 of HB 3
confers exclusive jurisdiction to this Court over the taxpayers constitutional challenges
to the revised franchise tax.
For the reasons set forth above, the Legislature validly granted this Court original
and exclusive jurisdiction over this proceeding. Relators complied with the legislative

9
mandate to initiate its proceeding before this Court. As a result, this Court should
exercise jurisdiction and hear this case.
II. THE REVISED FRANCHISE TAX IS IMPOSED ON A PERSONS SHARE OF
PARTNERSHIP . . . INCOME. THEREFORE, IT VIOLATES THE BULLOCK
AMENDMENT.

Respondents ignore the controlling text of the Bullock Amendment, applicable
Texas law, and the historical context in which the Bullock Amendment arose. Instead,
they improperly attempt to shift this Courts focus to the ballot language, to which they
bootstrap their business entities argument. And why? Because if this Court reads the
Bullock Amendment as a whole and follows its plain language, Respondents lose.
A. The Plain Text of the Bullock Amendment Prohibits a Tax on a
Persons Share of Partnership Income, and This Court Should Reject
Respondents Request to Ignore It.

The plain text of the Bullock Amendment prohibits taxation of a persons share
of partnership . . . income without voter approval. While Respondents business
entities position may sound plausible at first blush, it ultimately must fail because it
requires the Court to ignore this plain text and render it meaningless. Texas law and the
applicable legislative history demonstrate that this important phrase was included for the
exact reason Relators allege: to prevent, without a popular vote, the type of legislation
Chairman Hury had proposed in the immediate prior session. His bill would have
imposed the franchise tax on a partnership or association based upon the amount of
income attributable to its partners or members.
1
The drafters purposefully added the

1
Committee Substitute H.B. 11, 72nd Leg., 1st C.S., Article 13 (1991). The House removed the
quoted language in part because the Senate would not agree with it. See Supp. Appx. 16.

10
phrase including a persons share of partnership . . . income to prevent such a tax
without voter approval.
1. Respondents Improperly Construe the Meaning of the Including
Phrase.

In a self-serving effort to have this Court ignore the important meaning of the
phrase including a persons share of partnership . . . income, Relators misapply the
rules of grammar and statutory construction. While Respondents concede that the term
including is generally employed as a term of enlargement rather than limitation or
restriction, they immediately contradict themselves, stating that including does not
expand the meaning of provisions. Yet, one cannot enlarge something without
expanding it. Indeed, the U.S. Supreme Court has noted that the term including does
enlarge the category of the term it modifies. Phelps Dodge Corp. v. N.L.R.B., 313 U.S.
177, 209 (1941); see also Helvering v. Morgans, Inc., 293 U.S. 121, 125 (1934).
Notably, Federal Land Bank v. Bismarck Lumber Co., a case on which the Respondents
rely, cites each of these cases. 314 U.S. 95, 100 (1941).
Respondents urge this Court to ignore the long-standing rule that courts should
avoid construing constitutional provisions in a manner that renders them meaningless or
inoperative. Hanson v. Jordan, 198 S.W.2d 262, 263 (Tex. 1946). This Court should
decline Respondents invitation to write this phrase out of our constitution. Instead, this
Court should give the phrase its clear meaning and purpose to prevent the Legislature
from imposing the tax on a partners share of partnership income by taxing the
partnership itself.

11
Further, Respondents construction of this phrase ignores the relevant history. The
drafters of the Bullock Amendment opposed an income tax on partnerships, stating that
such a tax is really a tax on personal income. Supp. Appx. 16. Bob Bullock himself
stated that a tax applied to non-corporate businesses would actually tax the incomes of
Texans in business for themselves. Supp. Appx. 17. Furthermore, when the Bullock
Amendment was passed (in TEX. CONST. art. VIII, 24), it also effectuated changes to
TEX. CONST. art. VIII, 1(c), and those changes cross-reference the Bullock
Amendment. The changes to 1(c) further demonstrate that the Legislature (1)
understood that imposing a tax on a partnerships income would, in fact, impose a tax on
a natural persons share of that income, and (2) intended to prevent imposition of such a
tax without voter approval.
2. This Court Should Reject Respondents Invitation to Reject the Plain Text
of the Bullock Amendment in Favor of the Ballot Language.

Aware that the controlling text of the Bullock Amendment conflicts head on with
their position, Respondents ignore it and resort to the ballot language instead.
2
This
position is illogical and ignores this Courts precedent. As this Court wrote, [w]e do not
think it would be sound to permit the ballot form to have the effect of limiting the natural
meaning of the language of the amendment itself. R.R. Commn v. Sterling Oil & Ref.
Co., 218 S.W.2d 415, 418 (Tex. 1949). The ballot language simply helps voters identify

2
Respondents assert that, When this amendment was presented to the people for a vote, it was
described as proposing a constitutional amendment prohibiting a personal income tax without
voter approval and dedicating the proceeds of the tax, if enacted, to education and property tax
relief. (Resp. Brf., pp. 15-16).

12
the amendments on which they vote. Under Texas law, [v]oters are presumed to be
familiar with the content of the actual proposed amendment summarized on a ballot.
Hardy v. Hannah, 849 S.W.2d 355, 358 (Tex. App.Austin 1992, writ denied); Winger
v. Pianka, 831 S.W.2d 853, 856 (Tex. App.Austin 1992, writ denied).
Despite this, Respondents suggest that the Texas voters who approved the Bullock
Amendment did so wholly unaware of the actual language or meaning of the amendment.
They want this Court to believe that when Texas voters walked into the voting booths,
they were ignorant of Texas law, ignorant of the Legislatures immediately-prior attempt
to tax partners through their partnerships, ignorant of Bob Bullocks public statement that
taxing partnerships was no different than taxing its partners (Supp. Appx. 18-19), and
were even ignorant of the language of the Bullock Amendment itself. The legal
principles set forth above prevent such assumptions.
Next, Respondents want this Court to believe that this ballot language granted the
Legislature permission to tax natural persons through their partnerships under the label of
a tax on business entities. Respondents argue, based on the ballot language, that the
Bullock Amendment prohibits a tax only on personal income, not business entities.
Thus, they redefine a category of income (personal) into a category of legal forms
(business entities). This Court should reject Respondents invitation to judicially rewrite
the plain text of our constitution and, instead, should apply the law as written and as
intended by our Legislature and our voters.
The Bullock Amendments text never mentions personal income or business
entities. It prohibits a tax on the net incomes of natural persons, including a persons

13
share of partnership . . . income. TEX. CONST. art. VIII, 24(a) (emphasis added).
Respondents oversimplify the Bullock Amendment by lumping all business entities
together. However, the Bullock Amendment expressly and intentionally recognizes that
Texas law treats partnership income different from that of other entities: it belongs to the
partners moment it is earned.
3

Reading the Bullock Amendment in tandem with the rest of Article 8 of the Texas
Constitution shows that the Legislature and voting public did not draw the business
entities distinction that Respondents draw here. Article 8 recognizes only two
categories of taxable entities, neither of which comport with Respondents business
entities label. It permits the State to tax only the incomes of both natural persons and
corporations other than municipal, subject to the Bullock Amendments limitations.
TEX. CONST. art. VIII, 1(c). This means one of two things: either the Legislature
cannot tax partnerships because the Constitution does not expressly permit it, or that a tax
on a partnership is really a tax on its partners. Such is the case here. The Legislature
may impose a tax on a partners share of partnership income so long as the partner is not
a natural person.
B. The Revised Franchise Tax Burdens a Partners Share of Income
When Earned, Regardless of Whether the Partnership Makes a Cash
Distribution.

The Bullock Amendments plain language protects from taxation a natural

3
Dale Craymers comment that Texas already taxed partnerships has no merit. LLCs are not
partnerships and there is no provision under Texas law that would classify them as such. In
1997, years after Texans approved the Bullock Amendment, Congress amended the Internal
Revenue Code to allow LLCs to elect to report as partnerships for federal income tax purposes.
No provision under Texas law has ever provided for such an election.

14
persons proportionate share of income earned by the partnership, not the amount of any
cash distribution that might be made by the partnership. Respondents conflate the
earning of income with the distribution of cash in a veiled attempt to imply partners do
not receive income until the partnership distributes it to them as cash. This argument
bypasses both reality and the law.
Partnerships earn income, not cash. Partnerships distribute cash, not income.
Under Texas law, income earned by a partnership is vested in its individual partners the
moment it is earned, in accordance with their shares, regardless of whether the
partnership distributes any cash from those earnings at that time. Tex. Rev. Civ. Stat.
Ann. Art. 6132(b) 1.10(13), 4.01(b); Tex. Bus. Orgs. Code Ann. 1.002(68),
152.202(a) (West 2009). Partnership income is earnedby the partnership and, hence,
by its individual partnerswhen the partnership engages in profitable activities. But a
partnerships cash distributions do not occur unless and until the partnership decides to
write checks to its partners. Because the revised franchise tax is imposed on a
partnerships earned income and, as such, on a persons share of partnership . . .
income, it violates the Bullock Amendment.
C. The Revised Franchise Tax is an Income Tax.

Whether the franchise tax is an income tax is highly relevant because it taxes the
incomes of natural-person partners. As we argued extensively in Relators Brief (p. 25-
34), the franchise tax is an income tax.
4

4
The taxs label as a franchise tax is irrelevant. See Relators Brief at 30-33 (citing to cases
that hold that a taxs label does not control its character.) This tax, like many franchise taxes, is

15
Respondents ignore virtually all of the arguments in Relators Brief
5
and instead
argue that the tax is not an income tax because a business entity must pay the franchise
tax even if it actually loses money. (Resp. Brf., p. 27). This is not an appropriate
income definition: persons have lost money and still owed the federal income tax. For
instance, the Internal Revenue Code allows a deduction for only half of meal and
entertainment costs. A person with substantial meal and entertainment costs may lose
money but have federal income when his or her meal and entertainment costs are high.
26 U.S.C. 274.
6

The same holds true for the former earned surplus tax, which was also a net
income tax. It did not allow a deduction for officer and director compensation. Tex. Tax.
Code 171.110 (repealed effective Jan. 1, 2008). Businesses with substantial officer and
director compensation would lose money but still have to pay the tax.
The U.S. Supreme Court and Third Court of Appeals agree that both taxes are net

an income tax because it is measured by and imposed on income. See Trinova Corp. v. Michigan
Dept of Treasury, 498 U.S. 358, 374 (1991) (A tax on sleeping measured by the number of
pairs of shoes you have in your closet is a tax on shoes.). A tax on the privilege of doing
business in Texas measured by a businesss net income is a tax on net income. Likewise,
TTARAs argument that the franchise tax is a fee instead of an income tax contradicts the
holdings of the U.S. Supreme Court in Dawson v. Kentucky Distilleries & Warehouse Co., 255
U.S. 288 (1921) and Galveston, Harrisburg & San Antonio Railway Co. v. Texas, 210 U.S. 217
(1908).
5
Most notably, see Relators Brief at 25-30. Respondents never discuss this States statutory
definition of income tax included in Texas Tax Code 141.001; nor do they explain why this
Court should not use such a definition in its analysis; nor do they argue that the franchise tax
does not meet the statutory definition.
6
Similar differences arise in the case of depreciation, club dues, certain travel expenditures,
capital expenditures, capitalization of inventory costs, certain life insurance premiums, losses
and other expenses incurred when transacting with a related party, certain taxes, charitable
expenditures, political expenditures, business acquision expenses, and so forth. See, e.g., 26
U.S.C. 170, 174(a)(3), (c), & (m), 263, 263(A), 264, 267, 275, 276, 279.

16
income taxes. See Helvering v. F. & R. Lazarus & Co., 308 U.S. 252, 254 (1939);
Rylander v. B & A Mktg., 997 S.W.2d 326, 329 (Tex. App.Austin 1999, no pet.);
INOVA Diagnostics, Inc. v. Strayhorn, 166 S.W.3d 394, 397 (Tex. App.Austin 2005,
pet. denied). Therefore, Respondents lose money statement is meaningless in
determining the definition of income.
Respondents provide no legal basis for their income definition. The only support
they provide is a dictionary definition that is so broad it provides no guidance at all:
income is return in money from ones business . . . gains, profits . . . BLACKS LAW
DICTIONARY 763 (6th ed. 1990). This vague definition does not conflict with Relators
position and, in any event, does not outweigh the extensive authority Relators discuss on
pages 25-34 of their initial brief. Therefore, for the reasons stated therein, the revised
franchise tax is imposed on net income.
D. This Court Should Reject Respondents Straw Man Argument about
Federal Income Tax and Instead Follow Relators Argument under
Controlling Texas Law.

Because Respondents have no legitimate defense to Relators analysis of Texas
law governing an individual partners share of the partnerships earned income,
Respondents resort to a straw-man argument regarding federal income tax law,
purporting to challenge an issue not even raised by Relators. Respondents claim that
Relators argued becausefor federal income tax purposesthe income of a partnership
is attributed to the partners, a tax on the partnership is a tax on the partners. We never
said this, not once.
Relators rely solely on the law relevant here -- Texas law, which does not support

17
Respondents business entities argument. Instead, under Texas law, the income earned
by a partnership is divided into shares at the moment the income is earned by the
partnership, and each partner is vested with his proportionate share of that income. Tex.
Rev. Civ. Stat. Ann. Art. 6132(b) 1.10(13), 4.01(b); Tex. Bus. Orgs. Code Ann.
1.002(68), 152.202(a) (West 2009). Section 152.202(a) provides:
Each partner is entitled to be credited with an equal share of the partnerships
profits and is chargeable with a share of the partnerships losses, whether capital
or operating, in proportion to the partners share of the profits.

The partnerships net income remains divided into shares at all times, not just if and when
the partnership decides to distribute cash.
7
Consequently, it is impossible to tax the
partnerships income without taxing the partners shares at the same time.
CPAs analogize a partners interest to a savings account.
8
With a savings account,
when you put money in, it is a contribution. When you take money out, it is a
distribution. When the account earns income, it is immediately earned by its owner.
The same is true for partnership interests. When you put money in, it is a
contribution. When you take money out, it is a distribution. When the partnership earns
income, it is immediately earned by its partners. Therefore, a tax imposed on a
partnership is a tax imposed on the partners. This is true even when the State collects the
tax directly from the partnership. As this Court recognized in Suburban Utility
Corporation v. Public Utility Commission of Texas, 652 S.W.2d 358, 363 (Tex. 1983),

7
This is readily seen when a partner decides to leave the partnership during the year. Her
account is credited with her share of partnership earnings through the day of departure.
8
See, e.g., Paul Neiffer, Think Savings Account for Partners Capital Account, Farm CPA
Today, Jul. 11, 2011 available at http://www.farmcpatoday.com/2011/07/11/thinks-savings-
account-for-partners-capital-account/ (2nd Supp. Appx. 2).

18
Texas looks to practical economic realities, not technical distinctions, when
determining the party on whom Texas imposes a tax.
Notably absent from Respondents Brief is any mention whatsoever of the
controlling provision ( 152.202(a)), either by name, description, or citation. Instead,
Respondents repeatedly quote 152.056, implying it writes 152.202(a) out of the
Business Organizations Code. It doesnt.
9
Section 152.202(a) remains as a valid law
enacted contemporaneously with the Bullock Amendment and it controls the outcome of
this issue. And even if there were a conflict between these two sections, under Texass
rules of statutory construction, the specific language of 152.202(a) would prevail over
the general language of 152.056. See Tex. Govt Code Ann. 311.026 (West 2009).
The diagram included on page 36 of Relators Brief follows the plain language of
152.202(a). In attempt to discredit Relators illustration of Texas partnership law,
Respondents mischaracterize the diagram as one based on the federal tax treatment of
partnerships. The diagram depicts Texas law. Further, contrary to Respondents claim,
Relators do not argue that the revised franchise tax is imposed on natural persons because
it lowers the amount of cash that may be distributed to a partner. The revised franchise

9
When it adopted the Texas Revised Partnership Act, the 73rd Legislature retained those
provisions of the prior Texas Uniform Partnership Act (Act of May 9, 1961, 57th R.S., ch. 158)
that establish that a portion of the partnerships income becomes a partners share of the income
as it is earned. For instance, under the Texas Uniform Partnership Act, A partners interest in
the partnership is his share of the profits and surplus, Act of May 9, 1961, 57th R.S., ch. 158,
26. It defines a partnership interest as a partners interest in a partnership, including the
partners share of profits and losses or similar items. Id. 1.01(12). It establishes that [e]ach
partner . . . shall share equally in the profits and surplus remaining after all liabilities, including
those to partners, are satisfied. Id. 18(1)(a). And it states that [e]ach partner is credited with
an equal share of the profits of a partnership. Id. 4.01(b). These provisions all mirror current
Texas partnership law, as embodied in the Texas Revised Partnership Act.

19
tax is imposed on natural persons because it taxes a natural persons share of partnership
income, which is immediately vested in that partner (in proportion with the partners
shares) the moment it is earned by the partnership. Tex. Rev. Civ. Stat. Ann. Art.
6132(b) 1.10(13), 4.01(b); Tex. Bus. Orgs. Code Ann. 1.002(68), 152.202(a) (West
2009). This is precisely the point illustrated by Relators diagram. Under Texas law,
each partners net income includes his or her share of the partnerships net income.
Therefore, Texas imposes the tax on the net income of each partner the moment it taxes
the partnership.
Despite this clear Texas law, Respondents argue that if this Court adopts Relators
construction of the Bullock Amendment, any tax imposed on any business entity,
including corporations, would violate the Bullock Amendment because the tax would
indirectly reduce the value of an interest ultimately owned by a natural person.
Respondents concerns are simply unfounded. We do not argue that the revised franchise
tax violates the Bullock Amendment because it reduces the value of an interest that a
natural person owns. The revised franchise tax violates the Bullock Amendment because
it is imposed on a natural persons share of partnership income. Other taxes, such as
sales taxes, motor fuel taxes, and others listed by Respondents do not violate the Bullock
Amendment because they are not imposed on net income.
Likewise, the Bullock Amendment, by its plain language, does not apply to a tax
imposed on the income of a corporation, LLC, or other corporate entity
10
because

10
The 72nd Legislature considered LLCs to be corporations, not partnerships. The same bill that
created Texas LLC Act also modified the corporate franchise tax to tax the new entity form. The

20
shareholders are not vested with a pro-rata share of the corporations income. Instead,
corporate shareholders may later receive dividends as a return on their investment in the
corporation. Title 2 of the Business Organizations Code, which governs corporations,
contains no provision remotely similar to 152.202(a), as addressed above. Thus, a
corporation is not like a partnership. A natural person owner of a corporation does not
own a share of the corporations income because there is no provision under state law
that says so.
E. Relators Historical Evidence Provides This Court Important Context
Surrounding the Bullock Amendment and the Intentions of Those Who
Approved It.

Examining the historical context and legislative history of the Bullock
Amendment solidifies Relators position that its plain text prohibits the revised franchise
tax on a persons share of partnership . . . income. Repondents dismiss as extraneous
and unenlightening the important tools this Court uses to interpret the Constitution. As
this Court recognized:
Generally it may be said that in determining the meaning, intent, and
purpose of a law or constitutional provision, the history of the times out of
which it grew, and to which it may be rationally supposed to bear some
direct relationship, the evils intended to be remedied, and the good to be
accomplished, are proper subjects of inquiry.

Travelers Ins. Co. v. Marshall, 76 S.W.2d 1007, 1012 (Tex. 1934). By demanding that
this Court disregard history, Respondents ask this Court to ignore the clear intent of

Legislature did so by redefining corporation to include LLCs, instead of adding LLCs as a
separate category of taxable entity. See Section 53 of House Bill 278, adding subsection (b)(1) to
Texas Tax Code 171.001: Corporation shall include a limited liability company, as defined
under the Texas Limited Liability Act.

21
Texass voters and legislators. The Bullock Amendment did not arise in a vacuum, and
Texas voters did not enter their polling places with blank minds. The newspaper articles
and correspondence produced in our appendices show the heated battle regarding Texas
partnership taxation out of which the Bullock Amendment arose. Texans became aware
of this battle through extensive media coverage, and it certainly informed their decision
to vote for the Bullock Amendment.
Respondents suggest that this Court should disregard Relators historical evidence
as remote in time. Yet, Lieutenant Governor Bullock and the 22 Senators wrote their
letters only a year and 9 months before the Legislature adopted what became the Bullock
Amendment. They wrote their letters during a special session immediately preceding
the regular session that adopted what became the Bullock Amendment. (Supp. Appx.
16-19). When one examines the history of the changes to the tax code contemplated by
the Legislature at this time, the letters are highly relevant and contemporaneous. (See
Relators Brief pp. 1-4). The 73rd Legislative session was the very first available
opportunity for Bullock and the Senators to protect partners from the income tax they
narrowly escaped in 1991.
In U.S. v. OBrien, on which the Respondents rely, the U.S. Supreme Court stated
that the Court will look to statements by legislators for guidance as to the purpose of the
legislature. 391 U.S. 367, 384 (1968). Though the OBrien court noted that it would
not void a statute that is, under well-settled criteria, constitutional on its face based on
one legislator [making] a speech or the statement of a single legislator, that is a far
cry from the present situation. See id. The plain text of the Bullock Amendment clearly

22
prohibits a tax on a persons share of partnership . . . income. Relators clarifying
historical evidence is more than one legislator [making] a speech or the statement of a
single legislator it is the repeated, clear public statements of the Lieutenant Governor
and half the members of the Texas Senate.
The substance of the letters directly supports Relators argument. There is nothing
oblique about the Senators statements that a tax on partnerships is really a tax on
personal income or Bob Bullocks statement that a tax applied to non-corporate
businesses would actually tax the incomes of Texans in business for themselves. (Supp.
Appx. 16-19). These statements clearly show that Bullock and the Senators believed that
a tax on partnership income is a tax on the incomes of natural persons, and their intention
in passing the subsequent Bullock Amendment was to prevent imposition of such a tax
without majority-voter approval.
To counter Relators extensive historical evidence, the Respondents provide
isolated statements from a few public officials. Respondents first mention a short debate
between Representative Williamson and Chairman Stiles regarding the Bullock
Amendment. During this conversation, Williamson never states whether or not he
believes the amendment affects non-corporate businesses. Stiles merely assumes that
the Legislature could pass a tax on non-corporate businesses. These statements certainly
do not outweigh the overwhelming historical evidence Relators provide.
Further, with all due respect for the insight of former Chief Justice Phillips,
Respondents improperly suggest that he testified about the revised franchise tax that was
enacted in 2006. He did not. He testified instead about an earlier proposal that included

23
a payroll tax imposed on employers. See Senate Research Center Report on HB 3, 73rd
Legislature, Regular Session, Apr. 28, 2005. (2nd Supp. Appx. 3). Chief Justice
Phillips believed a tax based partially on payroll costs would be constitutional. Reading
the portion of Chief Justice Phillips comments immediately preceding the portion
Respondents quote makes this abundantly clear:
But the more variation there is, and by having this partial tax on the
payroll, that gives you enough variation and result from what a net income
tax would be, then its, I think you avoid a constitutional problem.

(Respondents Appendix B, p. 3) (emphasis added). His comments later in the same
hearing support Relators position that the franchise tax (as enacted) violates the Bullock
Amendment:
If you add some things in and subtract some things, and at the end its all
smoke and mirrors, and basically youre taxing someone on what their
income has been, then it probably IS an income tax.

(Respondents Appendix B, p. 5) (emphasis in original).

And former Comptroller Sharps statements do not address whether a tax imposed
on partnership income is a tax on a natural persons share of partnership income. Sharps
statements focus solely on whether he thinks the revised franchise tax is an income tax.
In fact, while the Legislature was considering the revised franchise tax in 2006, Sharp
testified before the House Ways & Means Committee that a net income tax on
partnerships would violate the Bullock Amendment. He said:
We looked at taking the current franchise tax [i.e. the earned surplus
method] and extending it to partnerships. We came to the conclusion that
that wouldnt work because it would be a violation of the Bullock
Amendment and because when you extend a net income tax which pretty
much what the current franchise tax is, to partnerships, it would wind up

24
being in violation of Bullock Amendment and most likely a personal
income tax.

Hearing on Tex. H.B. 3 Before the House Ways & Means Comm., 79th Leg., 3rd Sp.
Sess. (April 10, 2006) available at http://www.house.state.tx.us/video-audio/committee-
broadcasts/committee-archives/player/?session=79&committee=490&ram=60410a40
(2nd Supp. Appx. 4).
For the reasons stated above, the revised franchise tax is imposed on a natural
persons share of partnership income. Texas voters never approved the imposition of the
revised franchise tax in a statewide referendum as required by the Bullock Amendment.
Therefore, the revised franchise tax violates the Texas Constitution, and this Court should
declare it invalid.
F. Relators Request Limited Relief.

Relators believe that the Court should tailor the appropriate relief to the specific
constitutional violation. Therefore, Relators propose that the Court limit relief to the
portion of taxes attributable to a natural persons share of partnership income.
III. THIS COURTS FOCUS SHOULD BE ON RELATORS BULLOCK AMENDMENT
CLAIM.

Although Relators have provided this Court with legitimate arguments and
authorities to support a finding of jurisdiction over the equal-protection claims, Relators
also recognize that there are legitimate arguments to be made for finding otherwise. The
essential issue raised by Relators is their challenge to the constitutionality of the revised
franchise tax because it is an income tax imposed on a persons share of partnership
income, which was enacted without the voters approval. Relators desire that this issue

25
remain the focus of the mandamus proceeding before this Court. To the extent that this
Court agrees with Respondents that the equal protection and attorneys fee claims are
outside the scope of this Court's jurisdiction, Relators urge the Court to decide that issue
separate and apart from the issues of whether this Court has jurisdiction over the broad
constitutional challenge and the merits of that constitutional challenge.
PRAYER

Relators respectfully request that this Court exercise jurisdiction over this original
proceeding and, within 120 days of the filing of Relators Original Petition, that this
Court issue a mandatory writ:
(1) permanently enjoining Respondents from enforcing, collecting, or assessing
the franchise tax on Allcats natural person partners share of Allcats income;

(2) declaring that the franchise tax found in Chapter 171 of the Texas Tax Code
violates the Texas Constitution to the extent it is imposed on a natural persons share of
partnership income;

(3) ordering a refund of the taxes paid on Allcats natural person partners share of
Allcats income;

(4) taxing all costs and reasonable and necessary attorneys fees as are equitable
and just, reasonable and necessary, against the Respondents under Texas Civil Practice
and Remedies Code 37.009; and

(5) declaring that the Comptrollers interpretation of Texas Tax Code
171.1011(g)(3) and 171.1012 violates the equal and uniform taxation clause of the Texas
Constitution;

(6) awarding Relators any such other and further relief to which they may be justly
entitled at law or in equity.

26
Respectfully submitted,

MARTENS, SEAY & TODD
James F. Martens
Michael B. Seay
mseay@textaxlaw.com
Lacy L. Leonard
Amanda M. Traphagan
Austin, Texas 78701
Tele: (512) 542-9898
Fax: (512) 542-9899

By /s/ James F. Martens
James F. Martens

AND JOHN WEAKLY

27
CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of Relators Reply Brief has been sent
via ProDoc eFiling and electronic mail on October 13, 2011 to:

Danica Milios
Deputy Solicitor General
danica.milios@oag.state.tx.us
Bill Davis
Assistant Solicitor General
bill.davis@oag.state.tx.us
Office of the Attorney General
P.O. Box 12548 (MC 059)
Austin, Texas 78711-2548

Kevin Van Oort
Deputy Chief
Financial and Tax Litigation Division
kevin.vanoort@oag.state.tx.us
Office of the Attorney General
P.O. Box 12548 (MC 029)

/s/ James F. Martens
James F. Martens

0.11-0589
3Jn \!tbe
~ u p r e m e QCourt of \!texas
Relators.
REI.lATORS' SECOND SUPPI.lEMENTALAPPENDIX
James F. Martens
Michael B. Seay
mseay@textaxlaw.com
Lacy L. Leonard
lleonard @textaxlaw .com
Amanda M. Traphagan
MARTENS, SEA Y, & TODD
Austin, Texas 78701
Tele: (512) 542-9898
Fax: (512) 542-9899
AND JOHN WEAKLY
T ABI,E OF CONTENTS
1. Defendants' Plea to the Jurisdiction and Original Answer, RentA-Center,
Inc. v. Combs, No. D1-GN-001059, 250th Judicial Dist. of Travis County,
Tex.
2. Paul Neiffer, "Think Savings Account for Partner's Capital Account," Farm
CPA Today, Jul. 11,2011
3. Senate Research Center Report on Tex. HB 3, 73rd Legislature, Regular
Session, Apr. 28, 2005
4. Transcript of Hearing on Tex. H.B. 3 Before the House Ways & Means
Cornm., 79th Leg., 3rd Sp. Sess. (April 10, 2006)
1
Defendants' Plea to The
Jurisdiction and Original
Answer,Rent-A-Center, Inc. v.
Combs, o. D--I--GN--OOI059,
250th Judicial Dist. of Travis
County, Tex.
o
CAUSE NO. D-I-GN-I1-001059
RENT-A-CENTER, INC.
.Plaintiff
v.
SUSAN COMBS, Comptroller of Public
Accounts of the State of Texas, And Greg
Abbott, Attorney General of the State of
Texas.
Defendants

IN THE DISTRICT COURT
250
TH
JUDICIAL DISTRICT
TRAVIS COUNTY, TEXAS
DEFENDANTS' PLEA TO THE JURISDICTION AND ORIGINAL ANSWER
TO THE HONORABLE JUDGE OF SAID COURT:
COME NOW Defendants, Susan Combs, Comptroller of Public Accounts of the State
and Greg Abbott, Attorney General of the State of Texas, hereafter
or "Comptroller," and file this Plea to the Jurisdiction and Original Answer and in support
thereof, respectfully show as follows:
I
PLEA TO THE JURISDICTION
1. Plaintiff invokes the jurisdiction of this Court pursuant to Tex. Tax Code 112.00 1,
112.051, and 112.052, provisions allowing suit after paymert of tax under protest. Petition,
paragraph 6. In Section VII, paragraphs 24-28, Plaintiff raises arguments regarding
constitutionality of the tax imposed by Chapter 171 of the Texas Tax Code, the franchise tax.
Plaintiff acknowledges that the enacting legislation provided that the Texas "supreme court
has exclusive and original jurisdiction over a challenge to the constitutionality of this Act or
.....,) any part of this Act and may issue injunctive or declaratory relief in connection with the
o
o
challenge." Paragraph 24. Section 24 of the enabling legislation also provides, "The
supreme court shall mle on a challenge filed under this section on or before the 120
th
day
after the date the challenge is filed." See Acts 2006, 79
th
Leg., 3d C.S., ch. 1 24 eff. Jan.
1,2008.
2. Plaintiff a d m i t s ~ "In light of the above, it appears that this Court does not have
jurisdiction over a constitutional challenge to the franchise tax." Paragraph 25.
3. The Comptroller asserts that under the provisions stated above this Court has no
jurisdiction over the constitutional claims raised in paragraphs 24-28 of the Petition and as
such, those claims should be dismissed.
II
DEFENDANTS' ORIGINAL ANSWER
GENERAL DENIAL
4. Pursuant to Rule 92 of the Texas Rules of Civil Procedure, Defendants generally deny
every matter averred in Plaintiffs Original Petition and demand strict proof thereof.
III
PRAYER
WHEREFORE, PREMISES CONSIDERED, Defendants pray that their plea to the
jurisdiction of the Court be granted, that the constitutional claims of Plaintiff raised in
paragraph 24-28 be dismissed for want of jurisdiction. Defendants further pray thatPlaintiff
take nothing by its suit, that the Court dismiss Plaintiff s claims, and that Defendants recover
all costs together with such other and further relief to which Defendants justly may be
entitled.
2
()
....-
o
Respectfully submitted,
GREG ABBOTT
Attorney General of Texas
DANIEL T. HODGE
First Assistant Attorney General
BILL COBB
Deputy Attorney General for Civil Litigation
DAVID C. MATTAX
Director of Defense Litigation
KEVIN VAN OORT
hi
I
A sistant Attorney General
ate Bar No. 04,410001
Taxation Division
P. O. Box 12548
(512) 463-2078
(512) 478-4013 Facsimile
ATTORNEYS FOR DEFENDANTS
3
"
(J
o
.I " I
I do hereby certify that on th ~ - - ' - - - - day of April 2011, a true and correct copy ofthe
foregoing Defendants' Plea to the Jurisdiction and Original Answer, was sent via Certified
Mail, Return Receipt Requested to Plaintiffs Attorney, Farley P. Katz, Strasburger & Price,
4
2
Paul Neiffer, "Think Savings
Account for Partner's Capital
Account," Farm CPA Today,
Jul. 11,2011
JUL 11
Think Savings Account for Partner's Capital Account
By Paul Heiffer I Tracl<ilack URL Add comments
In almost 30 years of being a CPA, I have found partnership taxation to be one of the most complicated areas of taxation, both for other CPA's and for
clients. Partnerships involve both inside and outside basis, step-up or down in cost basis for certain transactions and many other compilations that
are not there with corporate or individual taxes.
One area that is especially vexing for clients is to understand how their capital accounts. I have found it easier for my clients to view their capital
account like a savings account.
When you put money into a savings account, the first initial contribution becomes your balance. The same is true with a capital account. When you
first invest in a partnership, the amount of cash (Dr property) that you put into the partnership becomes your balance.
A savings account with earn interest during the year. A partnership will also have earnings during the year and your share will be allocated your
capital accounL The beginning amount you put in plus your earnings becomes your new balance.
If you withdraw cash from your savings account, your balance will go down. The same is true with a capital account. If you take cash out of the
partnership, your balance will go down.
On some savings plans (such as CD's), if you take your money out early, you will pay a penalty and your account will go down in value. If the
partnership losses money, youl account will go down by your share of the loss.
Remember, a partnership capital account can go up in two ways:
1. You put money or property into the account, or
Z. You have earnings allocated to you.
Conversely, a partnership capital account can go down in two ways:
1. You take money or property out of the account, or
Z. You have a loss allocated to you.
This is the very simple way of looking at partnership capital accounts, but I think it will allow you to understand how they work.
Categories: Farm Ope! aliolls, Farm Taxes
3
Senate Research Center eport
on Tex. H.B. 3, 73rd Leg., R.S.,
Apr. 28, 2005
BILL ANALYSIS
Senate Research Center
AUTHOR'S/SPONSOR'S STATEMENT OF INTENT
H.B.3
By: Keffer, Jim et al.(Ogden)
Finance
4/28/2005
Engrossed
The property tax costs Texans more than any other state or local tax. In tax year 2003, 3,702
local taxing lmits levied almost $29 billion in property taxes, of which school districts accOlmted
for more than 60 percent, according to the comptroller of public accounts. From 1985-2003, the
school district property tax levy increased by approximately 260 percert. Currently, Texas ranks
45th among the states in terms of homeownership levels. The high property tax burden impairs
Texans' ability to own their own homes.
H.B. 3 raises state revenue to fund a significant property tax reduction for Texas taxpayers.
RULEMAKING AUTHORITY
Rulemaking authority is expressly granted to the comptroller of public accounts in SECTION
lH.Ol (Section 542.405, Transportation Code), SECTION 2.01 (Sections 251.002, 251.0025,
251.019, and 251.020, Tax Code), SECTION 2.05 (Section 171.0013, Tax Code), SECTION
3B.07 (Section 152.0412, Tax Code), and SECTION 3D.Ol (Section 164.053, Tax Code) of this
bill.
SECTION BY SECTION ANALYSIS
ARTICLE 1. PROPERTY TAXATION
PART A LIMITATION ON SCHOOL DISTRICT TAX RATE
SECTION lA.Dl. Amends Section 45.003, Education Code, by amending Subsection (d) and
adding Subsections (e) and (t), as follows:
(d) Requires a proposition submitted to authorize the levy of maintenance taxes to
include the question of whether the governing board or commissioners court may levy,
assess, and collect ammal ad valorem taxes for the further maintenance of public schools,
at a rate not to exceed the rate, which may not be more than $.997, rather than $1.50, on
the $100 valuation of taxable property in the district, stated in the proposition.
(e) Provides that an election held before September 1, 2005, authorizing a maintenance
tax at a rate of at least $.997 on the $100 valuation of taxable property in the district is
sufficient to authorize a rate not to exceed $.997.
(t) Authorizes a district permitted by special law on January 1, 2005, to impose an ad
valorem tax at a rate greater than $1.50, to continue to impose a rate that is $.503 less
than the rate previously authorized.
PART B. BUY-DOWN OF SCHOOL DISTRICT TAXES
SECTION IB.01. Amends Chapter 403, Government Code, by adding Subchapter 0, as
follows:
SUBCHAPTER O. DISTRIBUTION OF INCREASES
IN AVAILABLE STATE REVENUE FOR SCHOOL DISTRICT TAX RATE REDUCTION
SRC-JGS H.B. 3 79(R) Page 1 of20
Sec. 403.351. DEFINITIONS. Defines "available state revenue" and "increase in
available state revenue."
Sec. 403.352. CERTIFICATION OF INCREASE IN AVAILABLE STATE REVENUE.
Requires the comptroller of public accounts (comptroller), in the statement required by
Section 49a, Article III, Texas Constitution, to certify the amount, if any, of the increase
in available state revenue for the succeeding fiscal biennium and the total amount of
school district maintenance and operations taxes levied under Section 3(e), Article VII,
Texas Constitution, for the tax year beginning in the second year of the current fiscal
biennium.
Sec. 403.353. DISTRIBUTION OF AVAILABLE STATE REVENUE FOR TAX
RATE REDUCTION. (a) Requires the comptroller, for the fiscal biennium following a
certification under Section403.352, to distribute to the school districts in this state for tax
rate reduction an amount of available state revenue that is equal to the sum of 15 percent
of the increase in available state revenue for the current fiscal biennium certified under
Section 403.352 and the amotmt of available state revenue distributed in the preceding
fiscal biennium under this section for school district tax rate reduction
(b) Requires the comptroller to distribute the amount required by Subsection (a) in
equal amounts in each fiscal year of the fiscal biennium. Sets forth the method
for determining the apportionment among the school districts.
(c) Requires the money received by each school district under this section to be
applied to reducing the rollback tax rate of the district, as provided by Section
26.08 (Election to Ratify School Taxes), Tax Code.
SECTION IB.02. Amends Subchapter E, Chapter 42, Education Code, by adding Section
42.2518, as follows:
Sec. 42.2518. ADDITIONAL STATE AID FOR PROPERTY TAX RELIEF. (a)
Entitles a school district, for any school year, to additional state aid to the extent that an
increase in the guaranteed level of state and local funds per weighted student per cent of
tax effort under Section 42.302 applicable to that school )ear does not compensate the
district for a reduction in district ad valorem tax revenue caused by ad valorem tax rate
reduction made pursuant to Subchapter 0, Chapter 403, Government Code.
(b) Provides that a determination by the commissioner of education under this
section is fmal and may not be appealed.
SECTION IB.Q3. Amends Sections 26.08(i) and (Ie), Tax Code, as follows:
(i) Includes the state funds for property tax rate relief that will be distributed to the
district under Subchapter 0, Chapter 403, Government Code, in addition to the state
funds under Chapter 42, Education Code, in the calculation of the rollback tax rate of a
school district. Makes a conforming change.
(Ie) Makes conforming changes. Deletes the references to the 2003 and 2004 tax years.
PART C. MANDATORY SALES PRICE DISCLOSURE
SECTION lC.Ol. Amends the heading to Subchapter C, Chapter 22, Tax Code, to read as
follows:
SUBCHAPTER C. REPORTS OF POLITICAL SUBDIVISION ACTIONS
SECTION lC.02. Amends Chapter 22, Tax Code, by adding Subchapter D, as follows:
SUBCHAPTER D. REPORT OF SALES PRICE
SRC-JGS H.B. 3 79(R) Page 2 of 20
Sec. 22.61. SALES PRICE DISCLOSURE REPORT. (a) Requires the purchaser or
grantee of real property under a recorded deed conveying an interest in the real property,
except as provided by Subsection (b), not later than the 10th day after the date the deed is
recorded in the county real property records, to file a sales price disclosure report with the
chief appraiser of the appraisal district established for the county in which the property is
located.
(b) Sets forth the sales and transfers of real property to which this section does not
apply.
( c) Requires the sales price disclosure report to be signed by the purchaser or
grantee of the real property described in the report.
Sec. 22.62. REPORT FORM. (a) Sets forth the required form for a sales price disclosure
report filed under this subchapter.
(b) Requires the appraisal district to include at the end of the form instructions for
the filing of the form by certain means.
(c) Requires each appraisal district to prepare and make available sales price
disclosure report forms that conform to the requirements of this section. Provides
that no additional information may be required to be included in a sales price
disclosure report form, except for instructions for the filing of the form.
(d) Requires each county clerk's or combined county and district clerk's office to
provide at no charge a sales price disclosure report form to each grantee or agent
of a grantee who appears in person and tenders a deed to real property for
recording. Requires the sales price disclosure form to be the form that is prepared
and made available by the appraisal district established for the cotmty in which
the property is located.
(e) Requires the county clerk or the combined county and district clerk, at the end
of a calendar month in which a deed to real property has been recorded in the
deed records of the county, to provide the appraisal district established for the
cotmty with a copy of the grantee index or a report or list of deeds to real property
filed for recording in that month.
Sec. 22.63. FILING AND RECEIPT OF REPORT. (a) Sets forth the methods by which
a purchaser or grantee may file a sales price disclosure report with the chief appraiser.
(b) Requires the chief appraiser, on receipt of the report, to provide to the
purchaser or grantee a written acknowledgment of receipt. Requires the chief
appraiser, if the acknowledgment of receipt is mailed, to mail it to the purchaser
or grantee at the address provided in the report.
Sec. 22.64. PREPARATION OF REPORT; IMMUNITY FROM LIABILITY. (a)
Requires a sales price disclosure report to be prepared by certain persons.
(b) Provides that a title insurance company, lender, real estate agent, or attorney
who prepares a sales price disclosure report is not liable to any person for
preparing the report or for any unintentional errors or omissions in the report.
(c) Requires the applicable title insurance company, lender, real estate agent, or
attorney to provide a sales price disclosure report form and filing instructions to
each purchaser or grantee of real property, unless certain conditions apply.
Sec. 22.65. ACTION TO COMPEL COMPLIANCE. Requires the chief appraiser to
bring an action for an injunction to compel a person to comply with the requirements of
this subchapter. Requires the court, on finding that this subchapter applies and that the
person has failed to comply with its requirements, to order the person to comply and
authorizes the court to assess costs and reasonable attorney's fees against the person.
SECTION IC.03. Amends Section 23.013, Tax Code, to authorize the chief appraiser to use
infonnation contained in a sales price disclosure report filed under Subchapter D, Chapter 22, in
determining the market value of real property. Prohibits the chief appraiser from increasing the
market value of the real property solely on the basis of the report. Creates a subsection from
existing text.
PART D. CONFIDENTIALITY OF CERTAIN APPRAISAL INFORMATION
SECTION lD.Q1. Amends Chapter 25, Tax Code, by adding Section 25.027, as follows:
Sec. 25.027. CONFIDENTIALITY OF PHOTOGRAPHS OF CERTAIN
RESIDENTIAL PROPERTY. (a) Provides that photographs or floorplans of an
improvement to real property that is designed primarily as use as a residence contained in
appraisal records are confidential infonnation, only available for the official use of
certain entities and officials.
(b) Provides that this section does not apply to certain aerial photographs.
PART E. TEXAS ECONOMIC DEVELOPMENT ACT
SECTION IE.01. Amends Section 313.051, Tax Code, by adding Subsection (a-I) and
amending Subsection (b), as follows:
(a-I) Provides that, notwithstanding Subsection (a), if on January 1, 2002, this chapter
(Texas Economic Development Act) applied to a school district in whose territory is
located a federal nuclear facility, this subchapter (Limitation on Appraised Value of
Property in Certain Rural School Districts) continues to apply to the school district
regardless of whether the school district ceased or ceases to be described by Subsection
(a) after that date.
(b) Requires certain property owners to create only at least 10 new jobs on the owner's
qualified property, 10 percent, rather than 80 percent, of which must be qualifying jobs as
defmed by Section 313.021(3) (certain full-time, pennanentjobs with certain salaries and
health benefit plans).
SECTION IE.02. Makes application of Section 313.05I(b), Tax Code, as amended by this part,
prospective.
PART F. PROPERTY TAX RELIEF FOR CUL TURALL Y SIGNIFICANT SITES
SECTION IF.01. Amends Section 11.24, Tax Code, as follows:
Sec. 11.24. New heading: HISTORIC AND CULTURALLY SIGNIFICANT SITES.
Adds structures or archeological sites designated as culturally significant sites to the list
of structures and sites that may be exempted from taxation.
SECTION IF.02. Makes the change in law made by SECTION IF.OI prospective to a tax year
that begins on or after the effective date of this Act.
SECTION IF.03. Effective date of this part: upon passage or the 91st day after adjournment.
PART G. INFORMATION ON TAX BILLS RELATING TO
PROPERTY VALUES AND TAXES
SECTION IG.01. Amends Section 31.01, Tax Code, by amending Subsection (c) and adding
Subsection (c-I), as follows:
( c) Adds Subdivision (11) to require the tax bill or a separate statement accompanying the
tax bill, for real property, to state for the current tax year and each of the preceding five
tax years the appraised value and taxable va lue of the property, the total tax rate for the
unit, the amount of taxes imposed on the property by the unit, and the difference,
expressed as a percent increase or decrease, as applicable, in the amount of taxes imposed
on the property by the unit compared to the amount imposed for the preceding tax year.
Adds Subdivision (12) to require the tax bill or a separate statement accompanying the
tax bill, for real property, to state the differences, expressed as a percent increase or
decrease, as applicable, in the following for the current tax year as compared to the fifth
tax year before that tax year: the appraised value and taxable value of the property, the
total tax rate for the lmit, and the amount of taxes imposed on the property by the unit.
Redesignates existing Subdivision (11) as Subdivision (13) and makes a nonsubstantive
change.
( c ~ 1) Requires the tax bill or statement, if information from the preceding six tax years
required by Subsection (c)(U) or (12) to be included in the tax bill or separate statement
is not available, to state that the information is not available for that year. Provides that
this subsection expires December 31, 2011.
PART H. DEPOSIT OF CERTAIN TRAFFIC PENALTIES
IN FOUNDATION SCHOOL PROGRAM
SECTION IH.01. Amends Subchapter D, Chapter 542, Transportation Code, by adding Section
Sec. 542.405. DEPOSIT OF REVENUE FROM CERTAIN TRAFFIC PENALTIES
FOR FOUNDATION SCHOOL PROGRAM. (a) Defmes "photographic traffic signal
enforcement system. "
(b) Provides that this chapter applies only to the civil or administrative penalties
relating to certain violations of traffic laws recorded by certain photographic
traffic signal enforcement systems.
(c) Authorizes the local authority, of the gross amount received from the
imposition of a civil or administrative penalty against the owner of a motor
vehicle, to retain $1 and remit the remainder to the comptroller for deposit to the
credit of the foundation school fund.
(d) Requires the comptroller to adopt rules and forms to implement and enforce
this section.
SECTION IH.02. Provides that Section 542.405, Transportation Code, as added by this part,
applies to revenue received by a local authority unit of this state from the imposition of a civil or
administrative penalty on or after the effective date of this article, regardless of when the penalty
was imposed.
PART 1. SPLIT PAYMENT OF RESIDENCE HOMESTEAD TAXES
SECTION II.01. Amends Section 31.03, Tax Code, by adding Subsections (d) and (e), as
follows:
(d) Authorizes the governing body of a taxing unit that collects its own taxes to provide,
in a certain manner, that a person who pays one-half of the unit's taxes on the taxpayer's
residential homestead, as defined in Section 11.13, before December 1 may pay the
remaining one-half of the taxes without penalty or interest before July 1 of the following
year.
(e) Provides that the split payment option for residential homesteads set forth in
Subsection (d) applies to taxes for all units for which the adopting taxing unit collects
taxes.
PART J. AD VALOREM TAXATION--RAIL FACILITY
SECTION lJ.01. (a) Amends Section 25.07(b), Tax Code, to prohibit a leasehold or other
possessory interest in exempt property from being listed if the property is part of a rail facility
owned by certain rural transportation districts. Makes nonsubstantive changes.
(b) Makes application of this section prospective to appraisal records for a tax year that
begins on or after January 1,2006.
(c) Effective date of this section: January 1,2006.
PART K. EFFECTIVE DATES
SECTION lK.01. (a) Requires each appraisal district, as soon as practicable after the effective
date of this Act, but not later than September I, 2005, to prepare and make available sales price
disclosure report forms as provided by Section 22.62, Tax Code, as added by this article.
(b) Makes application of Subchapter D, Chapter 22, Tax Code, as added by this article,
prospective to a sale of real property that occurs on or after September I, 2005.
SECTION IK.02, Provides that Section 25.027, Tax Code, as added by this article, prohibits the
disclosure of information in appraisal records made confidential under that section only on or
after the effective date of that section.
SECTION IK.03. (a) Provides that this article takes effect January I, 2006, except as provided
by this section, and applies only to an ad valorem tax year that begins on or after that date.
(b) Effective date of this section and Part D of this article: upon passage or the 91 st day
after adjourmnent.
ARTICLE 2. REFORMED FRANCHISE TAX
SECTION 2.01. Amends Title 2, Tax Code, by adding Subtitle K, as follows:
SUBTITLE K. REFORMED FRANCHISE TAX
CHAPTER 251. REFORMED FRANCHISE TAX
Sec. 251.001. DEFINITIONS. Defines "business," "calendar quarter," "commission,"
"compensation fund," "contribution," "employer," "taxable business," and "wages."
Sec. 251.002. RULES. Authorizes the comptroller to adopt rules to implement and
administer this chapter.
Sec. 251.0025, RULES: AVOIDANCE OF roUBLE TAXATION. (a) Requires the
comptroller to adopt rules that work in conjunction with the rules adopted under Section
171.0013, so that when a taxable business e n t i ~ j is owned through an ownership chain,
whether or not each entity in the chain is subject to taxation under this chapter, the direct
and indirect owners of the taxable business entity are not subject to taxation with respect
to the same wages.
(b) Provides that the avoidance of double taxation rules adopted under this section
shall apply regardless of whether the direct or indirect owner itself elects to be
subject to the tax under this chapter, is subject to the tax under Chapter 171
(Franchise Tax), or is exempt from taxation under this chapter or Chapter 171.
Sec. 251.003. LOCATION OF SERVICE. (a) Sets forth the circumstances under which
the tax imposed by this chapter applies to wages for a service performed in this state or in
and outside this state.
(b) Sets forth the circumstances under which the tax imposed by this chapter
applies to wages for a service performed anywhere in the United States.
(c) Provides that the tax imposed by this chapter applies to wages for a service
performed outside the United States by a citizen of the United States.
(d) Defines, for purposes of this section, when service is localized in a state.
Defmes, for purposes of this section, a service that is "incidental."
Sec. 251.004. TAXABLE BUSINESS. Provides that, subject to Section 251.007, the tax
imposed by this chapter applies only to a business that is an employer that pays or is
required to pay a contribution under Subtitle A (Texas Unemployment Compensation
Act), Title 4, Labor Code.
Sec. 251.005. ELECTION OF TAXES. (a) Authorizes a business, except as otherwise
provided by this section, to elect to pay the tax imposed under this chapter or the tax
imposed under Chapter 171.
(b) Requires a business that is wholly or partially in the business of leasing
employees, except as provided by Subsection (b-l) to pay the tax under this
chapter. Provides that for the purposes of this chapter and Chapter 171, the
business is considered to have elected the tax under this chapter.
(b-l) Authorizes certain businesses described by Subsection (b), notwithstanding
Subsection (b), to elect to pay either the tax imposed tmder this chapter or the tax
(c) Prohibits a business that does not have any employees in this state from
electing to pay the tax under this chapter.
(d) Requires the comptroller to promulgate a form for a business to use to make
an election under this section.
(e) Prohibits the election from being changed tmtil after the third anniversary of
the date the election is made.
Sec. 251.006. TAX IMPOSED. Provides that if a business elects to pay the tax under
this chapter, the tax is imposed on the business for each employee for whom the business
pays or is required to pay a contribution for a calendar quarter without regard to whether
the employee is full-time or part time and whether the wages paid were for the entire
calendar quarter or a portion of the calendar quarter.
Sec. 251.007. TAX IMPOSED ON EMPLOYERS. (a) Provides that notwithstanding
Section 251.006, if a business elects to pay the tax under this chapter, the tax is imposed
on the business for each individual who performs a service for the business for
compensation, without regard to whether the business pays a contribution for a calendar
quarter for the individual, if the individual is an employee of the business as provided by
this section for all or a part of the calendar quarter.
(b) Provides that an individual is an employee of a business for purposes of this
section if the business has a right to direct and control how the individual
performs the service for which the individual is provided mmpensation. Sets
forth certain factors which indicate whether the business has this right to direct
and control
Sec. 251.008. BASE AMOUNT OF WAGES. Defines the base a11lJunt of wages for
each employee as the total amount of wages paid to the employee during the calendar
quarter.
Sec. 251.009. RATE. (a) Provides that, except as provided by Subsection (b), the rate of
tax for a business that elects to pay the tax under this chapter is equal to 1.15 percent of
the base amount of wages for each employe e as determined under Section 251.008.
(b) Sets forth the tax rate for a corporation that elects to pay the tax under this
chapter and had no employees in this state at any time between January I, 2004,
and January 1,2005, but currently has employees in this state.
(c) Provides that Subsection (b) expires December 31, 2008.
Sec. 251.010. EXEMPTION FOR GOVERNMENTAL ENTITIES. Provides that the
tax imposed under this chapter does not apply to a govemmental entity.
Sec. 251.011. EXEMPTION FOR SMALL BUSINESS. Provides that certain small
businesses are exempt from taxes imposed under this chapter for years in which the gross
receipts are less than or equal to $150,000.
Sec. 251.Q12. EXEMPTION FOR CERTAIN CHARITIES. (a) Provides that the tax
imposed under this chapter does not apply to an organization exempt from federal income
tax under Section 501(a) of the Internal Revenue Code of 1986 by being listed as an
exempt organization in Section 501(c)(3) of that code.
(b) Authorizes certain organizations exempt from federal income tax under
Section 501(a) of the Internal Revenue code of 1986 by being listed under a
provision of Section 501(c), other than Section 501(c)(3), to elect to pay the tax
under this chapter or pay the tax under Chapter 171. Authorizes the organization,
if it elects 10 pay the tax under Chapter 171, and Chapter 171 provides that the
organization is exempt from taxation under that chapter, to claim or continue to
claim that exemption in the manner provided by Chapter 171.
Sec. 251.Q13. TAX NOT DEDUCTED FROM WAGES. Prohibits a taxable business
from deducting the tax imposed under this chapter from any wages of the taxable
business's employees.
Sec. 251.014. CRIMINAL PENALTY. Provides that a person who violates Section
251.013 commits an offense, which is a Class A misdemeanor.
Sec. 251.015. CIVIL PENALTY. (a) Provides that a person who violates Section
251.013 is liable to the state for a civil penalty not to exceed $500 for each violation.
Provides that each day a violation continues may be considered a separate violation for
purposes of a civil penalty assessment.
(b) Provides for a civil penalty equal to twice the tax owed if a person fails to pay
the tax imposed by this chapter on wages of an individual whom the person
determines to be not an employee for purposes of this chapter, unless the person
can demonstrate that there was a reasonable basis for the determination.
(c) Requires the attorney general, on request of the comptroller, to file suit to
collect a penalty under this section.
Sec. 251.016. REPORTS AND PAYMENT. (a) Requires each taxable business, on or
before the last day of the month immediately following each calendar quarter, to file a
report on wages in a form prescribed by the Texas Workforce Commission
(b) Sets forth the due dates, manner of collection, and penalties and interest of the
tax imposed under this chapter.
(c) Requires the Texas Workforce Commission, to the extent practicable, to
combine the reporting and payment contributions and the reporting and payment
of the tax imposed under this chapter.
Sec. 251.017. ENFORCEMENT. Authorizes the comptroller to enforce the collection of
the tax under this chapter as provided by Subtitles A and B.
SRC-JGS H.B. 3 79(R) Page 80f20
Sec. 251.018. DISPOSITION OF PROCEEDS. Requires all proceeds from the
collection of taxes imposed under this chapter to be deposited to the credit of the general
revenue fund.
Sec. 251.019. CREDITS AGAINST INSURANCE PREMIUM TAXES. (a) Entitles a
business that pays insurance premium taxes under Subtitle B (Insurance Premium Taxes),
Title 3, Insurance Code, and elects to pay the tax under this chapter to a credit of the
entire amount of tax paid under this chapter against any premium tax that the business
may owe, subject to Subsection (b).
(b) Prohibits a business from receiving a credit in an amount that exceeds the
amount of the tax or assessment due after applying any other credits. Authorizes
the business to carry any unused credit forward for not more than five years, and
prohibits the business from receiving a credit, at any time, in an amount that
exceeds the amount of the tax or assessment due, after applying any other credits.
(c) Prohibits the business from conveying, assigning, or transferring the credit
allowed under this section to another entity unless all of tlle assets of the business
are conveyed, assigned, or transferred in the same transaction,
(d) Requires the comptroller to adopt rules to implement this section.
Sec. 251.0195. PROVISIONS APPLICABLE TO CERTAIN BUSINESSES. (a)
Provides that, notwithstanding Section 251.019, a business that may owe insurance
premium taxes under Subtitle B, Title 3, Insurance Code, is not entitled to a credit of the
taxes paid under this chapter against any tax imposed on those gross receipts.
(b) Provides that a tax paid under this chapter by a taxable business that may owe
insurance premium taxes is considered a disallowed expense for purposes of
Article 5.13-2 (Rates and Forms for Certain Property and Casualty Insurance),
Insurance Code, and may not be included by the taxable business in determining
insurance rates or premiums.
Sec. 251.020. CREDITS FOR CERTAIN PROVIDERS OF HEALTH CARE
SERVICES. (a) Entitles certain taxable health care businesses that participate in either
the Medicaid program or the Medicare program as a provider of health care services and
that receive not less than 15 percent of the business's revenue during a calendar quarter
from payments received under the Medicaid or Medicare program to a credit in the
amount provided by Subsection (b) against the taxes imposed under this chapter, except
as provided by Subsection (t).
(b) Sets forth the amount of the credit as 40 percent of the total amount of
payments the taxable business received from payments under the Medicaid and
Medicare programs during the calendar quarter that can be verified, if necessary.
(c) Prohibits a taxable business from receiving a credit in an amount that exceeds
the amount of the tax or assessment due after applying any other credits.
(d) Prohibits a taxable business from conveying, assigning, or transferring the
credit allowed under this section to another entity unless all of the assets of the
business are conveyed, assigned, or transferred in the same transaction.
(e) Requires the comptroller to adopt rules to implement this section. Requires
the Health and Human Services Commission to assist the comptroller in the
formulation and adoption of the rules.
(t) Prohibits a taxable business that participates in the Medicaid or Medicare
program as providers of durable medical equipment or as vendors of
pharmaceuticals from counting payments received for those services for purposes
of qualifying for the exemption under this section
Sec, 251.0205, APPLICATION OF HEALTH CARE CREDIT TO OTHER
PROVIDERS. (a) Defines "physician!'
(b) Applies the credit provided by Section 251.020 to a physician that participates
in the Medicaid program, the Medicare program, or the Children's Health
Insurance Program as a provider of health care services and that receives not less
than 15 percent of the provider's revenues during a calendar quarter from
payments received under any of those programs, or any combination of the three
programs.
SECTION 2.02. Amends Section 171.001(a), Tax Code, to specify that a franchise tax is
imposed on certain entities, subject to Section 171,0012. Makes a nonsubstantive change.
SECTION 2.03. Amends Section 171.001(b)(3), Tax Code, to redefine "corporation."
SECTION 2.04. Amends Section 171.001, Tax Code, by adding Subsection (d), to set forth the
criteria for determining, for purposes of Subsection (a), whether a foreign corporation does
business in this state.
SECTION 2.05. Amends Subchapter A, Chapter 171, Tax Code, by adding Sections 171.0012
and 171.0013, as follows:
Sec. 171.0012. ELECTION OF TAXES. (a) Authorizes a corporation, except as
provided by Subsection (b), to elect to pay the tax imposed under this chapter or the tax
(b) Prohibits a business that is in the business of leasing employees from electing
to pay the tax imposed under this chapter and requires the business to pay the tax
(c) Requires the comptroller to promulgate a form for a corporation to use to
make an election under this section. Requires certain corporations to obtain
certain signatures on the election form. Sets forth required provisions of the
election form.
(d) Prohibits the election from being changed until after the third anniversary of
the date the election is made.
Sec. 171.0013. RULES: AVOIDANCE OF DOUBLE TAXATION. Requires the
comptroller to adopt rules that shall work in conjunction with the mles adopted under
Section 251.0025, so that when a corporation is owned through an ownership chain,
whether or not each entity in the chain is subject to taxation under this chapter, the direct
and indirect owners of the corporation are not subject to taxation with respect to the same
taxable earned surplus.
(b) Provides that the avoidance of double taxation mles adopted under this sectio n
shall apply regardless of whether the direct or indirect owner elects to be subject
to the tax under Chapter 251, is subject to the tax under this chapter, or is exempt
from taxation under Chapter 251 or this chapter.
SECTION 2.06. Amends Section 171.110, Tax Code, by adding Subsections (m)-(o), as
follows:
(m) Disallows certain payments to related entities, notwithstanding any other provision of
this chapter, in determining net taxable earned surplus, to the extent that those payments
exceed arm's-length rates and terms.
(n) Sets forth the powers of the comptroller with respect to Subsection (m).
(0) Defines "arm's-length rates and terms."
SECTION 2,07. Amends Chapter 111, Tax Code, by adding Subchapter H, as follows:
SUBCHAPTER H. FORFEITURE OF THE RIm-IT TO
TRANSACT BUSINESS IN THIS STATE
Sec, 111.401. APPLICABILITY OF SUBCHAPTER. Sets forth to which taxpayer
business entities and persons this subchapter applies.
Sec. 111.402. APPLICATION TO NONCORPORATE ENTITIES, Authorizes the
comptroller, for certain reasons and using certain procedures, to forfeit the right to
transact business in this state, or forfeit the certificate or registration, of entities to which
this subchapter applies and that are subject to a tax imposed by this title, Provides that
the provisions of this subchapter that apply to the forfeiture of a corporation's corporate
privileges and charter or certificate of authority apply to the forfeiture of another entity's
right to transact business in this state and certificate or registration.
Sec. 111.403. FORFEITURE OF CORPORATE PRIVILEGES. Requires the
comptroller to forfeit the corporate privileges of a corporation on which a tax is imposed
under this title if the corporation fails to file a report required by this title in accordance
with this title and on or before the 45th day after the date notice of forfeiture is mailed, or
fails to pay a tax imposed by this title or a penalty imposed relating to that tax on or
before the 45th day after the date notice of forfeiture is mailed.
Sec. 111.404. EFFECTS OF FORFEITURE. Provides that if the corporate privileges of
a corporation are forfeited under this subchapter the corporation shall be denied the right
to sue or defend in a court of this state and each director or officer of the corporation is
liable for a debt of the corporation.
Sec. 111.405. SUIT ON CAUSE OF ACTION ARISING BEFORE FORFEITURE.
Prohibits afflrmative relief from being granted to a corporation, in a suit against a
corporation arising before the forfeiture of corporate privileges, unless its corporate
privileges are revived under this subchapter.
Sec. 111.406. EXCEPTION TO FORFEITURE. Provides that the forfeiture of the
corporate privileges of a corporation does not apply to the privilege to defend in a suit to
forfeit the corporation's charter or certificate of authority.
Sec. 111.407. LIABILITY OF DIRECTOR AND OFFICERS. (a) Sets forth the debts
for which each director or officer of the corporation is liable, if the corporate privileges of
a corporation are forfeited for the failure to file a report or pay a tax or penalty imposed
under this title.
(b) Provides that the liability of a director or offlcer is in the same manner and to
the same extent as if the director or officer were a partner and the corporation
were a partnership.
(c) Sets forth the circumstances in which a director or offlcer is not liable for a
debt of the corporation.
(d) Provides that, if a corporation's charter or certificate of authority and its
corporate priVileges are forfeited and revived under this subchapter, the liability
under this section of a director or offlcer of the corporation is not affected by the
revival.
Sec. 111.408. NOTICE OF FORFEITURE. (a) Requires the comptroller, if the
comptroller proposes to forreit the corporate privileges of a corporation, to notify the
corporation that the forfeiture will occur without judicial proceeding unless the
corporation files the delinquent report or pays the delinquent tax or penalty within a
certain tirneframe.
(b) Requires the notice to be written or printed and to be verified by the seal of the
comptroller's office.
( c) Requires the comptroller to mail the notice to the corporation not later than the
45th day before the forfeiture of corporate privileges, and sets forth to which
address the notice is required to be sent.
(d) Requires the comptroller to keep at the comptroller's office a record of the date
on which the notice is mailed. Provides that for pUlposes of this SUbchapter, the
notice and the record of the mailing date constitute legal and sufficient notice of
the forfeiture.
Sec. 111.409. JUDICIAL PROCEEDING NOT REQUIRED FOR FORFEITURE.
Provides that the forfeiture of the corporate privileges of a corporation is effected by the
comptroller without a judicial proceeding.
Sec. 111.410. REVIVAL OF CORPORATE PRIVILEGES. Requires the comptroller to
revive the corporate privileges of a corporation if the corporation, before the forfeiture of
its charter or certificate of authority, pays any tax, penalty, or interest due under this title.
Sec. 111.411. BANKING CORPORATIONS AND SAVINGS AND LOAN
ASSOCIATIONS. (a) Provides that, except as provided by Subsection (b), this
subchapter does not apply to a banking corporation that is organized under the laws of
this state or under federal law and has its main office in this state.
(b) Requires the banking commissioner to appoint a conservator under Subtitle A
(Banks), Title 3, Finance Code, to pay the tax of a banking corporation that is
organized lmder the laws of this state and that the commissioner certifies as being
delinquent in the payment of the corporation's tax.
Sec. 111A12. SAVINGS AND LOAN ASSOCIATION. (a) Provides that, except as
provided by Subsection (b), this subchapter does not apply to a savings and loan
association that is organized under the laws of this state or under federal law and has its
main office in this state.
(b) Requires the savings and loan commissioner to appoint a conservator under
Subtitle B (Savings and Loan Associations) or C (Savings Banks), Title 3,
Finance Code, to pay the tax of a savings and loan association that is organized
under the laws of this state and that the commissioner certifies as being delinquent
in the payment of the association's tax.
Sec. 111.413. GROUNDS FOR FORFEITURE OF CHARTER OR CERTIFICATE OF
AUTHORITY. Provides that it is a ground for forfeiture of a corporation's charter or
certificate of authority if the corporate privileges of the corporation are forfeited under
this subchapter and the corporation does not pay, on or before the 120th day after the date
the corporate privileges are forfeited, the amOlmt necessary for the corporation to revive
under this subchapter its corporate privileges.
Sec. 111.414. CERTIFICATION BY COMPTROLLER. Requires the comptroller, after
the 120th day after the date the corporate privileges of a corporation are forfeited under
this subchapter, to certify the name of the corporation to the attorney general and the
secretary of state.
Sec. 111.415. SUIT FOR JUDICIAL FORFEITURE. Requires the attorney general, on
receipt of the comptroller's certification, to bring suit to forfeit the charter or certificate of
authority of a corporation if a ground exists for the forfeiture of the charter or certificate.
Sec. 111.416. RECORD OF JUDICIAL FORFEITURE. Requires the clerk of the court
to certify certain information or send certified copies of certain documents to the
secretary of state, if a district court forfeits a corporation's charger or certificate of
authority, if an appeal of the judgment is perfected, or if a final disposition of an appeal is
made. Sets forth the required actions of the secretary of state regarding the corporation's
record in response to receipt of any of these documents. Authorizes a court, if the court
forfeits a corporation's charter or certificate of authority, to appoint a receiver for the
corporation, and to administer the receivership under certain laws.
Sec. 111.417. REVIVAL OF CHARTER OR CERTIFICATE OF AUTHORITY
AFTER JUDICIAL FORFEITURE. Sets forth the conditions under which a corporation
whose charter or certificate of authority is judicially forfeited is entitled to have its
charter or certificate and corporate privileges revived.
Sec. 111.418. SUIT TO SET ASIDE JUDICIAL FORFEITURE. Authorizes certain
persons related to the corporation, if a corporation's charter or certificate of authority is
judicially forfeited, to bring suit, in the nature of a bill of review, in a district court of
Travis County in the name of the corporation to set aside the forfeiture of the charter or
certificate, with the secretary of state and attorney general as defendants.
Sec. 111.419. RECORD OF SUIT TO SET ASIDE JUDICIAL FORFEITURE.
Requires the secretary of state, if a court sets aside the forfeiture of a corporation's charter
or certificate of authority, to add certain information to the corporation's record.
Sec. 111.420. CORPORATE PRIVILEGES AFTER JUDICIAL FORFEITURE IS SET
ASIDE. Requires the comptroller, if a court sets aside the forfeiture of a corporation's
charter or certificate of authority, to revive the corporate privileges of the corporation and
add certain information to the corporation's record.
Sec. 111.421. FORFEITURE BY SECRETARY OF STATE. Sets forth the
circumstances under which the secretary of state is authorized to forfeit the charter or
certificate of authority of a corporation.
Sec. 111.422. JlIDICIAL PROCEEDING NOT REQUIRED FOR FORFEITURE BY
SECRETARY OF STATE. Provides that the forfeiture by the secretary of state of a
corporation's charter or certificate of authority under this subchapter is effected without a
judicial proceeding.
Sec. 111.423. RECORD OF FORFEITURE BY SECRETARY OF STATE. Requires
the secretary of state to effect a forfeiture of a wrporation's charter or certificate of
authority by adding certain information to the corporation's record.
Sec. 111.424. REVIVAL OF CHARTER OR CERTIFICATE OF AUTHORITY
AFTER FORFEITURE BY SECRETARY OF STATE. Sets forth the circumstances
under which a wrporation whose charter or certificate of authority is forfeited by the
secretary of state is entitled to have its charter or certificate revived and have its corporate
privileges revived.
Sec. 111.425. PROCEEDING TO SET ASIDE FORFEITURE BY SECRETARY OF
STATE. (a) Authorizes certain persons related to the corporation, if a corporation's
charter or certificate of authority is forfeited by the secretary of state, to request in the
name of the corporation that the secretary of state set aside the forfeiture of the charter or
certificate.
(b) Requires the secretary of state, if a request is made, to determine if each
delinquent report has been filed and any delinquent tax, penalty, or interest has
been paid, and if the determination is in the affirmative, to set aside the forfeiture
of the corporation's charter or certificate of authority.
Sec. 111.426. CORPORATE PRIVILEGES AFTER FORFEITURE BY SECRETARY
OF STATE IS SET ASIDE. Requires the comptroller to revive the corporate privileges
of the corporation if the secretary of state sets aside the forfeiture of a corporation's
charter or certificate of authority.
Sec. 111.427. USE OF CORPORATE NAME AFTER REVIVAL OF CHARTER OR
CERTIFICATE OF AUTHORITY. Requires the corporation, if a corporation's charter or
certificate of authority is forfeited by the secretary of state and the corporation requests
the secretary to set aside the forfeiture under Section 11 1.425, to determine from the
secretary whether the corporation's name is available for use. Requires the corporation to
amend its charter or certificate to change its name if the name is not available.
SECTION 2.08. Amends Subchapter A, Chapter 171, Tax Code, by adding Section 171.006, as
follows:
Sec. 171.006. DISALLOWED EXPENSE FOR CERTAIN TAXABLE BUSINESSES.
Provides that a tax paid under this chapter by a taxable business that may owe insurance
premium taxes under Subtitle B, Title 3, Insurance Code, is considered a disallowed
expense for purposes of Article 5.13-2 (Rates and Forms for Certain Property and
Casualty Insurance), Insurance Code, and may not be included by the taxable business in
determining insurance rates or premiums.
SECTION 2.09. Amends Section 203.001, Insurance Code, as effective April I, 2005, by adding
Subsection (d) to provide that this section does not prohibit the imposition of a tax imposed by
Chapter 171 (Franchise Tax) or 251 (Reformed Franchise Tax), Tax Code, unless a specific
exemption for insurers or health maintenance organizations is provided in those chapters.
SECTION 2.1 O. Repealer: Sections 171.052 (Certain Corporations), 171.0525 (Exemption--
Certain Insurance Companies), and 171.0527 (Exemption--Title Insurance Companies and Title
Insurance Agents), Tax Code; Subchapter U (Tax Credit for Title Insurance Holding
Companies), Chapter 171, Tax Code, as added by Chapter 209, Acts of the 78th Legislature,
Regular Session, 2003; and Subchapter U (Tax Credit for Certain Premium Taxes), Chapter 171,
Tax Code, as added by Chapter 1274, Acts ofthe 78th Legislature, Regular Session, 2003.
SECTION 2.1 1. Effective date of this article: January 1, 2006.
ARTICLE 3. SALES AND USE TAXES
PART A. STATE SALES AND USE TAXES
SECTION 3A.01. Amends Section 151.051(b), Tax Code, to provide that the sales tax rate is
7.25 percent, rather than 6 114 percent, of the sales price of the taxable item sold.
SECTION 3A.02. Amends Subchapter A, Chapter 151, Tax Code, by adding Section 151.0029,
as follows:
Sec. 151.0029. BILLBOARD ADVERTISING SERVICE. Defines "billboard
advertising service" and "billboard."
SECTION 3A.03. Amends Chapter 151, Tax Code, by adding Scction 151.0037, as follows:
Sec. 151.0037. ELECTIVE COSMETIC PROCEDURES. Defines "elective cosmetic
procedures" and "cosmetic medical procedure." Provides that this section does not apply
to certain reconstructive surgery or dentistry.
SECTION 3A.04. Amends Subchapter A, Chapter 151, Tax Code, by adding Sections 151.0043
and 151.0044, as follows:
Sec. 151.0043. "MOTOR VEHICLE REPAIR SERVICES." Defines "motor vehicle
repair services."
Sec. 151.0044. "MOTOR VEHICLE WASH OR DETAIL SERVICES." Defines "motor
vehicle wash or detail services."
SECTION 3A.05. Amends Section 151.008, Tax Code, by adding Subsection (c) to define
which individuals do not qualifY as a "seller" or "retailer" for purposes of this section.
SECTION 3A.06. Amends Section 151.0101(a), Tax Code, to redefine "taxable services."
SECTION 3A.07. Amends Section 15L304(b), Tax Code, to redefme "occasional sale."
SECTION 3A.08. (a) Amends Subchapter H, Chapter 151, Tax Code, by adding Section
Sec. 151.3131. PARKING AND STORAGE SERVICES. (a) Provides that motor
vehicle parking and storage services are exempted under this section from the taxes
imposed by this chapter only if the services are provided at a parking facility operated by
a health facility, certain nonprofit corporations that have donated land for use by a health
facility, or an entity that contracts with the health facility or nonprofit corporation to
provide the motor vehicle and parking services and the motor vehicle parking and storage
services are primarily used by patients of and visitors to the health facility and people
who work at the health facility.
(b) Provides that a person who operates a facility that provides motor vehicle
parking and storage services is not exempted under this section until the person
submits to the comptroller notice that the person operates a facility eligible for
exemption and the comptroller verifies eligibility. Requires the comptroller to
maintain a list of facilities in this state that provide motor vehicle parking and
storage services that are exempted from the taxes imposed under this chapter.
(c) Requires a facility that provides motor vehicle parking and storage services
exempted under this section to prominently display in certain areas a notice that
the parking and storage services are exempted from the taxes imposed under this
chapter.
(d) Defines "health facility,"
(b) Prohibits a facility that provides motor vehicle parking and storage services exempted
under Section 151.3131, Tax Code, as added by this section, that is in existence on the
effective date of this part and that provides users with a separate statement of the amount
charged for services ald taxes from collecting taxes imposed under Chapter 151, Tax
Code, on or after the date on which the facility is exempted, or increasing the amount
charged for motor vehicle parking and storage services before the 180th day after the date
on which the facility is exempted.
(c) Requires a facility that provides motor vehicle parking and storage services exempted
under Section 151.3131, Tax Code, as added by this section, that is in existence on the
effective date of this part, and that charges tax inclusive of rates for motor vehicle
parking and storage services, to reduce each rate charged by a certain amount and
prohibits such a facility to increase those rates before the 180th day after the date on
which the facility is exempted.
(d) Prohibits a facility that provides motor vehicle parking and storage services exempted
under Section 151.3131, Tax Code, as added by this section, and that is not in existence
on the effective date of this Act, from collecting taxes imposed under Chapter 151, Tax
Code, on or after the date on which the facility is exempted.
SECTION 3A.09. Amends Subchapter H, Chapter 151, Tax Code, by adding Section 151.3132,
as follows:
Sec.l51.3132. DIAPERS. (a) Provides that diapers are exempt from the taxes imposed
by this chapter.
(b) Sets forth the diaper-related goods and services to which the exemption
applies.
SECTION 3A.1O. Amends Section 151.315, Tax Code, to provide that water sold in a sealed
container is not exempt from the taxes imposed by this chapter.
SECTION 3A.ll. Amends Section 151.423, Tax Code, to authorize a taxpayer to deduct and
withhold .33 of one percent, rather than one- half of one percent, of the amount of taxes due from
the taxpayer on a timely return as reimbursement for the cost of collecting the taxe s imposed by
this chapter.
SECTION 3A.12. Exempts from the taxes imposed by Chapter 151, Tax Code, the receipts from
the sale, use, storage, rental, or other consumption in this state of services that became subject to
the taxes because of the terms of this part and that are the subject of a written contract or bid
entered into on or before June 1, 2005, Provides that the exemption provided by this section
expires July 1, 2007.
SECTION 3A.13. Effective date of this part: July 1, 2005, if this Act receives a vote of two-
thirds of all the members elected to each house, or October 1, 2005.
PART B. MOTOR VEHICLE SALES AND USE TAX
SECTION 3B.01. Amends Section 152.002, Tax Code, by adding Subsection (f) to provide that
the total consideration of a used motor vehicle is the amount on which the tax is computed as
provided by Section 152.0412.
SECTION 3B.02. Amends Section 152.021(b), Tax Code, to provide that the tax rate for a retail
sale of a motor vehicle is 7.35 percent, rather than 6 114 percent, of the total consideration.
SECTION 3B.03. Amends Section 152.022(b), Tax Code, to provide that the tax rate for a retail
sale of a motor vehicle purchased outside the state is 7.35 percent, rather than 6 114 percent, of
the total consideration
SECTION 3B.04. Amends Section 152.026(b), Tax Code, to provide that the tax rate for the
rental of a motor vehicle for longer than 30 days is 7.35 percent, rather than 6 114 percent, of the
gross rental receipts.
SECTION 3B.05. Amends Section 152.028(b), Tax Code, to provide that the use tax rate for a
motor vehicle brought back into the state is 7.35 percent, rather than 6 114 percent, of the total
consideration
SECTION 3B.06. Amends Section 152.041(a), Tax Code, to specifY that, subject to Section
152.0412, the tax assessor-collector of the county in which an application for registration or for a
Texas certificate of title is made shall collect taxes imposed by this chapter.
SECTION 3B.07. Amends Subchapter C, Chapter 152, Tax Code, by adding Section 152.0412,
as follows:
Sec. 152.0412. STANDARD PRESUMPTIVE VALUE; USE BY TAX ASSESSOR-
COLLECTOR. (a) Defines "standard presumptive value."
(b) Requires a county tax assessor-collector to compute the tax imposed by this
chapter on the amount paid for a motor vehicle, if the amount paid is equal to or
greater than the standard presumptive value of the vehicle.
(c) Requires a county tax assessor-collector to compute the tax imposed by this
chapter on the standard presumptive value of a motor vehicle, if the amount paid
is less than the standard presumptive value of the vehicle, unless the purchaser
establishes the retail value of the vehicle as provided by Subsection (d).
(d) Requires a county tax assessor-collector to compute the tax imposed by this
chapter on the retail value of a motor vehicle, if the retail value is shown on a
certified appraisal on a form prescribed by the comptroller and the purchaser of
the vehicle obtains the appraisal not later than the 20th day after the date of
purchase.
(e) Requires certain motor vehicle dealers to provide a certified appraisal of the
retail value of a motor vehicle on request. Requires the comptroller, by rule, to
establish a fee that a dealer may charge for providing the certified appraisal.
Requires the county tax assessor-collector to retain a copy of a certified appraisal
received under this section for a certain period.
(f) Requires the Texas Department of Transportation (TxDOT) to maintain
information on the standard presumptive values of motor vehicles as part of
TxDOT's registration and title system. Requires TxDOT to update the
information at least quarterly each calendar year.
(g) Sets forth certain transactions to which this section does not apply.
SECTION 3B.08. Requires TxDOT, not later than October 1, 2005, to establish standard
presumptive values for motor vehicles, modify TxDOT's registration and title system as needed
to include that information and administer that section, and make that information available
through the system to all county tax assessor-collectors.
SECTION 3B.09. (a) Effective date of this part, except as provided by Subsection (b): July 1,
2005, if this Act receives a vote of two-thirds of all the members elected to each house, or
September 1, 2005.
(b) Effective date of Section 152.0412, Tax Code, as added by this part: October 1,2005.
PART C. BOAT AND MOTOR BOAT SALES AND USE TAX
SECTION 3C.01. Amends Section 160.021(b), Tax Code, to provide that the tax rate for the
retail sale of a boat is 7.35 percent, rather than 6 114 percent, of the total consideration.
SECTION 3C.02. Amends Section 160.022(b), Tax Code, to provide that the use tax rate for a
boat is 7.35 percent, rather than 6114 percent, of the total consideration
SECTION 3C.03. Effective date of this part: July 1, 2005, if this Act receives a vote of two-
thirds of all the members elected to each house, or September 1, 2005.
PART D. TAX ON DISCRETIONARY FOOD AND DRINK ITEMS
SECTION 3D.01. Amends Subtitle E, Title 2, Tax Code, by adding Chapter 164, as follows:
CHAPTER 164. TAX ON DISCRETIONARY FOOD AND DRINK ITEMS
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 164.001. DEFINITIONS. Defines "snack food" and "soft drink."
[Reserves Sections 164.002-164.050 for expansion.]
SUBCHAPTERB. IMPOSITION AND COLLECTION OF TAX
Sec. 164.051. TAX IMPOSED. (a) Imposes a tax on each sale at retail of soft drinks or
snack food.
(b) Sets forth the tax rate as three percent of the sales price of the soft drinks or
snack food.
(c) Provides that the tax imposed under this chapter is in addition to any other tax
imposed by state law.
Sec. 164.052. EXCEPTIONS TO APPLICATION OF TAX. Creates an exception for
food or beverages sold in certain establishments for consumption on the premises of the
business.
Sec. 164.053. RULES. Requires the comptroller, by rule, to prescribe the manner in
which the tax imposed under this chapter is administered, imposed, and collected.
[Reserves Sections 164.054-164.100 for expansion.]
SUBCHAPTER C. ALLOCATION OF TAX
Sec. 164.101. ALLOCATION OF TAX. Requires the revenue from the tax imposed
under this chapter to be deposited to the credit of the general revenue fimd.
SECTION 3D.02. Effective date of this part: July 1, 2005, if this Act receives a vote of two-
thirds of all the members elected to each house, or September 1,2005.
ARTICLE 4. CIGARETTE AND TOBACCO PRODUCTS SALES
PART A. RATES
SECTION 4A.01. Amends Section 154.021(b), Tax Code, to provide that the tax rate is $71.10,
rather than $20.50, per thousand on cigarettes weighing three pounds or less per thousand.
SECTION 4A.02. Amends Section 155.021(b), Tax Code, as follows:
(b)(I) Provides that the tax rate is 3.44 cents, rather than one cent, per 10 or fraction of 10
on cigars weighing three pounds or less per thousand.
(2) Provides that the tax rate is $25.80, rather than $7.50, per thousand on cigars
that weigh more than three pounds per thousand and sell at factory list price,
exclusive of any trade discount, special discount, or deal, for 3.3 cents or less
each.
(3) Provides that the tax rate is $37.84, rather than $11, per thousand on cigars
that weigh more than three pounds per thousand, sell at factory list price,
exclusive of any trade discount, special discount, or deal, for nnre than 3.3 cents
each, and contain no substantial amount of nontobacco product.
(4) Provides that the tax rate is $51.60, rather than $15, per thousand on cigars
that weigh more than three pounds per thousand, sel1 at factory list price,
exclusive of any trade discount, special discount, or deal, for more than 3.3 cents
each, and contain a substantial amount of nontobacco ingredients.
SECTION 4A.03. Amends Section 155.0211(b), Tax Code, to provide that the tax rate for
tobacco products other than cigars is 40, rather than 35.213, percent of the manufacturer's list
price.
SECTION 4A.04. Effective date of this part: July 1, 2005, if this Act receives a vote of two-
thirds of all the members elected to each house, or September 1,2005.
ARTICLE 5. TELECOMMUNICATIONS INFRASTRUCTURE FUND
SECTION 5.01. Amends Section 57.048, Utilities Code, by adding Subsections (f)-(i) , as
follows:
(f) Authorizes a certified telecommunications utility to recover from the utility's
customers an assessment imposed on the utility under this subchapter after the total
amount deposited to the telecommunications infrastructure firod (firod), excluding interest
and loan repayments, is $1.5 billion, as determined by the comptrol1er. Authorizes the
utility to recover the assessment through a monthly billing process.
(g) Requires the comptroller to publish in the Texas Register the date on which the total
amount deposited to the credit of the fund, excluding interest and loan repayments, is
equal to $1.5 billion.
(h) Requires a certified telecommunications utility that wants to recover an assessment
under Subsection (f) to file with the Public Utility Commission of Texas, not later than
February 15 of each year, an affidavit or affirmation stating the amount that the utility
paid to the comptroller under this section during the previous calendar year and the
amount the utility recovered from its customers in cumulative payments during that year.
(i) Requires the Public Utility Commission of Texas to maintain the confidentiality of
information that it receives under this section that is claimed to be confidential for
competitive purposes. Provides that the confidential information is exempt from
disclosure under Chapter 552 (Public Infol1nation), Govemment Code.
SECTION 5.02. Amends Section 57.0485, Utilities Code, as follows:
Sec. 57.0485. New heading: ALLOCATION OF REVENUE. Requires the comptroller
to deposit the money collected by the comptroller under Section 57.048, to the credit of
the general revenue fund. Deletes existing text requiring the comptroller to deposit 50
percent of the money to the public schools account and the remainder to the credit of
certain other entities. Deletes existing text relating to interest.
SECTION 5.03. Amends Section 57.051, Utilities Code, to provide that the
Telecommunications Infrastructure Fund, rather than the Telecommunications Infrastructure
Fund Board, is subject to Chapter 325, Govemment Code (Texas Sunset Act). Provides that,
unless continued in existence, this subchapter expires September 1, 2011, rather than 2005.
Makes a confonning change.
SECTION 5.04. Repealer: Sections 57.048(c) and (d) (Assessments and Collections), Utilities
Code.
SECTION 5.05. Requires the comptroller, if, on the day before the effective date of this article,
the assessment prescribed by Section 57.048, Utilities Code, is imposed at a rate ofless than 1.25
percent, to reset the rate of assessment to 1.25 percent on the effective date of this article.
SECTION 5.06. Effective date of this part: July 1,2005, if this Act receives a vote of two-thirds
of all the members elected to each house, or September 1, 2005.
ARTICLE 6. SUPREME COURT JURISDICTION
SECTION 6.01. (a) Provides that the supreme court has exclusive jurisdiction over a challenge
to the constitutionality of this Act or any part of this Act. Authorizes the supreme court to issue
injunctive or declaratory relief in connection with the challenge.
(b) Requires the supreme court to rule on a challenge filed under this section onor before
the 120th day after the date the challenge is filed.
(c) Provides that this section does not apply to an action pending on the date on which the
last legislative vote enacting this Act is taken.
ARTICLE 7. SEVERABILITY
SECTION 7.01. Severability clause.
ARTICLE 8. EFFECTIVE DATE
SECTION 8.01. (a) Effective date, except as provided by Subsection (h): July 1, 2005, if this
Act receives a vote of two-thirds of all the members elected to each house, or September 1,2005.
(b) Provides that if a section, part, or article of this bill provides a different effective date
than provided by Subsection (a) of this section, that section, part, or article takes effect
according to its terms.
Transcript of earing on Tex.
H.B. 3 Before the House Ways
& Means Comm., 79th Leg.,
3rd Sp. Sess., Apr. 10, 2006
Texas House Ways & Means Committee Meeting on April 10, 2006
March 2, 2011
REPRESENTATIVE JAMES KEFFER: If we can
start getting our seats, and we will start this journey.
Since we do have a quorum, we will beginning here in
just any minute. Y'all don't want seats? Buddy, y'all
don't want seats? Okay.
All right. The time is 12 minutes after
10:00. We do have a quorum, and the right honorable
clerk will call the role.
CLERK: Keffer, Villarreal, Edwards, Luna,
Paxton, Ritter, Smithee, Woolley. A quorum is present.
REPRESENTATIVE JAMES KEFFER: Thank you.
Thank you. Well, it is good seeing most of you here
and -- whoops. Let me get -- I'm sorry. All right and
Page 1
welcome and we are -- like I said a minute ago, starting
our journey. We're a little early, little before the
17th; and by the way, Robbie, you want to come up?
You're more than welcome. No, Buddy couldn't come up
here. He could come forward a little bit more, but why
don't you come on up? Huh? All right. Any other
members here while I -- okay. Feel free to come up and
join us up here on -- but it is, you know, we are going
to be looking over what a lot of people, me included,
when the Sharp Commission was put together. We -- I
jokingly said several times if they have an epiphany
that -- I doubt it would happen -- but they could
Stratos Legal Services
800 971-1127
March 2, 2011
1 possibly have one, and I really thought by the time
2 April 17th rolled around that we'd be looking and
3 rehashing and hashing things that we have already talked
4 about many times. Failed to act on or did act on but
5 didn't go any where, but I am glad to say that we do
6 have something, another angle, another situation to look
7 at with what is being called the "margin facts" and we
8 have three people in front of us that will -- that were
9 sort of the core of putting this together; but I do want
10 to -- however this bill's forward, I do want to commend
11 John, you, and your staff and your commission for taking
12 this seriously, for going around, I think you all had 13
13 visits around the state, thousands of hours of testimony
14 from at sometimes I think not so happy people that you
15 listened to but you did listen and I do want to commend
16 you on your work. By the way, how is your dog?
17
UNIDENTIFIED SPEAKER: She's happy. The
18 puppies are grown.
19
REPRESENTATIVE JAMES KEFFER: Okay. Good
20 because I know that was one of the problems when I saw
21 you in Abilene. We were having to care about a bird dog
22 birth but that was all -- I'm glad it worked out; but,
23 you know, that was just one of those things where,
24 again, you spent the time and you took it seriously and
25 I think the people of Texas and the legislature
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March 2, 2011
1 appreciates that very much and we saw that.
2
So, I would like to, I guess and also
3 before I forget, we do have Pam Dixon with us, who will
4 be with us for the session. I think we'll only be here
5 about 14, 15 days of the 30-day session. So, that will
6 be good that she won't be here that long.
7
So, anyway, I would like to call up for
8 testimony Bob Hunter -- where's Bob? Bob, would you
9 like to be up here? Okay. John Sharp, with the Texas
10 Tax Reform Commission. I believe you are the chair; is
11 that right? And James Lebas, also with the Texas Reform
12 Commission; and Karey Barton, also with the Texas Tax
13 Reform Commission; and the purpose of this meeting,
14 today, members, is to ask the question, to get
15 acquainted with the bill section by section and what
16 questions that you may have that people have asked you
17 or you've been listening as this has been going along,
18 to ask what questions you have as we are right now.
19
Now, this is unlike anything else. Weill
20 evolve, and we don't know that this is going to be the
21 answer to the maiden's prayer as far as policy for the
22 state of Texas; but, again, the work that has been done,
23 the serious work that has been done, certainly, we will
24 take it seriously because of that and just see what,
25 what we will be doing in this special session. So, I
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Texas House Ways & Means Committee Meeting on .April 10, 2006
March 2, 2011
1 guess I have everybody sworn in and y'all will, to tell
2 the truth and nothing but? Okay. But I, any discussion
3 before we start? Anything, anybody would like to say on
4 this? Okay. John.
5
JOHN SHARP: Thank you, Mr. Chairman,
6
members. I'd just like to spend a little time laying
7 out the bill and sort of what the committee went
8 through, and then open up to any questions that y'all
9 have. When we were first appointed to this commission,
10 our original task, obviously, that was before the
11 Supreme Court made its rUling. We could only guess as
12 to what the ruling of the Court was going to be; but the
13 original charge of the Commission was to lower property
14 taxes, try to figure out a way to increases the state
15 share of funding for schools, to lower property taxes,
16 and put something else in its place at the state level.
17 Obviously, when the Supreme Court ruled in January, in
18 particularly, when it gave a June 1st deadline, that
19 sped things up a bit and eliminated some things. Things
20 that required constitutional amendments or votes, all
21 were pretty much eliminated at that time because of the
22 June 1st deadline.
23 We -- the first decision that we made was
24 that the property tax reduction would be more than 15
25 cents or 20 cents or other proposals that we've looked
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March 2, 2011
1 at before, that it would have to be seriousi and so,
2 we -- the first decision that the Commission made was
3 that the property tax reduction would take all school
4 districts or all school districts possible to a dollar.
5 That also, as it turned out, answered the Supreme
6 Court's question because we believe that's, obviously,
7 enough discretion for local school districts to take
8 care of that problem, as well. One of the things that
9 prompted that decision is in our discussions with people
10 around the state. There were varying levels of --
11 discussed, if you will, with regards to homeowners'
12 property taxes depending on where you were in the statei
13 but there was one constant, and that constant was that
14 among those people who were involved in economic
15 development, recruiting businesses, particularly from
16 other states was that the level of capital taxation,
17 particularly property taxes in Texas, was too high and
18 that in order to move someone into Amarillo or Dallas or
19 wherever from another state under the principle
20 objections always was the level of property taxation
21 that those folks faced. And so, that was, that was a
22 very big part of the driver to try to move school
23 property taxes down by roughly a third in most school
24 districts in the state of Texasi and so that was our
25 purposes.
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March 2, 2011
1
Obviously, the next decision is how you
2 replace that. The first place that we looked was the
3 first place that you looked -- and or the House and the
4 Senate looked and that was, how do you fix the
5 business tax? I think even if you didn't have a crisis,
6 you need to figure out some way to fix the business tax
7 and make it fair; but, obviously, that was a big part of
8 the mix here. We looked at taking the current franchise
9 tax and extending it to partnerships. We came to the
10 conclusion that that wouldn't work because it would be a
11 violation of the Bullock Amendment and because when you
12 extend a net income tax which pretty much what the
13 current franchise tax is, two partnerships, it would
14 wind up being in violation of Bullock Amendment and most
15 likely a personal income tax; and so, we excluded that.
16 We looked at all the options that you looked at and
17 options that the Senate looked at, we tried to -- we
18 heard very good things with regard to the choices that
19 the House bill had originally come up with from the
20 business community.
21 Now, we heard good things from the -- with
22 regard to the broad-based aspect that both the House and
23 the Senate were looking at in that tax, and we wanted to
24 design a business tax that was fair. We looked at two
25 avenues to make it fair. One, we thought would make it
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Texas House Ways & Means committee Meeting on April 10, 2006
March 2, 2011
1 fair by extending it to all businesses, 2.4 million
2 businesses in the state of Texas. We excluded that for
3 several reasons. One, is that about 90 percent or
4 95 percent of the money in any business tax is going to
5 come from about 10,000 businesses, no matter what -- how
6 you draw it; and you would create, if you included all
7 sole proprietorships and partners and everything in
8 that, you would create a nightmare, I think, for the
9 controller's office in that you would have so many forms
10 filed that had very little if almost no money even in
11 some instances where it would windup costing you money
12 to administer some of it.
13 We came to the conclusion that fairness
14 meant going back to the original intent of the current
15 franchise tax and the franchise tax, well even before
16 the current one, when the franchise tax was first put
17 in, it was put in only in corporations. The reason it
18 was only put in on corporations is because at that time
19 corporations would were the only people in the state of
20 Texas that got the liability feel from the state. That,
21 of course, changed in '88 with the Woollins Bill which
22 extended that liability to beyond corporations to LLPs
23 and partnerships. So, I remember hearing Plymouth's
24 Bullock, all of the folks back in those day talking
25 about this being a privilege tax, being a tax if you got
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Texas House Ways & Means committee Meeting on April 10, 2006
March 2, 2011
1 liability protection, you ought to pay something to the
2 state; and that's how we structured it.
3 Basically, under this proposal if you get
4 the liability shields just as in the original franchise
5 tax, business tax that was first proposed 20, 30 years
6 ago, you participate in the tax. If you don't get the
7 liability shield, you don't participate in the tax; and
8 as a result of that, sole proprietors general partners
9 of natural persons, who are natural persons are excluded
10 from the tax. We took the 1S0,OOO-dollar current
11 franchise tax exemption meaning everything from 150,000
12 or below to be excluded from the tax and we raised that
13 to 300,000 and we index it to the consumer price index;
14 and as we were going through, literally, dozens of
15 mechanisms trying to figure out what worked, what
16 wouldn't worked, we looked at all of your testimony, we
17 looked at all of your bills, the amendments, the House
18 and the Senate, we looked at everything we could get our
19 hands on, and every other state, a few foreign
20 countries, the whole bit, and we were working on several
21 options.
22 As we were working on one in particular
23 which was this margin tax that you described, we ran it
24 through, I think the first guinea pig that we had on
25 that back in October, November, something like that,
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Allcat V Combs, Reply Brief On The Merits - Filed: 10/13/2011

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TABLE OF AUTHORITIES ............................................................................................. vii

SUMMARY OF ARGUMENT ........................................................................................... 1

A. This Courts Existing Precedent Allows It to Exercise Jurisdiction

B. Article V, Section 8 Provides an Alternative Basis for This Courts

II. The Revised Franchise Tax Is Imposed on a Persons Share of Partnership

A. The Plain Text of the Bullock Amendment Prohibits a Tax on a

1. Respondents Improperly Construe the Meaning of the

2. This Court Should Reject Respondents Invitation to Reject the

C. The Revised Franchise Tax Is an Income Tax. ............................ 14

D. This Court Should Reject Respondents Straw Man Argument

E. Relators Historical Evidence Provides This Court Important

F. Relators Request Limited Relief. ..................................................... 24

III. This Courts Focus Should Be on Relators Bullock Amendment Claim. . 24

CERTIFICATE OF SERVICE .......................................................................................... 27

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