Texas Comptroller of Public Accounts    STAR System


200003107R



STAR SUPERSEDED WITHOUT SUMMARY 

Accession No.(s): 200003107R

Document superseded on: 08/15/2013 



STATE OF TEXAS
COMPTROLLER OF PUBLIC ACCOUNTS
FRANCHISE TAX

Section 3.561.  Enterprise Zones and Defense Economic Readjustment Zones.  (Tax 
Code, secs. 171.1015, 171.1016, 171.103, 171.1032, 171.501, and 171.805).

(a)  Except as otherwise provided in this section, the provisions of this 
section apply to franchise tax reports originally due on or after September 1, 
1991. 

(b)  Definitions.  The following words and terms, when used in this section, 
shall have the following meanings, unless the context clearly indicates 
otherwise. 

(1)  Enterprise project--A person, including a corporation or other entity, 
designated by the Texas Department of Economic Development as an enterprise 
project under the Government Code, Chapter 2303. 

(2)  Enterprise zone--An area of the state designated by the Texas Department 
of Economic Development as an enterprise zone under the Government Code, 
Chapter 2303. 

(3)  New permanent job--A new employment position that is: 

(A)  created by a qualified business as described by the Government Code, sec.  
2303.402, that has provided employment to a qualified employee of at least 
1,820 hours annually (applicable to reports originally due on or after 
September 1, 1995); and 

(B)  intended to exist under the Government Code, Chapter 2303, during the 
period the business is designated as an enterprise project. 

(4)  Qualified business--A person, including a corporation or other entity, 
that is certified as a qualified business under the Government Code, sec. 
2303.402. 

(5)  Qualified employee--A person who works for a qualified business and who 
performs at least 50% of the person's service for the business within the 
enterprise zone.  See the Government Code, sec. 2303.003. 

(6)  Qualified investment--Capital equipment or other investment that qualifies 
for depreciation for federal income tax purposes and that is placed in service 
in the enterprise zone or readjustment zone not earlier than the 90th working 
day before the date of designation as an enterprise project or readjustment 
project.  The investment must be used in the normal course of business in the 
enterprise zone or readjustment zone and must not be removed from the zone, 
except for repair and maintenance. 

(7)  Readjustment project--A corporation designated by the Texas Department of 
Economic Development as a defense readjustment project under the Government 
Code, Chapter 2310. 

(8)  Readjustment zone--An area of the state that the Texas Department of 
Economic Development has designated as a defense economic readjustment zone 
under the Government Code, Chapter 2310. 

(c)  A corporation may apply for a refund under the Tax Code, sec. 171.501, 
each year that it is certified as eligible for refund by the Texas Department 
of Economic Development. 

(d)  The comptroller shall issue a refund under the Tax Code, sec.  171.501, 
after receiving certification from the Texas Department of Economic Development 
that a qualified business has created ten or more new permanent jobs for 
qualified employees in its enterprise zone.  The ten or more new permanent jobs 
must have been created during the calendar year containing the accounting year 
end on which the franchise tax report is based.  For example, a corporation 
with a June 30, 1997, accounting year end would be eligible for a refund of 
franchise tax paid on its 1998 annual report if ten or more new permanent jobs 
are created during the 1997 calendar year. 

(e)  If a corporation is eligible for a refund under the Tax Code, sec. 
171.501, on its initial report and that report includes a regular annual 
period, the corporation will be entitled to two refunds: 

(1)  a refund for the initial and second periods; and 

(2)  a refund for the regular annual period. 

(f)  Claims for refund under this rule must be on the form provided by the 
comptroller for that purpose.  The claim must indicate the report year in which 
franchise tax was paid.  The claim must include certification from the Texas 
Department of Economic Development that ten or more new permanent jobs have 
been created during the applicable calendar year. 

(g)  A corporation that the Texas Department of Economic Development has 
certified to be an enterprise project eligible for a tax deduction may elect to 
reduce either its apportioned taxable capital or apportioned taxable earned 
surplus in accordance with the Tax Code, sec. 171.1015, on each report based on 
a fiscal year during all or part of which the corporation is designated an 
enterprise project.  An election for an initial period applies to the second 
tax period and to the first regular annual period.  This requirement is 
applicable to the first regular annual period whether it is included in the 
corporation's initial report or first annual report.  Otherwise, the election 
will not be binding on the corporation for future reports. A corporation that 
establishes its eligibility for a capital investment credit under the Tax Code, 
sec. 171.802, cannot take the enterprise zone deduction authorized by the Tax 
Code, sec. 171.1015.

(1)  The deduction from apportioned taxable capital is limited to 50% of the 
depreciated value of qualified investments.  For example, a corporation with a 
December 31 year end is designated as an enterprise project on July 15, 1997.  
The corporation's 1998 annual report (based on its December 31, 1997, 
accounting year end) would be the first report in which it would be eligible 
for a taxable capital deduction under the Tax Code, sec. 171.1015.  The 
deduction would apply to qualified investments placed in service in the 
enterprise zone on or after March 5, 1997 (the 90th working day before the July 
15, 1997, designation date). 

(2)  The deduction from apportioned taxable earned surplus is limited to 5.0% 
of the depreciated value of qualified investments.  For example, a corporation 
with a December 31 year end is designated as an enterprise project on July 15, 
1997.  The corporation would be eligible for the earned surplus deduction on 
its 1998 annual report (based on its December 31, 1997, accounting year end) 
under the Tax Code, sec. 171.1015.  The deduction would apply to qualified 
investments placed in service in the enterprise zone on or after March 5, 1997 
(the 90th working day before the July 15, 1997, designation date). 

(h)  A corporation must retain records substantiating its apportioned taxable 
capital or apportioned taxable earned surplus deduction.  The records must be 
verifiable by audit and include copies of invoices showing the items purchased, 
the date of purchase, and the cost of the purchase.  The records must also 
reflect the depreciated value of the items purchased and show that these items 
were placed in service in the zone after the corporation's designation as an 
enterprise project. 

(i)  Amended reports may be filed in accordance with the following enterprise 
project designations. 

(1)  A corporation receiving its enterprise project designation after August 
31, 1991, cannot claim a tax base deduction under the Tax Code, sec. 171.1015, 
until after August 31, 1993.  For example, a corporation with a November 30, 
1991, fiscal year end is designated an enterprise project on September 30, 
1991.  The corporation could not claim the tax base deduction on its 1992 
report until after August 31, 1993.  An amended report would have to be filed 
at that time. 

(2)  A corporation receiving its enterprise project designation after August 
31, 1993, cannot claim a tax base deduction under the Tax Code, sec. 171.1015, 
until after August 31, 1995.  For example, a corporation with a November 30, 
1993, fiscal year end is designated an enterprise project on September 30, 
1993.  The corporation could not claim the tax base deduction on its 1994 
report until after August 31, 1995.  An amended report would have to be filed 
at that time. 

(3)  A corporation receiving its enterprise project designation after August 
31, 1995, cannot claim a tax base deduction under the Tax Code, sec. 171.1015, 
until after August 31, 1997.  For example, a corporation with a November 30, 
1995, fiscal year end is designated an enterprise project on September 30, 
1995.  The corporation could not claim the tax base deduction on its 1996 
report until after August 31, 1997.  An amended report would have to be filed 
at that time. 

(j)  A corporation that the Texas Department of Economic Development has 
designated as a readjustment project may elect to reduce either its apportioned 
taxable capital or apportioned taxable earned surplus in accordance with the 
Tax Code, sec. 171.1016, on each report based on a fiscal year during all or 
part of which the corporation is designated a readjustment project.  An 
election for an initial period applies to the second tax period and to the 
first regular annual period.  This requirement is applicable to the first 
regular annual period whether it is included in the corporation's initial 
report or first annual report.  Otherwise, the election will not be binding on 
the corporation for future reports. 

(1)  The deduction from apportioned taxable capital is 50% of the depreciated 
value of qualified investments.  For example, a corporation with a December 31 
year end is designated as a readjustment project on July 15, 1997.  The 
corporation's 1998 annual report (based on its December 31, 1997, accounting 
year end) would be the first report in which it would be eligible for a taxable 
capital deduction under the Tax Code, sec.  171.1016.  The deduction would 
apply to qualified investments placed in service in the readjustment zone on or 
after March 5, 1997 (the 90th working day before the July 15, 1997, designation 
date). 

(2)  The deduction from apportioned taxable earned surplus is limited to 5.0% 
of the depreciated value of qualified investments.  For example, a corporation 
with a December 31 year end is designated as a readjustment project on July 15, 
1997.  The corporation would be eligible for the earned surplus deduction on 
its 1998 annual report (based on its December 31, 1997, accounting year end) 
under the Tax Code, sec.  171.1016.  The deduction would apply to qualified 
investments placed in service in the readjustment zone on or after March 5, 
1997 (the 90th working day before the November 15, 1997, designation date). 

(k)  A corporation must retain records substantiating its apportioned taxable 
capital or apportioned taxable earned surplus deduction.  The records must be 
verifiable by audit and include copies of invoices showing the items purchased, 
the date of purchase, and the cost of the purchase.  The records must also 
reflect the depreciated value of the items purchased and show that these items 
were placed in service in the zone after the corporation's designation as a 
readjustment project. 

(l)  Gross receipts from services performed by a readjustment project in a 
readjustment zone are not Texas gross receipts for either taxable capital or 
earned surplus.


Effective Date:  March 16, 2000
Filed with Secretary of State:  February 25, 2000




ACCESSION NUMBER: 200003107R  
SUPERSEDED: Y
DOCUMENT TYPE: R
DATE: 03/16/2000
TAX TYPE: FRANCHISE