200609761L




September 6, 2006

To:  ************** 
**************

Dear **************:     

Thank you for your email regarding the revised franchise tax with margin 
calculation recently passed by the Texas Legislature.    

The publication and calculator I mention below, as well as other related 
information, can be found at http://www.window.state.tx.us/m23taxes.html.

You have asked if a limited liability company (LLC) or Subchapter S corporation 
owned by only one person will be exempt from the revised franchise tax.  You 
have also asked if undocumented workers include contract workers receiving a 
1099.  

House Bill (HB) 3 was passed during the 79th 3rd Called Session of the Texas 
Legislature.  HB 3 amends Texas Tax Code Chapter 171 to revise the existing 
franchise tax by changing the tax base, lowering the rate, and extending 
coverage to active businesses receiving state law liability protection.  

LLCs and corporations electing to be treated as Subchapter S corporations for 
federal purposes are currently subject to Texas franchise tax, and they will 
continue to be subject to the revised franchise tax.  There is no exemption 
provided for LLCs and S corporations that are owned by individuals.  

An undocumented worker means a person who is not lawfully entitled to be 
present and employed in the United States.  Therefore, undocumented workers 
could include contract workers receiving a 1099 from a taxable entity.  
However, in the calculation of compensation for a taxable entity, the taxable 
entity would receive no deduction for compensation paid to workers that receive 
a 1099, regardless if they are undocumented.  

This agency’s publication, The Revised Franchise Tax Overview (98-806), 
provides a concise summary of the revised franchise tax.  The publication 
briefly addresses the entities subject to the tax, the calculation of the tax 
and other general information.  There is also a franchise tax calculator 
available on our website for you to estimate a tax liability under the new 
provisions if you operate a taxable entity.

A copy of HB3 is available through the legislature's website, "Texas 
Legislature Online" at www.capitol.state.tx.us.  

This response is based on the facts presented and current law.  If there are 
different or additional facts, the response may change.  

Our goal is to provide you with prompt, professional service.  Please take a 
moment to complete our on-line survey at:  
http://aixtcp.cpa.state.tx.us/surveys/tpsurv2/index.html.

If you need any additional information, please feel free to contact me at 
1.800.531.5441, extension 34629.  

Sincerely,


Lowell Olsen Dunn
Tax Policy Division




ACCESSION NUMBER: 200609761L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 09/06/2006
TAX TYPE: FRANCHISE