80th Session In Review: What The Texas Legislature Did And Didn t Do Part I Property Tax Tax Administration Sales Tax

1. 80th Session In Review: What The Texas Legislature Did And Didn�t Do Part I Property Tax Tax Administration Sales Tax Motor Fuels Taxes Insurance Premium Taxes Presented By: Susan Traylor Bittick

2. Overview Major Revisions to Margin Tax? NO Comprehensive Property Tax Appraisal Reforms? NO Broad, Substantive Changes to Other Taxes? NO

3. Overview Why? �Tax Fatigue� House Politics

4. Pauken Commission Proposals Revenue Limits For Local Government. �Truth In Taxation Effective Tax Rate� Voter Approval Required To Exceed Cap Improve Fairness In The Appraisal Process. Shake Up Appraisal District Boards Make Procedural Changes Mandate More Disclosures Under Truth In Taxation Laws  Prospectively Prohibit Unfunded State Mandates.

5. Pauken Commission Proposals Require Sales Price Disclosures. Commission Split On This Issue Numerous Bills Introduced; None Made It To The Floor In Either House Change Comptroller�s Property Value Study. Constitutional Amendments. Five-Year Rolling Average Option County Option �-Cent Sales Tax Dead on Arrival at the Legislature. Legislators had their own ideas: A number of bills filed that would have lowered the constitutional limit on annual increases to appraised values. All failed, but the Legislature did agree to a change to the cap, and that will be on a ballot this November.Dead on Arrival at the Legislature. Legislators had their own ideas: A number of bills filed that would have lowered the constitutional limit on annual increases to appraised values. All failed, but the Legislature did agree to a change to the cap, and that will be on a ballot this November.

6. Property Tax Proposed Amendment To Texas Constitution Authorizes Legislature To Limit Increase In Appraised Value Of Homestead Property To 110% Of Previous Year�s Value, Regardless Of The Amount Of Time That Has Passed Since The Property Was Reappraised On The Ballot November 6, 2007

7. Property Tax HB 3195 (Hill) City/County Notices Of Budget Hearings Must Include Amount And Percentage By Which Property Tax Revenue Exceeds Prior Year. Budget And Property Tax Rates Require Separate Votes HB 3495 (Otto) Notices Of Meeting To Vote on Tax Rate Must Include Total Tax Revenue To Be Raised, Total Raised At Proposed Rate If New Property Is Excluded, And Total Raised At Proposed Rate If New Property Included HB 35 (Solomons) Chief Appraiser�s Compensation Cannot Be Linked To Increase In Total Market, Appraised Or Taxable Value

8. Property Tax HB 538 (Calligari) All Property Owners Without Designated Tax Agent Are Entitled To One Postponement Of ARB Hearing Without Cause And Postponement For �Reasonable� Cause HB 1680 (Swinford) Absent Fraud Or Material Misrepresentation At The ARB Hearing, The Chief Appraiser Cannot Appeal Decisions Where The Value In Controversy Is Less Than $1 Million Dollars

9. Property Tax HB 402 (Hill) Prohibits Ex Parte Communications Between Chief Appraiser And Appraisal District Board Members About Appraisal. Misdemeanor Offense HB 1210 (Jackson) Amends Property Code Section 31.11 To Authorize Taxing Units To Extend The Time Taxpayers Have To File A Claim For A Refund Of Property Taxes For Good Cause

10. Tax Administration SB 242 (Shapiro/Chisum) Reassigns Administrative Law Judges (ALJ) from Comptroller�s Office to State Office Of Administrative Hearings (SOAH) Major Political Objective For Comptroller Initiated By Comptroller In January Pursuant To Agency Memorandum Of Understanding Bill Codifies The Change Sunset Review In 2011

11. SOAH Creates �Tax Division� At SOAH Establishes Eligibility Criteria For Tax ALJs US Citizen Texas Attorney In Good Standing Licensed To Practice In Texas At Least Seven Years �Substantial� Experience In Tax Cases �In Making A Record Suitable For Administrative Review Or Otherwise� Devoted At Least 75% Of Legal Practice To Texas State Tax Law In At Least Five of the Past 10 Years

12. SOAH Comptroller Has Rule-Making Authority With Regard To How Matters Are Referred To SOAH After Referral, SOAH To Docket Case And Assign ALJ. Proceedings At SOAH Are Subject To SOAH�s Rules of Procedure ALJs Can Hear Other Matters, Subject To Approval Of The Comptroller

13. SOAH ALJ Issues Proposed Decision With Findings Of Fact And Conclusions Of Law, Including Legal Reasoning And Analysis Comptroller Can Change ALJ�s Findings Of Fact Or Conclusions Of Law Or Vacate/Modify ALJ�s Order If ALJ Improperly Applied Or Interpreted Law, Rules, Policies Or Prior Decisions, or Finding Of Fact Not Supported By A Preponderance Of The Evidence, or ALJ Relied On Comptroller Policy Or Prior Decision That Was Incorrect

14. SOAH Tax Division: Independent? Comptroller Decides Whether ALJs Can Hear Non-Tax Matters  Comptroller Can Ask For Expedited Hearing, And Tax Division Must �Use Every Reasonable Means� To Oblige Comptroller �Shall Provide Input� To SOAH To Assist SOAH �Regarding The Comptroller�s Priorities And Public Policy Needs� Comptroller Evaluates The ALJs� Job Performances Comptroller Monitors How Long Cases Are Pending At SOAH

15. SOAH Tax Division: Independent? Tax cases won't be entirely out of Combs� reach Like other agencies, Comptroller would have limited room to intervene By Jason EmbryAMERICAN-STATESMAN STAFFFriday, June 08, 2007 On her second full day on the job, Comptroller Susan Combs transferred out of her office the judges who hear tax disputes between the state and the public "to remove any appearance of bias and ensure that the integrity of the hearing process is beyond question," she said at the time. But the legislation that would cement those transfers in state law allows Combs to keep a role in resolving the tax cases.. . . .

16. Other Tax Administration Bills SB 1615 (Averitt) Authorizes Comptroller To Use Private Debt Collectors On Certain Delinquent Taxes; Permits Fee Of Up To 30% Of The Obligation SB 190 (Brimer) Requires Comptroller To Provide To All Cities That Request It, Detailed Sales And Use Tax Information Regarding Businesses That Paid/Remitted At Least $25,000 In The Prior Year Information Was Available Only To Cities With Populations of Less Than 275,000 HB 1196 (Kolkhorst) Businesses Receiving Public Subsidies � Including Tax Refunds, Rebates Or Abatements � Cannot Employ Undocumented Workers. Violators Must Repay With Interest

17. Other Tax Administration Bills HB 2010 (Rose) Gives Texas Courts Original Jurisdiction To Decide Whether Texas-Based Business Has Sufficient Nexus With Another State To Be Required To Collect/Remit Use Tax For That State SB 2031 (Ogden) aka �Rider 11 Super-Sized� Amended To Exclude Refunds Of A �Tax, Fee Or Any Related Penalty Or Interest�, The Bill Requires Legislative Approval Of Settlements Of Any Claim Or Action Against The State Exceeding $10 Million Dollars During Any Two Year Period

18. Sales Tax Exceeding Limits on Local Tax Rates 9 Bills Would Have Permitted Local Governments To Exceed Existing 2% Cap On Local Taxes Sourcing Rule Changes Return To Origin-Based Sourcing On Services Repeal Of Destination-Based Sourcing For MTA Taxes

19. Sales Tax HB 3694 (Deshotel)  Enterprise Zone (EZ) Program Expanded And Clarified More Designations: Increases From 85 Projects To 105 Projects Per Biennium Covers All Taxable Items Permits Large, Urban Counties To Nominate Projects Located In The Jurisdiction Of A Municipality In That County Streamlines Other Program Requirements, And Moves Compliance From Governor�s Office To Comptroller�s Office

20. Sales Tax Tax Fraud/Personal Liability HB 3314 Personal Liability For �Participating� In Plans To Avoid Or Fraudulently Evade Taxes. Listed Four Situations As Prima Facie Evidence Of Tax Fraud, Including 25% Underpayment Miscellaneous Other Changes Biotech Cleanrooms Ready-Mix Concrete Sale For Resale Exemption OTC Drug Definition � FDA �Drug Fact Panel� Required Sales Tax Holiday Moved Energy Efficient Holiday Created

21. Motor Fuels Tax Comptroller�s Bill Died Due To Fuels Tax Holiday Amendment By Rep. Trey Martinez-Fischer Attempts To Restore Exemptions For PTO And Auxiliary Motors, Dyed Kerosene, Etc. Died Only One Bill Restoring A Fuels Tax Exemption Passed HB 1332 (Chisum) Exempts Diesel Fuel Used As Feedstock In The Manufacturing Of Tangible Personal Property Or As A Medium To Remove Drill Cuttings From A Well Bore In The Production Of Oil And Gas

22. Insurance Tax HB 3315 Repeals Administrative Services Fee Adds Home Warranty Coverage To The List Of Insurance That Must Be Included In Determining Gross Premiums Written For Insurance Premium Tax PurposesCenterpiece: Authorizes Comptroller To Enter Into Cooperative Arrangements, Contracts Or Compacts With Other States To Enforce And Collect Taxes On Surplus Lines, Unauthorized And Independently Procured Insurance

23. Insurance Tax States Decide Among Themselves Factors Pertinent To The Allocation of Insurance Premium Taxes And Establish Allocation Formula By Contract Comptroller Can Rely On Audit By Another Participating State To Assess Texas Insurance Premium Taxes Audit Is Prima Facie Evidence That Assessment Is Correct Comptroller Can Go After A Texas-Domiciled Insurance Company On Behalf Of Another State And Collect That State�s Taxes For It

24. Insurance Tax Do Such Compacts Exist? Not yet. But, See, H.R. 1065 Passed Unanimously By U.S. House Of Representatives June 25, 2007 Authorizes States To Enter Into Compact And Permits Them to Determine Reasonable Way Of Apportioning Non-Admitted Premium Taxes Property/Casualty Insurers Support It Because It Preempts State Taxation Of Non-Admitted Insurance By Any State Other Than The �Home State Of The Insured�

25. Multistate Tax Commission (MTC) Seeks Uniform Division of Income for Tax Purposes Act (UDITPA) Revisions The National Conference Of Commissioners Of Uniform State Laws (�NCCUSL�) Adopted The State Uniform Division Of Income For Tax Purposes Act In 1957 45 States Have Adopted UDITPA In Whole Or Part The Multistate Tax Commission Wants NCCUSL To Re-Open/Revise UDITPA. NCCUSL Expected To Approve The Request At Meeting This Month

26. Multistate Tax Commission (MTC) Seeks Uniform Division of Income for Tax Purposes Act (UDITPA) Revisions MTC�s Top Priority: Telecommunications Taxes. It Asked For The Review Primarily To Rewrite Section 17, Which Addresses Sales Factor Sourcing Of Transactions Involving Services And Intangibles  MTC Also Wants To Review Definition Of �Business Income� Definition Of �Gross Receipts� Assignment Of �Non-Business Income� Factor Weighting Alternative Apportionment Provision

27. Multistate Tax Commission (MTC) Seeks Uniform Division of Income for Tax Purposes Act (UDITPA) Revisions �We believe it is essential to act quickly.� May 2, 2007 memorandum by Joe Huddleston, Executive Director, Multistate Tax Commission, to Charles A. Trost, chair, NCCUSL Study Committee on Revisions of UDITPA.

28. Multistate Tax Commission (MTC) Seeks Uniform Division of Income for Tax Purposes Act (UDITPA) Revisions �Corporations For Fair State Taxation Of Income� Contact: Jim Eads Director � Public Affairs Ryan  Austin, Texas 512.476.0022

29. 80th Session In Review: What The Texas Legislature Did And Didn�t DoPart IITexas Margin Tax LegislativeUpdatePresented By:Karey Barton

30. Agenda The Basics Who is subject to the tax? When is it due? How is it calculated? The Specifics Any issues specific to certain industries? Unity � What does it mean in Texas? What the Future May Hold Overall technical correction bill was �revenue neutral� Revenue neutral � eye of the beholder Changes � generated and cost revenueOverall technical correction bill was �revenue neutral� Revenue neutral � eye of the beholder Changes � generated and cost revenue

31. Who�s In? Entities with Liability Protection Applies to entities with liability protection Includes: Limited Liability Partnerships Limited Partnerships Trusts Corporations Limited Liability Companies Professional Associations Professional Corporations Commission � Privilege Tax for the right to do business as a liability protected entity Clarified LLP is taxable entity and GP exclusion does not apply to LLPCommission � Privilege Tax for the right to do business as a liability protected entity Clarified LLP is taxable entity and GP exclusion does not apply to LLP

32. Who�s Out? Excludes Sole proprietorships and general partnerships owned by natural persons Entities that qualify as passive Grantor trusts that qualify Entities currently exempt from franchise tax Taxable entities that owe less than $1,000 in tax Taxable entities with $300,000 or less in total revenue Estates of natural persons Escrows REIT that qualify REMIC Defined human being to include the estate of human being to address issue of GP exclusion when individual partner is deceased Added several different types of trusts to list of excluded entities Defined human being to include the estate of human being to address issue of GP exclusion when individual partner is deceased Added several different types of trusts to list of excluded entities

33. What is a Passive Entity? A Passive Entity is A General or Limited Partnership or non-Business Trust Meets 90% Passive Income Test 90% of income must be Passive Income Examples: Dividends, Mineral Royalties, LLC Income, Interest, Distributive Shares of Partnership Income, Capital Gains from sales of Real Property and Gains from the sales of Securities No more than 10% of gross income from conducting active trade or business Rental income is not considered passive income Clarified that gains from real property must be capital gains from real property sales to qualify as passive income Repealed provision that would allow for the inclusion of a passive entity in the combined groupClarified that gains from real property must be capital gains from real property sales to qualify as passive income Repealed provision that would allow for the inclusion of a passive entity in the combined group

34. Small Business Provisions Scaled Tax Liability Discount Schedule for small businesses 100% discount for taxable entities with $300,000 or less in total revenue 80% discount for taxable entities with more than $300,000 but less than $400,000 in total revenue 60% discount for taxable entities with $400,000 or more but less than $500,000 in total revenue 40% discount for taxable entities with $500,000 or more but less than $700,000 in total revenue 20% discount for taxable entities with $700,000 or more but less than $900,000 in total revenue Revenue loserRevenue loser

35. When is the Tax Due? Generally the Margin Tax is effective for reports due on or after January 1, 2008 First reports due May 15, 2008 Transition provisions for entities ceasing to do business Affected Entities Entities not previously subject to the Franchise Tax Doing business after June 30, 2007 but not after January 1, 2008 Entities must pay �Exit Tax� Ceasing to do business must occur through merger or dissolutionCeasing to do business must occur through merger or dissolution

36. How is the Tax Calculated? An Entity�s Taxable Margin is calculated as The Lesser of 70% of Total Revenue; or Total Revenue less either Cost of Goods Sold, or Compensation Times Apportionment Factor Times Tax Rate The election to deduct either Cost of Goods Sold or Compensation is done on annual basis No Taxpayer�s taxable margin would be greater than 70% of Total Revenue and limitation applies to combined group� Every taxpayer gets at least a standard deduction equal to 30% of Total Revenue Repealed ability to change choice of deduction on amended returnNo Taxpayer�s taxable margin would be greater than 70% of Total Revenue and limitation applies to combined group� Every taxpayer gets at least a standard deduction equal to 30% of Total Revenue Repealed ability to change choice of deduction on amended return

37. Tax Rates General Rule: 1% tax rate for all entities Exception: �% tax rate for entities primarily engaged in retail and wholesale trade (includes restaurants) Primarily engaged in retail and wholesale trade if Total Revenue from retail and wholesale trade is greater than Total Revenue from non-retail and wholesale trade activities, Less than 50% of the Total Revenue from retail and wholesale trade activities comes from the sale of products produced by the entity or an affiliated entity, AND The entity does not provide retail or wholesale utilities such as telecommunications, electric or gas Clarified rate applies to taxable margin rather than privilege periodClarified rate applies to taxable margin rather than privilege period

38. EZ Tax A taxable entity with $10 million or less in total revenue may choose an alternative calculation to determine tax liability Total Revenue times Apportionment Factor times .575% tax rate Taxable entity choosing the EZ tax calculation may not take any credits authorized by the Margin Tax Taxable entity choosing the EZ tax calculation is eligible for the small business scaled discount schedule New addition to tax nonseverablity clause � if margin tax is struck down the EZ tax is also invalid Revenue loser New addition to tax nonseverablity clause � if margin tax is struck down the EZ tax is also invalid Revenue loser

39. Total Revenue Based on amounts reportable as income on the specific line references on FIT returns Entities treated as Corporations for federal income tax purposes Form 1120 Lines 1(c) and 4-10 Entities treated as Partnerships for federal income tax purposes Form 1065 Lines 1(c), 4, 6 and 7 Schedule K, Lines 3a, and 5-11 Form 8825 Line 17, and Form 1040, Schedule F, Line 11 plus either line 2 or 45 Section 171.1011 Amounts reportable on IRS FIT forms Corrected Total Revenue determination for partnerships Revenue gainer Section 171.1011 Amounts reportable on IRS FIT forms Corrected Total Revenue determination for partnerships Revenue gainer

40. Total Revenue Amounts reportable as income include Gross Receipts or Sales less returns and allowances Dividends Interest Gross Rents Gross Royalties Net Capital Gains Other Income Refunds of taxes deducted in prior years Ordinary income from trade or business activities of a partnership, LLC, or S-Corp

41. Total Revenue Specific allowable subtractions from Total Revenue include Bad debt Foreign royalties and dividends Net distributive income from partnerships, LLCs and S-Corporations (unless the income is from a passive entity) Allowable deductions from Form 1120, Schedule C (dividends received deduction) Income items from disregarded entities Dividends and interest from federal obligations Clarifications for determination of total revenue for tiered partnerships Pharmacy cooperative�s rebates are �flow-through� fundsClarifications for determination of total revenue for tiered partnerships Pharmacy cooperative�s rebates are �flow-through� funds

42. Cost of Goods Sold (COGS) Statutorily defined � similar to Federal definition COGS deduction generally can only be taken by entities selling or producing goods it owns �Goods� include tangible personal property and real property Clarified that eligible COGS incurred by member of combined group may be included when the expenses are incurred related to goods owned by another member of the combined group Modified definition of TPP to include �live and pre-recorded television and radio programs or broadcasts� Also clarified related expenses that can be takenClarified that eligible COGS incurred by member of combined group may be included when the expenses are incurred related to goods owned by another member of the combined group Modified definition of TPP to include �live and pre-recorded television and radio programs or broadcasts� Also clarified related expenses that can be taken

43. Cost of Goods Sold (COGS) COGS includes costs related to acquiring or producing goods Direct costs Examples: raw materials, labor directly related to production Indirect costs Limits indirect and administrative overhead costs that are allocable to the acquisition or production of goods to 4% of total indirect and administrative overhead costs

44. Cost of Goods Sold: Eligible Costs Labor costs directly related to production and acquisition of goods, including Employee Contract labor Material costs � incorporated and consumed Related transportation costs Taxes paid on materials Equipment costs directly related to production Depreciation Equipment rental or lease Equipment repair or maintenance Depreciation, amortization, and depletion are limited to amounts reported on FIT return for same period Difference between old Franchise tax basis and new margin tax basis of depreciationDepreciation, amortization, and depletion are limited to amounts reported on FIT return for same period Difference between old Franchise tax basis and new margin tax basis of depreciation

45. Cost of Goods Sold: Eligible Costs Research and Development costs related to production of goods Utility costs � Water, gas, and electricity consumed in production Insurance Costs related to the production of goods Materials Machinery and Equipment Taxes � Non-income based taxes Quality Control Costs directly related to production Inspections Warranty work

46. Specific Industry Provisions Specific Industry Provisions Certain expenses for mining industry, such as depletion or geological costs can be included in COGS Interest expenses is COGS for Lending Institutions Regulated entities making loans to the public Cost of Goods Sold deduction can be taken by certain rental or leasing businesses Entities renting or leasing motor vehicles Entities renting or leasing heavy construction equipment Entities renting or leasing railcar rolling stock Used merchandise sellers (i.e. pawnshops) may not take interest as COGSUsed merchandise sellers (i.e. pawnshops) may not take interest as COGS

47. Cost of Goods Sold: Ineligible Costs Equipment costs not directly related to production Selling costs Employee expenses Sales commissions paid to third parties Advertising costs Bidding costs � successful or otherwise Interest costs Income taxes Officers� compensation Undocumented worker�s compensation

48. Cost of Goods Sold: Capitalize or Expense Taxable entity may choose to Expense or Capital COGS Capitalization of Costs � IRC 263A Texas costs may be capitalized �in the same manner and to the same extent that the taxable entity capitalized that cost on its federal income tax return�.� Beginning and Ending Inventory Expense Costs Eligible costs from accounting period may be expensed No capitalized costs included in inventory may be included in determination of expensed costs Clarification allowing both methods capitalization or expensing when calculating COGSClarification allowing both methods capitalization or expensing when calculating COGS

49. Compensation Compensation is defined as wages and salaries and employee benefits Wages - Medicare wages and tips box on W-2, plus: Distributions to natural person from entities treated as partnerships and S-Corporations Federal tax deductible Stock Awards and Options Limited to $300,000 per employee Benefits - federal tax deductible benefits (not subject to $300,000 cap) Health care expenses Retirement expenses Worker�s compensation expenses Undocumented worker�s compensation cannot be deducted Clarified that distributions from LLC treated as sole prop to natural person are deductible Clarified $300k limit applies to combined group Added new small employer credit providing bonus deduction of health care costsClarified that distributions from LLC treated as sole prop to natural person are deductible Clarified $300k limit applies to combined group Added new small employer credit providing bonus deduction of health care costs

50. Apportionment Changes? Limited changes � Current apportionment rules and policies are meant to apply to Margin Tax Single Gross Receipts Factor remains the standard Mortgage Loan Services � Receipts from the servicing of loans secured by real property are sourced based on the location of the real property No Throwback Rule � Not a net income tax per statute Generally, sales of TPP sourced to Texas if delivered in the state and receipts from services performed in the state are sourced to Texas.Generally, sales of TPP sourced to Texas if delivered in the state and receipts from services performed in the state are sourced to Texas.

51. Apportionment � Legislative Clarifications Sale of securities may be included at net or gross for apportionment purposes Sale of securities held for investment purposes are included at net Sale of securities treated as inventory are included at gross Sales of TPP between members of a combined group Affects sales of TPP between members of a combined group where one party of the transaction does not have nexus Effected sales must be included in the numerator Sale of securities treated as inventory are includable at gross is a clarification of legislative intent � revenue loser Clarified the sales are based on receipts �ultimately derived� from sales to an unrelated third party TPP w/out substantial modificationSale of securities treated as inventory are includable at gross is a clarification of legislative intent � revenue loser Clarified the sales are based on receipts �ultimately derived� from sales to an unrelated third party TPP w/out substantial modification

52. Unitary Combined Reporting Taxable Entities in a unitary affiliated group must file a combined report An affiliated group is a group of one or more entities owned by common owner(s) Controlling interest is more than 50% ownership Water�s edge unitary combined reporting is required Excludes a taxable entity that conducts business outside of the United States and has 80 percent or more of its property and payroll or, if none, gross receipts, outside the United States Reduction of controlling interest threshold from 80% or more to �more than 50%� � revenue gainer Reduction of controlling interest threshold from 80% or more to �more than 50%� � revenue gainer

53. Unitary Combined Reporting All members of the combined unitary group must make the same election of COGS or compensation Each group member determines total revenue, COGS, and compensation as if filing separately Inter-entity COGS, compensation, and total revenue are eliminated Combined margin is pre-apportionment Joyce Rule for Apportionment of Combined Group Requirement that combined unitary group report on it Texas sales of the non-nexus members of the combined group Reporting requirement only � No tax due based on Finnegan Tax based on activities in same period as combined group Each member jointly and severally liableTax based on activities in same period as combined group Each member jointly and severally liable

54. Unity Specifics To be unitary, entities must be sufficiently Interdependent Integrated Interrelated Activities of the entities should be analyzed to determine if they are Entities in the same general line of business Steps in a vertically or horizontally structured process Functionally integrated; strong centralized management Authority of purchasing, financing, personnel, marketing modification to definition of unity � or vs. and modification to definition of unity � or vs. and

55. Unity � Texas Style Texas Unitary Groups may include non-corporate entities LLC's Partnerships Trusts, etc. Taxpayer�s must analyze more business relationships for Texas than for other states to determine unity Bottom Line You cannot count on what you have done in the past to understand what you must do in the future

56. Temporary Credit for Net Operating Losses (NOLs) Taxable entities subject to tax prior to changes may take a credit for NOLs on reports beginning with the report due after January 1, 2008 and for 20 consecutive privilege periods Calculated under Section 171.110(e) as that section applied to tax returns before January 1, 2008 4.5 percent earned surplus tax rate used to determine credit For first 10 reports, credit is equal to 2.25 percent of amount determined under Section 171.110(e) times 4.5% For reports 11-20, credit is equal to 7.75 percent of amount determined under Section 171.110(e) times 4.5%

57. What Does the Future Hold? Comptroller Implementation Rules Other guidance Potential legislative changes to be considered during the 2009 Legislative Session Apportionment � Which standard will be used for unitary combined reports? Joyce or Finnegan Certain Legislative leaders belief Joyce method is �loophole� Information from Finnegan reporting requirement Deductibility of 1099 payments Rules � informal in August and formal in September Business Tax Advisory groupRules � informal in August and formal in September Business Tax Advisory group

58. Questions?