The second special legislative session ended recently in Texas with passage of several significant tax bills involving franchise tax, insurance premium tax, and motor fuels tax.
Franchise Tax and Insurance Tax Credits for Expenses to Rehabilitate Certain Historic Structures
The Legislature created a new chapter in the Tax Code, Chapter 172, which provides for a franchise tax and insurance premium tax credit for the certified rehabilitation of a certified historic structure. The new Chapter 172 modifies the definition of “eligible costs and expenses” to provide that the depreciation and tax-exempt use provisions of Internal Revenue Code Section 47(c)(2) do not apply to costs and expenses incurred by an entity exempted from the federal income tax under Internal Revenue Code Section 501(a). (Previously, this provision only applied to entities that were exempt from franchise tax under Section 171.063.) (Senate Bill 1013)
Tax Credit for Low-Income Housing Developments
House Bill 1058 establishes a new franchise tax credit for a business that owns an interest in a Texas development that receives a low-income housing credit from the Texas Department of Housing and Community Affairs (TDHCA). The credit may be claimed in equal installments over a 10‑year period. The credits awarded each year cannot exceed $25 million. The TDHCA may issue credits beginning January 1, 2024, but the franchise tax credit can only be claimed on tax reports due after December 31, 2025.
In addition, the bill amends the Insurance Code to allow a premium tax credit if the insurance company owns an interest in a qualified low-income housing development. The credit cannot exceed the insurance company’s state premium tax liability. However, the insurance company can carry a surplus credit forward or backward. Credits may be claimed only on a tax report originally due after December 31, 2025, and before January 1, 2036. (House Bill 1058)
Motor Fuels Tax Revisions
Effective September 1, 2023, the definition of “motor fuel” will include any motor fuel capable of use as fuel for a motor vehicle licensed for use on a public highway and removes language limiting the fuels that qualify as motor fuel to those in a gasoline-powered engine or diesel-powered engine. In addition, a backup tax will be imposed on anyone who acquires gasoline or diesel fuel on which tax has not been paid and on anyone who acquires gasoline or diesel fuel by any unlawful means, including regardless of whether tax was previously paid on the fuel. (House Bill 3651)
In addition, also effective September 1, 2023, House Bill 3599 provides an exemption for gasoline or diesel fuel for use by a nonprofit foodbank’s trucks and exempts such trucks from motor vehicle registration fees. (House Bill 3599)
We will continue to provide updates on Texas law changes in future releases. To learn more about these new programs, register for Ryan’s upcoming webinar to be held on August 16, 2023.
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