H I G H L I G H T S

Texas Margin Tax Not ‘Income Tax,’ Appeals Court SaysMultistate businesses can’t choose whether to use the income apportionment formula under the Multistate Tax Com-pact or the Texas margin tax, because the margin tax isn’t an income tax in the first place, a Texas appellate courtruled in a win for the state. The Texas Court of Appeals for the Third Judicial District rejected arguments fromGraphic Packaging Corp., a Georgia-based packaging company, that because the margin tax isn’t a gross receipts taxit must be an income tax.

Multistate Tax Commission Group OKs Nexus Model StatuteA committee of the Multistate Tax Commission (MTC) has approved a model statute attempting to define when out-of-state sellers have an obligation to pay or collect sales and use taxes. The MTC Uniformity Committee voted 12-0to forward the Model Sales and Use Tax Statute to the commission’s Executive Committee, which will convene dur-ing the MTC’s 48th annual meeting in Spokane, Wash.

New Texas Enterprise Zone Rules Include Smaller BusinessesEffective Sept. 1, changes to the Texas Enterprise Zone Program will ultimately result in greater credit availability tonew and smaller companies looking to participate in the state’s tax incentives program designed to induce privateinvestment in severely distressed areas of the state, a Dallas tax attorney told Bloomberg BNA. Mike Goral, partner-in-charge of state and local tax (SALT) services at Weaver’s Dallas office, said the ‘‘benefits’’ of the new amendmentswould include ‘‘allowing new and smaller companies that begin business in Texas to participate in the Program, sincethe focus now is on new permanent jobs as opposed to job retention which tended to benefit larger companies thatgrabbed most of the available credit in the previous enterprise zone Program.’’

Illinois Towns Seek Class Certification in Hotel Tax DisputeIllinois municipalities are taking another swipe at online travel companies, filing an amended motion for class certi-fication in litigation that seeks unpaid hotel occupancy taxes and penalties from e-commerce defendants ExpediaInc., Orbitz LLC, Priceline.com Inc. and Travelocity.com LP. The Village of Bedford Park, Ill., recently filed a secondmotion for class certification in U.S. District Court for the Northern District of Illinois on behalf of 154 municipalities.

Perspective: Bloomberg BNA Q&A With Executive Director Of the Multistate Tax Commission, Joe HuddlestonJoe Huddleston has served as the executive director of the Multistate Tax Commission for the past decade. In this in-depth interview with Bloomberg BNA, Huddleston discusses the biggest challenges facing the state and local taxworld today, new frontiers for the MTC and his decision to return to the private sector.

Perspective: Does N.Y. Overreach in Its Tax Enforcement? An In-Depth Look at the State’s Policies and PracticesNew York is a leader in its tax enforcement and compliance efforts; however, many tax attorneys and certified pub-lic accountants interviewed by Bloomberg BNA expressed concerns that the state may be overreaching in a numberof key areas. This article examines the states policies and practices in key areas such as sales tax audits, residencyand domicile issues and criminal enforcement in order to determine whether the state sometimes goes too far.

Copyright � 2015 TAX MANAGEMENT INC., a subsidiary of The Bureau of National Affairs, Inc. ISSN 1534-1550

NUMBER 31 JULY 31, 2015

Tax Management

Weekly State Tax Report™

TexasEnterprise Zone Credits

New Texas Enterprise Zone Rules OpenLifeline to Smaller Prospective Businesses

E ffective Sept. 1, changes to the Texas EnterpriseZone Program will ultimately result in greatercredit availability to new and smaller companies

looking to participate in the state’s tax incentives pro-gram designed to induce private investment in severelydistressed areas of the state, a Dallas tax attorney toldBloomberg BNA.

Mike Goral, partner-in-charge of state and local tax(SALT) services at Weaver’s Dallas office, said the‘‘benefits’’ of the new amendments would include ‘‘al-lowing new and smaller companies that begin businessin Texas to participate in the Program, since the focusnow is on new permanent jobs as opposed to job reten-tion which tended to benefit larger companies thatgrabbed most of the available credit in the previous en-terprise zone Program.’’

‘‘The new enterprise zone credit has been signifi-cantly modified by the Texas legislature,’’ said Goral ina July 27 e-mail.

Tex. Gov. Greg Abbott (R) signed the bill—S.B. 100—into law June 16, following a 139-3 May 24 approval inthe House and unanimous Senate passage April 14.

Set to go into effect Sept. 1, the amendments to theprogram are an effort, the legislation’s author said, toimprove the mix of jobs created by the zone, which cur-rently tilts heavily toward job retention rather than cre-ation.

Authored by Vice-Chairman of the Senate Commit-tee on Finance, state Sen. Juan ‘‘Chuy’’ Hinojosa (D),S.B. 100 amounts to a restructuring of the Texas Enter-prise Zone program and would amend requirements re-lated to project eligibility for various designations andbenefits.

Stressing Job Creation Rather Than Retention. Adminis-tered by the Texas Economic Development Bank, ap-proved projects are eligible to apply for state sales anduse tax refunds on qualified expenditures, with thoseamounts tied to capital investment criteria and the num-ber of pledged jobs created at the qualified businesssite.

A major amendment to the enterprise zone ruleswould see maximum refund levels fall from $3.75 mil-lion to $1.25 million for projects designed to retain jobs,according to a bill analysis authored by the House Re-search Organization (HRO), a nonpartisan independentdepartment of the Texas House.

Under the new amendments, a $1.25 million refundwould be the ceiling for projects designed to retain jobs.

The current mix of program benefits under the pro-gram sees 86 percent of the program directed towardretained jobs, with the remaining 14 percent going to-ward new jobs, according to an excerpt from a June 26legislative report from Hinojosa’s office authored bylegislative director Josh Reyna.

Double, Triple Jumbo Designation Require New Perma-nent Jobs. Under the changes set to be enacted by theamendments beginning at the start of September, proj-ects could be designated as Double Jumbo and TripleJumbo only if they created new permanent jobs.

As designated by the state development bank, a proj-ect can be considered Triple Jumbo if the capital invest-ment is $250 million or greater and it creates more than500 new jobs.

While incentive levels will fall for those projects tar-geting job retention, Triple Jumbo projects creatingnew permanent jobs will be eligible for a refund of upto $7,500 per new permanent job, with a maximum re-fund of $3.75 million.

Under the new regulations, a project receiving the‘‘Double Jumbo’’ designation from the bank will be eli-gible for a refund of up to $5,000 per new permanentjob created, with a refund ceiling of $2.5 million for thecreation of 500 new permanent jobs and between $150million and $249 million in capital investment, accord-ing to the legislation.

Created in 1988 and modeled after President RonaldReagan’s federal enterprise zone initiative, the currentincarnation of the program ‘‘offers greater incentives tobigger projects [double-jumbo and triple-jumbo] basedon higher pledged jobs (created or retained) andgreater capital investment,’’ according to Hinojosa’s of-fice.

‘‘However, over the years the program moved awayfrom its mission of creating jobs and turned its focus onsubsidizing retained jobs,’’ according to Reyna.

The program has accounted for 897 projects with353,131 jobs (new and retained) and $59.5 billion incapital investment as of August 2013, according to a De-cember 2014 data sheet on the program authored by theTexas Economic Development Bank.

Loss of Franchise Tax in Enterprise Projects. Addition-ally, approved enterprise projects would no longer beeligible to receive a franchise tax credit, according tothe HRO bill analysis.

Weaver’s Goral said the loss of the franchise taxcredit amounted to a ‘‘disadvantage’’ in terms of assess-ing the new amendments, but downplayed that signifi-cance of that change.

‘‘Texas’ relatively low franchise tax rate and the factthat most companies remit significantly more sales taxthan franchise tax is really not in my view a significantloss of benefit for many companies,’’ said Goral.

‘‘In addition, the ability to use the credit for addi-tional sales tax items and expanding the number ofitems that can be offset by the sales tax makes the salestax credit even more appealing,’’ he said.

Pointing to another benefit, Goral said that even inthe event a company does not hire new employees fromthe enterprise zone where the company is physically lo-cated but hires at least 35 percentof new permanentjobs from residents of other enterprise zones, economi-cally disadvantaged individuals or veterans still qualifyfor the credit.

Assessing the broader ramifications of the amend-ments, Goral said local communities ‘‘will be impacted’’by the new regulatory landscape, noting that with theelimination of the franchise tax—paid from the state’scoffers—local governments may have to give up some

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sales tax revenue to offset the credit offered to compa-nies.

‘‘However the benefit of having additional local citi-zens working is believed by the legislature to more thanmake up any losses from sales tax revenue,’’ he said.

Program Benefits Guidelines for the Texas Enter-prise Zone Program are available at http://comptroller.texas.gov/taxinfo/enterprise_zone/jc_guidelines.pdf.

BY PAUL STINSON

To contact the reporter on this story: Paul Stinson inAustin, Texas at pstinson@bna.com

To contact the editor responsible for this story:Cheryl Saenz at csaenz@bna.com

� For a discussion of Enterprise Zone Credits inTexas, see 1480-2nd T.M., Credits and Incentives: ORThrough WY, at 1480.12.A.

28 (Vol. 2015, No. 31) CREDITS & INCENTIVES

7-31-15 Copyright � 2015 TAX MANAGEMENT INC., a subsidiary of The Bureau of National Affairs, Inc. TM-WSTR ISSN 1534-1550