Simplify Elements of the Tax System to Improve Customer Service

Several problem areas for taxpayers in the state s tax statutes could be eliminated to improve customer service and reduce the burden of the tax system on businesses.


Background
The relationship between taxpayers and public agencies often hinges on customer service and common sense. Small changes in policies and procedures that affect taxpayers can often improve customer service at no additional cost to the state. In this vein, the Comptroller s off ice has reviewed comments from taxpayers, including an industry liaison group, and proposes the following changes in the tax system designed to ease the administrative burden on various taxpayers without an impact on state revenue or costs.

Interstate Motor Carrier Tax Reporting Period
The interstate motor carrier tax currently defines preceding year as the 12 months before September 1. This causes hardship for taxpayers because they must prepare other reports, including federal taxes, based on the 12-m onth period that begins in January. 1 The reporting period should be changed so that preceding year is defined as the 12 months before January 1, thus easing the administrative burden on the industry.

Franchise Tax Trust Deposit
Under Texas Tax Code Sections 171.156 and 171.157, corporations headquartered outside of Texas are required to file a $500 trust deposit. This deposit requirement originated under the old franchise tax laws that provided for a minimum tax payment from fore ign corporations doing business in the state. The Secretary of State collects the deposit and sends it to the Comptroller s office to be held for three years. After that time, the money is refunded to the corporation.

There is no longer a minimum tax required and it is not cost effective for the Comptroller s office to continue to hold the deposits. In addition, the policy discourages small businesses from registering with the Secretary of State and doing business in Texas. 2 The deposit requirement should be eliminated.

Crude Oil Producers Annual Report
Currently, 8,843 active crude oil producers who do not have a permit to collect tax on produced oil are required to file an annual report with the Comptroller of Public Accounts. The report is filed for information purposes only. This requirement serves no useful purpose, and if the report is not filed, it eventually prohibits producers from selling their oil. This requirement should be repealed for those oil producers who do not hold a permit to collect tax on produced oil.

Defining Mobile Offices
Mobile offices that are leased or rented are currently subject to taxation as motor vehicles. Skid-mounted portable offices that are leased or rented serve the same purpose as mobile offices, but are assessed a different tax the sales and use tax. Since the two types of units are often leased or rented together, it can confuse and frustrate those responsible for collecting the taxes. 3

The inconsistencies could be eliminated if mobile offices were no longer defined as motor vehicles for tax purposes and instead were subject to the sales and use tax. There is no measurable fiscal impact associated with this change.

Advance Notice of Franchise Tax Forfeiture
A situation exists at the Comptroller s office where a shift could be made in the timing of a notice to franchise taxpayers that would balance out the agency s processing load without any adverse effect to the taxpayer. Currently franchise taxpayers are notified of suspension of corporate privileges within 45 days after the tax is due. This requirement adversely affects the Comptroller s office because it requires notices be mailed during other peak tax processing periods.

Changing the law to specify that a taxpayer must have at least 45 days notice of a plan to suspend corporate privileges gives the taxpayer the same or more time to resolve tax questions while at the same time enabling the Comptroller s office to reduce its peak processing workload.

Change Franchise Tax Accounting Method Due Date
Under Texas Tax Code 171.113(e), corporations are required to select and report the accounting method used to calculate their franchise tax by May 15 of each year, known as the original due date. In lieu of filing their franchise tax report, corporations can file an extension form and pay only 90 percent of the estimated tax due.

Many corporations opt for the extension because choosing an accounting method is often based on their taxable capital, which is not always known on May 15. The 90-percent tax due requirement under which mos t corporations file initially can be met without choosing an accounting method.

Forcing corporations to estimate franchise tax by choosing an accounting method can cause double work for both the taxpayer and the Comptroller s office. The taxpayer must file an amended form when actual data are available, or no later than November 15, which causes additional processing and revisions for both parties. 4 The deadlines should be changed to allow corporations to delay reporting their accounting method until no l ater than November 15. This is a common-sense solution that can help reduce the cost of franchise tax reporting for the business community in Texas and increase the efficiency of the Comptroller s office.

Intangibles Tax On Transportation Property
The Comptroller appraises and allocates to counties the revenue from a state tax on the intangible value of transportation property. Unfortunately, the total revenue collected only amounts to about $14,000 statewide annually.

The tax s only advantage is that tr ansportation property owners received a franchise tax exemption equal to four-fifths of the assessed intangible tax. Since this franchise tax exemption was repealed during the 72nd Legislature, the advantage is gone.

Other problems with the intangibles tax include the lack of generally accepted appraisal standards and discriminatory tax considerations for the railroads. These problems have prompted numerous appeals to the Comptroller and a possible legal challenge in f ederal court under the federal 4R Act. 5 This act prohibits taxation of railroads on a basis different than any other class of taxable property (49 YSC 11503, 1976). 6 The tax should be repealed.


Recommendations
A. Amend the Interstate Motor Carrier Tax, Sec. 157.001(10) to change the definition of preceding year so that it is based at the end of a calendar year or quarter.

Simplifying taxpayer requirements will eliminate duplicative paperwork and better meet the needs of the state s customers. There would be no fiscal impact to the state by changing this reporting period.

B. Delete Texas Tax Code Sections 171.156 and 171.157 to eliminate the $500 franchise tax trust deposit for foreign corporations doing business in Texas.

Eliminating the trust deposit would remove a long-standing trade barrier to corporations headquartered outside of Texas that wish to do business in Texas, particularly small business.

C. Reporting requirements for oil producers should be modified to eliminate an annual report for those producers not collecting tax on oil produced.

The producers will still be required to submit the Texas Crude Oil Producer Special Report if any oil is lost, stolen or otherwise unaccounted for after production. Since the missing oil has not been sold, this reporting must be the responsibility of the producer.

D. Exclude mobile offices from the definition of motor vehicle for taxation purposes.

Under the change, tax collection for mobile offices and skid-mounted portable offices will be consistent.

E. Change notification requirements for franchise tax at least 45 days before forfeiture of corporate privileges.

This change will allow the Comptroller s office to reduce its peak processing workload and possibly give the taxpayer more time to resolve tax questions.

F. Delete original from Texas Tax Code 171.113(e) so that corporations may choose an accounting method and notify the Comptroller on or before November 15, the extended due date.

This change will reduce processing and paperwork for both the Comptroller s office and the taxpayer.

G. Repeal Chapter 24 of the Property Tax Code to eliminate the Intangibles Tax on Transportation Property.

Implementation of the recommendation would eliminate a tax of marginal and declining value to counties, and would provide administrative cost savings to the state. Reduced state costs would result from no longer having to appraise, apportion, and report intangible values and from no longer having to deal with administrative appeals of appraised intangibles. . . 7 It would remove the burden from the transportation property taxpayer and probably avoid a legal challenge by the railroads. The fiscal impact of this proposal would be negligible.


Implications
The recommended changes will promote greater efficiency in the daily working lives of taxpayers and improve customer service.


Fiscal Impact
There are no additional costs to the state associated with implementing these recommendations. There will be non-quantifiable benefits to the state through reduced paperwo rk. The primary benefit should be in time and expense savings for taxpayers.



Endnotes
1 Interview with Ledford Kelly, Tax Administration, Comptroller of Public Accounts, Austin, Texas, December 1992.
2 Interview with Jerry Oxford, Tax Administration, Comptroller of Public Accounts, Austin, Texas, December 1992.
3 Interview with Curt Swenson, Tax Administration, Comptroller of Public Accounts, Austin, Texas, December 1992.
4 Interview with Holly Stewart, Tax Administration, Comptroller of Public Accounts, Austin, Texas, December 1992.
5 Telephone interview with Dan Wilson, Property Tax Division, Comptroller of Public Accounts, Austin, Texas, December 1992.
6 Telephone interview with and written response from John Valenta, Property Tax Division, Comptroller of Public Accounts, State of Texas, December 1992.
7 Legislative Budget Board Performance Report To The 71st Legislature, January 10, 1992, p. 316.