Use the Comptroller s Determination of Good Standing for Franchise Tax Payments


State agencies should use their ability to view the Comptroller s determination of good standing for franchise tax payments, instead of requiring taxpayers to obtain a Comptroller s certificate.


Background
A corporation in Texas must be able to prove that it has paid all franchise taxes owed to the state in order to receive certain operating privileges from the state. A corporation seeking to be licensed by a state agency is required to have paid all franchise taxes owed to the state, an d no contract can be awarded by a state agency if franchise taxes are owed. No corporation can file an article of dissolution with the Secretary of State unless it can obtain Comptroller certification that all taxes have been paid.

The Comptroller adminis ters franchise tax collections and maintains records documenting the good standing of taxpayers who have paid all taxes owed. The status of a taxpayer is considered to be public information and is provided upon request. An informal request, usually made by telephone, requires only a verbal reporting of the status of a taxpayer. There is no charge. A formal request needs to be made in writing and must be accompanied by a $10 fee. The fee was established by House Bill 11 during the First Called Session of the 72nd Legislature and has been in effect since January 1, 1992. Through November 1992, over $500,000 in fee revenue has been generated through certificate requests. 1

All state agencies are authorized to use their computer systems to view certain information the Comptroller maintains regarding a corporation s franchise tax payments, including the current status of the corporation. This evidence of good standing required of corporations is available to all agencies of the state. Some state agencies conside r this information sufficient to process a license or other business regarding the corporation, while other agencies require that an official Comptroller certificate of account status be furnished by the corporation.

In addition to requests from state agencies, requests for certificates of account status come from financial institutions, law firms and corporations themselves. Prior to the imposition of the $10 fee, official certificates were issued free of charge. In s ome cases this service was abused by private entities charging clients a fee. In response to this and to recoup the cost of providing the certificate, the fee was imposed.

Certificates of account status are used to help demonstrate the financial well-being of a corporation for a variety of purposes apart from state agency needs; for example, they are used in conjunction with corporate loan requests and may be requested by pr ospective buyers of a corporation.

Prior to fiscal 1992, proof that franchise taxes had been paid was all that was requ ired of corporations seeking to dissolve their corporate status with the Secretary of State. They are now required to produce a certificate issued by the Comptroller that all taxes administered by the Comptroller under Title 2 of the Tax Code have been pai d. 2 This change was in response to abuses by some corporate officers who would dissolve a corporation with delinquent taxes only to establish a different corporation without paying those taxes.


Recommendation
The Legislature should direct state agencies to use their computer capability to view the Comptroller s determination of good standing for corporations before requiring a certificate of account status.

Only in ca ses involving a question of franchise payment status should a corporation be required to furnish a certificate. The only exception should be for corporations filing for dissolution with the Secretary of State. Those corporations should continue to be requi red to produce evidence that all taxes have been paid prior to dissolution. Private sector requests should continue to be handled in the current manner.


Implications
A corporation seeking to be licensed by a state agency should not be compelled to produce evidence from another state agency when that information is readily available by computer, thereby placing an added burden on a corporation in compliance. This recomm endation would simplify the administrative complexity of licensing corporations. Agencies and their client corporations would benefit from this change.


Fiscal Impact
The Comptroller could experience an insignificant revenue loss. State agencies that license corporations would be able to administer their programs more efficiently and the processing time would be reduced. The amount of administrative savings to state agencie s is not anticipated to be significant; however, the service provided to corporations seeking to be licensed would be greatly improved.



Endnotes
1 Comptroller of Public Accounts, Revenue Accounting Division, Monthly Reconciliation of Daily Registers to FACTS Totals, January 1992-
December 1992.
2 Texas Business Corporation Act, Article 6.07, Sec. A.