The Revised Franchise Tax

The Revised Franchise Tax:

The Comptroller's Office has compiled a number of forms for reporting the newly revised franchise tax, as prescribed by House Bill 3 of the 79th Legislative Session and House Bill 3928 of the 80th Legislative Session. These forms are being finalized and will be available in their final form no later than March 31, 2008. The may be viewed at the following link: Reports, Forms & Procedure: http://www.window.state.tx.us/taxinfo/taxforms/05-form7.html

Form 05-176 Staff Leasing Services Company Report - http://www.window.state.tx.us/taxinfo/taxforms/05-176.pdf

As a result of the McCall amendment which was supported by TAS and strongly opposed by TAPC because of the clear differences between temporary staffing and staff leasing companies, Texas Tax Code §171.2125 now requires that a staff leasing services company provide the information contained in the above report to a client company (i.e. rates paid for assigned W-2 employees NOT 1099). TAPC’s work in the last legislative session was instrumental in the successful outcome with regard to 1099’s. We will once again, fight to undo the damage done by the McCall amendment in the upcoming session and have been laying the groundwork for that fight for the past months.

The report contains information a client company will need to calculate compensation and cost of goods sold on the client company’s franchise tax report. This form is for use only by a staff leasing services company or professional employer organization licensed under Chapter 91 of the Texas Labor Code which now INCLUDES temporary staffing firms, even though they are not licensed staff leasing entities.

A staff leasing services company (including PEO’s and temporary staffing companies) is required to provide the information in this report to a client company only if the client company requests it. For an annual franchise tax report due May 15, this information must be provided to the client company no later than February 28 or the thirtieth day from the date of request, whichever is later. For all other franchise tax reports, this information must be provided no later than the thirtieth day from the date of request. A company may provide this information to a client company by filling in this report or by using their own printed form or electronic document that is substantially similar to this form. The information may be delivered in hard copy or electronically.

Per the form, please keep the following important written factors in mind:

1.) The report of wages and cash compensation does not include amounts paid to 1099 employees however all W-2 employee wages must be reported.
2.) A company is required to provide the information in this report to a client company only if the client company requests it.

Considering the above, it appears that the good news for TAPC member companies should be that those who are heavily weighted in W-2 labor may be fortunate enough to have their clients NOT request the information - in which case - they may withhold reporting it. If a member company is heavily dependent on 1099 labor then they are exempt from reporting as per the forms instructions (a big part of the success of TAPC in the last session) which should also ease concerns for a tremendous number of our association member companies. We are continuing to work prior to the next legislative session and will continue to work during the upcoming session on this issue. We believe the distinction can still be drawn between temporary staffing companies and PEO’s/staff leasing companies and will work to get temporary staffing companies carved out of this reporting requirement.

The above information was pulled from the Comptroller's website and put together for this TAPC analysis. While we are confident in our understanding of the form and its application, we do not intend for this analysis to be relied upon as tax advice and we strongly urge members to read the forms for themselves and seek the appropriate tax advice, as well.


For more information contact:
Helene Cavanaugh, CTS
Executive Director, Texas Association of Personnel Consultants (TAPC)
13121 Louetta Road, Suite 1175
Cypress, Texas 77429
Website: www.tapc.org
Email: tapc4u@sbcglobal.net
1.888.974.2272