(a) Effective date. The provisions of this section apply to franchise tax reports originally due on or after January 1, 2008, except as otherwise noted.
(b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.
  (1) Beginning date--
    (A) except as provided by subparagraph (B) of this paragraph:
      (i) for a taxable entity chartered or organized in this state, the date on which the taxable entity's charter or organization takes effect; and
      (ii) for a foreign taxable entity, the date on which the taxable entity begins doing business in this state; or
    (B) for a taxable entity that qualifies as a new veteran-owned business, as defined in §3.574 of this title (relating to Margin: New Veteran-Owned Businesses), the earlier of:
      (i) the fifth anniversary of the date on which the taxable entity was chartered, organized, or otherwise formed in Texas; or
      (ii) the date the taxable entity ceases to qualify as a new veteran-owned business.
  (2) Primarily engaged in retail or wholesale trade--A taxable entity is primarily engaged in retail or wholesale trade only if:
    (A) the total revenue from the taxable entity's activities in retail and wholesale trade is greater than the total revenue from its activities in trades other than retail and wholesale trade;
    (B) less than 50% of the total revenue from the taxable entity's activities in retail or wholesale trade comes from the sale of products the taxable entity produces or products produced by an entity that is part of an affiliated group to which the taxable entity also belongs, except for total revenue from activities in a retail trade described by Major Group 58 (Eating and Drinking Places) of the SIC Manual; and
    (C) the taxable entity does not provide retail or wholesale utilities, including telecommunications services, electricity, or gas. For purposes of this subparagraph, selling telephone prepaid calling cards is not providing telecommunications services.
  (3) Produce--To construct, manufacture, install during the manufacturing or construction process, develop, mine, extract, improve, create, raise, or grow either a product or a component of a product.
    (A) A taxable entity produces a product that it sells if the taxable entity or an entity that is part of an affiliated group to which the taxable entity also belongs:
      (i) asserts a software copyright with respect to the product or a component of the product;
      (ii) asserts a patent right under Title 35 of the United States Code or comparable law of a foreign jurisdiction with respect to the product, a component of the product, or the packaging of the product; or
      (iii) produces a component of the product, or acquires the product and makes a modification to the product, unless the taxable entity can demonstrate that the component or modification does not increase the sales price of the product by more than 10%.
    (B) Except as provided in subparagraph (A) of this paragraph, a taxable entity does not produce a product that it sells if an unrelated party manufactures the product and all components of the product to the taxable entity's specifications.
  (4) Product--Tangible personal property acquired or produced for sale.
    (A) Tangible personal property--
      (i) personal property that can be seen, weighed, measured, felt, or touched or that is perceptible to the senses in any other manner;
      (ii) films, sound recordings, videotapes, live and prerecorded television and radio programs, books, and other similar property embodying words, ideas, concepts, images, or sound, without regard to the means or methods of distribution or the medium in which the property is embodied, for which, as costs are incurred in producing the property, it is intended or is reasonably likely that any medium in which the property is embodied will be mass-distributed by the creator or any one or more third parties in a form that is not substantially altered; and
      (iii) a computer program, as defined by Tax Code, §151.0031 ("Computer Program").
    (B) Tangible personal property does not include:
      (i) intangible property; or
      (ii) services.
  (5) Retail trade--
    (A) for reports originally due on or after January 1, 2008, and before January 1, 2012, the activities described in Division G of the SIC Manual;
    (B) for reports originally due on or after January 1, 2012, and before January 1, 2014:
      (i) the activities described in Division G of the SIC Manual; and
      (ii) apparel rental activities classified as Industry 5999 or 7299 of the SIC Manual; and
    (C) for reports originally due on or after January 1, 2014:
      (i) the activities described in Division G of the SIC Manual;
      (ii) apparel rental activities classified as Industry 5999 or 7299 of the SIC Manual;
      (iii) the activities classified as Automotive Repair Shops, Industry Group 753 of the SIC Manual;
      (iv) rental-purchase agreement activities regulated by Business & Commerce Code, Chapter 92;
      (v) rental or leasing of tools, party and event supplies, and furniture, classified as Industry 7359 of the SIC Manual; and
      (vi) heavy construction equipment rental or leasing activities, classified as Industry 7353 of the SIC Manual.
  (6) SIC Manual--The 1987 Standard Industrial Classification Manual published by the federal Office of Management and Budget.
  (7) Wholesale trade--The activities described in Division F of the SIC Manual.
  (8) Unrelated party--With respect to a taxable entity, an entity that for any period during which the entity does not meet the requirements to be a member of the same affiliated group, as defined in §3.590(b)(1) of this title (relating to Margin: Combined Reporting), as such taxable entity.
(c) Reports and due dates.
  (1) Initial report. For taxable entities with a beginning date prior to October 4, 2009, both the initial report and payment of the tax due, if any, are due no later than 89 days after the first anniversary date of the beginning date. The taxable margin computed on the initial report is based on the business done during the period beginning on the beginning date and ending on the last accounting period ending date for federal income tax purposes that is at least 60 days before the original due date of the initial report, or, if there is no such ending date, then ending on the day that is the last day of the calendar month nearest to the end of the taxable entity's first year of business. If the period used to compute business done for purposes of the initial report differs from the taxable entity's last accounting period for federal income tax purposes, then the taxable entity's total revenue for purposes of the initial report shall be computed as if the taxable entity had reported its federal taxable income on an Internal Revenue Service form covering the period used to compute business done for purposes of the initial report. The privilege period for the initial report is from the beginning date through December 31 of the year in which the initial report is originally due.
  (2) First annual report. For taxable entities with a beginning date of October 4, 2009, or later, both the first annual report and payment of the tax due, if any, are due no later than May 15 of the year following the year the entity became subject to the tax (i.e., the beginning date). The taxable margin computed on the first annual report is based on the business done during the period beginning on the beginning date and ending on the last accounting period ending date for federal income tax purposes that is in the same calendar year as the beginning date. The privilege period for the first annual report is from the beginning date through December 31 of the year in which the first annual report is originally due.
  (3) Annual report. The annual franchise tax report must be filed and the tax paid no later than May 15 of each year. The taxable margin computed on an annual report is based on the business done during the period beginning with the day after the last date upon which tax was computed under Tax Code, Chapter 171 on a previous report, and ending with the last accounting period ending date for federal income tax purposes ending in the calendar year before the calendar year in which the report is originally due, or, if there is no such ending date, then ending on December 31 of the calendar year before the calendar year in which the report is originally due. A taxable entity that uses a 52 - 53 week accounting year end and has an accounting year ending the first four days of January of the year in which the annual report is originally due may use the preceding December 31 as the date through which taxable Cont'd...