Did business contributions to expand a nonprofit day-care center qualify for the former Texas employee child-care franchise-tax credit?

Plain-English summary

General fundraising contributions to expand the nonprofit day-care center did not qualify because the center was not shown to operate primarily for children of employees of the contributing businesses.

Senate Bill 441 provided a credit for qualifying expenditures to establish and operate a day-care center primarily for employees' children, including a center shared by multiple entities that shared its costs. It also covered the purchase of child-care services actually provided to employees' children at a center or family home registered or listed under Human Resources Code Chapter 42.

The nonprofit nursery planned to solicit local businesses for construction, equipment, and furnishing costs for a new 130-child facility serving primarily low-income families. The Comptroller concluded that those contributions did not fit the facility credit because the facts did not show that the expanded center would care primarily for children of employees of the donating corporations.

A corporation that purchased actual child-care services from the nursery for its own employees' children could qualify. The credit was the lesser of $50,000 or 50% of qualifying expenditures, capped at 90% of the corporation's franchise-tax liability.

Currency note: This credit arose under the former franchise tax. Texas replaced that tax with the margin tax effective January 1, 2008; confirm whether any current successor credit exists.

What this means for you

Child-care providers seeking business support

General capital-campaign donations were not enough on these facts. The former facility credit required an employee-child-care purpose tied to the corporations making the expenditures.

Employers purchasing care

Paying for actual care delivered to employees' children was a distinct qualifying route, subject to provider and credit limits.

Common questions

Q: Did business donations for expansion qualify?
A: No, because the center was not shown to serve primarily the donors' employees' children.

Q: Could purchased child-care services qualify?
A: Yes, if actually provided to employees' children at a registered or listed provider.

Q: What was the credit limit?
A: The lesser of $50,000 or 50% of qualifying expenditures, capped at 90% of tax liability.

Citations and references

• Senate Bill 441, 76th Legislature
• Texas Human Resources Code Chapter 42

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9908648L

Original ruling text

August 10, 1999

Dear Ms. **:

You have asked about the S.B. 441 franchise tax credit for establishing a
day-care center or purchasing child-care services.

This credit is available to a corporation for a qualifying expenditure related
to the establishment and operation of a day-care center for the children of
employees of the corporation or of the corporation and one or more other
entities sharing the costs of establishing and operating the center. The
credit is also available to a corporation for the purchase of child-care
services that are actually provided to children of employees of the corporation
at a day-care center or family home that is registered or listed with the
Department of protective and Regulatory Services under Chapter 42 of the Human
Resources Code.

Unfortunately, the franchise tax credit for establishing a day-care center does
not cover your situation involving the solicitation of money to expand your
day-care center. The bill requires the expenditures to be spent on a facility
that is established or operated primarily to provide care for the children of
employees of the corporations making the expenditures. The information
provided does not indicate that your day-care center would care primarily for
the children of employees of the corporations donating money for the cost of
the expenses of expanding your daycare.

If a corporation purchases all or part of the child-care services actually
provided to children of its employees by the NURSERY, then that corporation is
entitled to a credit of the lesser of $50,000 or 50 percent of the
corporation's qualifying expenditures, in an amount not to exceed 90 percent of
the corporation's franchise tax liability.

Should you have further questions, please feel free to contact me at
1-800-531-5441, extension
3-4004.

Sincerely,

Karey W. Barton
Director, Tax Policy

cc: Senator Tom Haywood, District Office
Bryant Lomax, Manager, Tax Policy

June 29, 1999

Karey Barton
Director of Tax Policy
Controller of Public Accounts
P.O. Box 13528
Austin, TX 78711

Dear Mr. Barton:

I appreciate the opportunity to visit with you by telephone regarding the rules
for implementing Senate Bill 441 that was recently passed by the legislature.
In my opinion, this bill will provide great opportunities for businesses to
offer child care for their employees. As we discussed, I have a question
regarding the proposed rules.

The bill offers a franchise tax credit to businesses creating or providing
access to child care for children of their employees. It is my understanding
that qualifying expenses include planning, constructing, renovating, equipping
and operating child care centers for the benefit of a company's employees, or a
center shared with other firms. Could "other firms" be child care centers? In
other words, would financial contributions from businesses to another entity
for constructing or expanding a child care center be considered as meeting the
requirements of this bill? The information that I have on this bill does not
specify that the business providing the money has to be the entity
constructing, renovating or equipping the child care center.

The NURSERY is a non-profit child care provider in CITY. And, we have been in
business, serving primarily low income families, since 1972. We are in the
process of planning a capital campaign to construct a child care center in the
northwest area of town. As a part of our campaign, we will be soliciting
financial participation from local businesses whose employees might utilize
this child care facility for construction, equipment and furnishing costs. If
these contributions qualify for such a tax incentive, it will assist us in
gaining financial participation and will provide needed child care spaces for
130 children.

In our city there are no on-site child care facilities located in businesses.
The one business that attempted to provide this service in the 1980's had to
close it due to the high costs of operation. A collaborative effort between
for-profit businesses and a non-profit child care center to provide additional
child care services is a win-win arrangement for our community.

I would appreciate your immediate response to this question as it could have a
dramatic impact on our fundraising efforts with the business community in CITY.
Thank you again for your consideration and for researching this question for
me.

Sincerely,

Executive Director

cc: Senator Tom Haywood, **