| (a) A corporation in the process of liquidation is required to pay the taxable capital component of the franchise tax only upon its issued capital stock, less liquidating dividends actually paid to the stockholders. Both the president and secretary must, however, execute and file with each tax report filed during the period of liquidation an affidavit stipulating that the corporation is in a bona fide state of liquidation and also stating the amount of issued capital stock and the amount and date(s) of liquidating dividends actually paid to the stockholders. There also must be filed with the first tax report due after entering into the state of liquidation a copy of the plan of liquidation as adopted and ratified by a majority vote of the stockholders. A corporation may gain the benefits of the reduced taxable capital for an annual report if it enters a bona fide state of liquidation prior to January 1 of the reporting year. A corporation may gain the benefits of the
reduced taxable capital for an initial report if it enters a bona fide state of liquidation prior to the first anniversary date of its charter or doing business in Texas or obtaining a certificate of authority, whichever one is applicable. If liquidating dividends paid prior to January 1 or the first anniversary date of any reporting year exceed the amount of issued capital stock, the corporation thereafter will have zero for the taxable capital component of the franchise tax. (b) The terms "process of liquidation" and "bona fide state of liquidation" do not include the dissolution of a corporation by merger or consolidation with another corporation. The terms mean that the corporation in good faith has begun liquidating for the purpose of winding up its business affairs and terminating its legal existence. If the corporation does not terminate its business affairs and dissolve the corporation in accordance with the plan of liquidation, the corporation shall be
liable for the difference in the amount of tax reported and paid pursuant to the plan of liquidation and the amount of tax that otherwise should have been reported and paid, plus applicable penalties and interest on such difference.
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