In 2006, the Texas Legislature passed House Bill 3, which substantially revises the existing franchise tax by expanding the types of businesses that are subject to the tax, expanding the tax base, and eliminating a number of credit provisions previously included in Chapter 171 of the Texas Tax Code. Notably, HB 3 subjects partnerships to the new Texas franchise tax (a.k.a., the “margin tax”), exempts “passive” entities, and introduces combined reporting for certain affiliated entities. The 2007 Texas Legislature recently passed a technical corrections bill, HB 3928, making a number of revisions to the new margin tax. Part Two of this article will appear in the fall/winter issue of the Journal.

The New and Evolving Texas Margin Tax, Part 1. Pulman, Charles D. and Colmenero, David E., Summer 2007, pp. 1‑42.

Regulators in many international jurisdictions have recently voiced explicit concerns about the credibility of the financial reporting system. Some of these concerns relate to the allegation that a number of firms are engaging in earnings management behavior. This paper provides an overview of the issues associated with earnings management, summarizes the research findings on these issues, discusses the implications of the research findings for standard setters and other constituencies, and provides suggestions for future directions.

The Impact of Earnings Management on the Credibility of Corporate Financial Reporting. Spear, Nasser, Summer 2007, pp. 43‑52.

Because most oil and gas companies have operations or interests of some kind in multiple countries, the industry is very concerned with the movement toward international harmonization of accounting standards. Many companies now must report to local governments for foreign operations using standards different than their home country standards. Companies should expect more changes as we grow closer to international convergence of financial reporting.

International Harmonization of Accounting Standards: What Does It Mean for the Oil Industry? Nichols, Linda M., Summer 2007, pp. 53‑66.

World oil demands have been forecast to grow by 60% by 2030. This increasing demand, coupled with decreasing reserves, means that access to future oil supplies will be of enhanced concern to western governments from both a military and a political perspective. The ongoing conflict in Iraq, with its consequent impact on oil price rises and volatility, may be testimony to this concern. This article assesses the efficiency of international oil markets to assimilate US announcement information during conflict and non-conflict periods over an extended period of time.

The Efficiency of International Oil Markets in Incorporating US Announcements during Conflict and Non-Conflict Periods. Guidi, Marco G. D.; Russell, Alexander; and Tarbert, Heather, Summer 2007, pp. 67‑86.

The publication of FASB Statement No. 158, “Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans,” by the Financial Accounting Standards Board (FASB) is expected to have a significant impact on financial reporting for oil and gas companies with defined benefit pension and other post-retirement plans. FASB Statement No. 158 amends FAS Nos. 87, 88, 106, and 132(R) relative to defined benefit pension and defined benefit post-retirement plans.

The Impact of FASB Statement No. 158 on Oil and Gas Company Financial Statements and Financial Ratios. McAllister, Brian P.; Jarnagin, Bill D.; and Orchard, Lou X., Summer 2007, pp. 87‑103.

The partnership has for many years been a favorite vehicle for conducting oil and gas drilling ventures. Promoters of partnerships have long accepted interests providing a share of future profits of the entity in exchange for their services. They have done so without current income taxation. That could change if proposed Treasury Regulations are finalized. Anyone participating in the organization of a partnership or involved in operations of an existing partnership should, therefore, take note of the proposed regulations.

IRS Proposals Could Tax Partnership Interests Received by Promoters. Davis, Jr., C. Clinton, Summer 2007, pp. 104‑127.

After only one year, Alaska's new governor is calling for a special legislative session to review the petroleum profits tax (PPT). The PPT legislation is not performing as expected—government revenues are significantly lower than what was forecast.

Update on Alaska's Petroleum Profits Tax. Johnston, Daniel, Summer 2007, pp. 128‑137.