| (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 margin is computed.
If the period used to compute business done for purposes of the annual
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 annual 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 annual report. The privilege period for an annual
report is January 1 through December 31 of the year in which the annual
report is originally due.
(4) Final report. A final tax report and payment of
the additional tax are due within 60 days after the taxable entity
no longer has sufficient nexus with Texas to be subject to the franchise
tax. See §3.592 of this title (relating to Margin: Additional
Tax) for further information concerning the additional tax imposed
by Tax Code, §171.0011.
(5) Extensions.
(A) Annual report. See §3.585 of this title (relating
to Margin: Annual Report Extension), for extensions of time to file
an annual report, including the first annual report.
(B) Final report. A taxable entity will be granted
a 45-day extension of time to file a final report, if the taxable
entity:
(i) requests the extension on or before the filing
date;
(ii) requests the extension on a form provided by the
comptroller; and
(iii) remits 90% or more of the tax reported as due
on the final report.
(6) Nontaxable entities. See §3.581 of this title
(relating to Margin: Taxable and Nontaxable Entities) for information
concerning nontaxable entities. Except for passive entities (see §3.582
of this title (relating to Margin: Passive Entities)), a nontaxable
entity that has not notified the comptroller or the secretary of state
that it is doing business in Texas, or that has previously notified
the comptroller that it is not taxable, must notify the comptroller
in writing only when the entity no longer qualifies as a nontaxable
entity. If an entity receives notification in writing from the comptroller
asking for information to determine if the entity is a taxable entity,
the entity must reply to the comptroller within 30 days of the notice.
(7) Passive entities. See §3.582 of this title,
for information concerning the reporting requirements for a passive
entity.
(8) Combined reporting. Taxable entities that are part
of an affiliated group engaged in a unitary business must file a combined
group report in lieu of individual reports, except that a public information
report or ownership information report must be filed for each member
of the combined group with nexus. See §3.590 of this title for
rules on filing a combined report.
(9) New veteran-owned businesses. See §3.574 of
this title for information concerning the reporting requirements for
a qualifying new veteran-owned business.
(10) Date of filing. See §3.13 (relating to Postmarks,
Timely Filing of Reports, and Timely Payment of Taxes and Fees) for
information concerning the requirements for timely filing.
(11) Receivership. It is the responsibility of a receiver
to file franchise tax reports and pay the franchise tax of a taxable
entity in receivership. A debtor in possession or the appointed trustee
or receiver of a taxable entity in reorganization or arrangement proceedings
under the Bankruptcy Act is responsible for filing franchise tax reports
and paying the franchise tax pursuant to the plan of reorganization
or arrangement.
(d) Calculation of tax.
(1) Margin computation. A taxable entity's margin equals
the least of the following calculations, if eligible:
(A) For reports originally due on or after January
1, 2008, and before January 1, 2014:
(i) total revenue minus cost of goods sold;
(ii) total revenue minus compensation; or
(iii) 70% of total revenue.
(B) For reports originally due on or after January
1, 2014:
(i) total revenue minus cost of goods sold;
(ii) total revenue minus compensation;
(iii) 70% of total revenue; or
(iv) total revenue minus $1 million.
(2) Rate. Except as provided by paragraph (6) of this
subsection:
(A) For reports originally due on or after January
1, 2008, but before January 1, 2014:
Cont'd... |
