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TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER VFRANCHISE TAX
RULE §3.584Margin: Reports and Payments

(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 those businesses under SIC Manual, Major Group 58 (Eating and Drinking Places). A product is not considered to be produced if modifications made to the acquired product do not increase its sales price by more than 10%; and

    (C) the taxable entity does not provide retail or wholesale utilities, including telecommunications services, electricity, or gas.

  (3) 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.

  (4) SIC Manual--The 1987 Standard Industrial Classification Manual published by the federal Office of Management and Budget.

  (5) Wholesale trade--The activities described in Division F of the SIC Manual.

  (6) Unrelated party--With respect to a taxable entity, an entity that is not part of the same affiliated group, as defined in §3.590(b)(1) of this title (relating to Margin: Combined Reporting).

(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 Extensions), 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) Transition. See §3.595 of this title (relating to Margin: Transition) for transitional information concerning tax rates and privilege periods as a result of certain legislative changes.

  (7) 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.

  (8) Passive entities. See §3.582 of this title, for information concerning the reporting requirements for a passive entity.

  (9) 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.

  (10) New veteran-owned businesses. See §3.574 of this title for information concerning the reporting requirements for a qualifying new veteran-owned business.

  (11) 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.

  (12) 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:

      (i) a tax rate of 1.0% of taxable margin applies to most taxable entities; and

      (ii) a tax rate of 0.5% of taxable margin applies to taxable entities primarily engaged in retail or wholesale trade.

    (B) For reports originally due on or after January 1, 2014, but before January 1, 2015:

      (i) a tax rate of 0.975% of taxable margin applies to most taxable entities; and

      (ii) a tax rate of 0.4875% of taxable margin applies to taxable entities primarily engaged in retail or wholesale trade.

    (C) For reports originally due on or after January 1, 2015, but before January 1, 2016:

      (i) a tax rate of 0.95% of taxable margin applies to most taxable entities; and

      (ii) a tax rate of 0.475% of taxable margin applies to taxable entities primarily engaged in retail or wholesale trade.

    (D) For reports originally due on or after January 1, 2016:

      (i) a tax rate of 0.75% of taxable margin applies to most taxable entities; and

      (ii) a tax rate of 0.375% of taxable margin applies to taxable entities primarily engaged in retail or wholesale trade.

  (3) Annualized Total Revenue. When the accounting period on which a report is based is more or less than 12 months, a taxable entity must annualize its total revenue to determine its eligibility for the no tax due threshold, discounts, and E-Z Computation. The amount of total revenue used in the actual tax calculations will not change as a result of annualizing revenue. To annualize total revenue, an entity will divide total revenue by the number of days in the period upon which the report is based, and then multiply the result by 365. Examples are as follows:

Cont'd...

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