<<Prev Rule

Texas Administrative Code

Next Rule>>
TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER VFRANCHISE TAX
RULE §3.590Margin: Combined Reporting

  (3) Combined compensation. The combined group may not subtract in relation to a person, more than the wages and cash compensation limitation provided in §3.589(c)(1) of this title (relating to Margin: Compensation), per 12-month period on which margin is based. A combined group that elects to subtract compensation shall determine that amount by:

    (A) determining the compensation for each of its members as provided by Tax Code, §171.1013 and §3.589 of this title, as if each member were an individual taxable entity;

    (B) adding the amounts of compensation determined under subparagraph (A) of this paragraph, together; and

    (C) subtracting from the amount determined under subparagraph (B) of this paragraph, any compensation amounts paid from one member of the combined group to another member of the combined group, but only to the extent the corresponding item of total revenue was subtracted under paragraph (1)(C) of this subsection.

  (4) Combined groups are eligible to use the 70% of revenue calculation pursuant to Tax Code, §171.101 or, if qualified, the E-Z Computation pursuant to Tax Code, §171.1016. See §3.584 of this title (relating to Margin: Reports and Payments).

  (5) Combined apportionment.

    (A) The combined margin is generally apportioned in accordance with §3.591 of this title (relating to Margin: Apportionment).

    (B) Except as provided in subparagraph (D) of this paragraph, gross receipts from business done in this state of taxable entities without nexus individually in Texas are excluded from the numerator. For example, sales of tangible personal property shipped into Texas by a member that does not have nexus individually are excluded from the numerator but are included in the denominator.

    (C) For each member of the combined group that does not have nexus individually with this state for purpose of taxation, a combined group must, for information purposes only, include in a report filed under Tax Code, §171.201 or §171.202:

      (i) the member's gross receipts from business done in this state; and

      (ii) the member's gross receipts from business done in this state that are subject to taxation in another state under a throwback law or regulation.

    (D) Receipts derived from transactions between members of a combined group that are excluded under Tax Code, §171.1014(c)(3), may not be included in the numerator or denominator of the apportionment factor. However, the numerator of the apportionment factor will include certain sales of tangible personal property made to third party purchasers if the tangible personal property is ultimately delivered to a purchaser in Texas without substantial modification. See Tax Code, §171.1055(b). For example, drop shipments made from a Texas location to a Texas purchaser would be included in Texas receipts based on the amount billed to the third party purchaser if the seller is a member of the combined group and the seller does not have nexus.

  (6) Disregarded entities. When reporting revenue, cost of goods sold, compensation and gross receipts for a disregarded entity, that information may be included with the parent; in that event, both entities are presumed to have nexus.

(e) Reporting entity.

  (1) Responsibilities of the reporting entity.

    (A) Access to records. In addition to the information required to be included in the combined group report, upon request of the comptroller, the reporting entity shall provide access to the tax, financial, and nonfinancial records of entities that do and do not have Texas nexus.

    (B) Filing. The reporting entity shall file a combined group report on behalf of the combined group together with all reports and schedules required by the comptroller. Any elections required by the combined group are binding on all members of the group.

    (C) Payment. The reporting entity shall timely remit to the comptroller the Texas franchise tax imposed on the combined group.

    (D) Authority. The reporting entity may file refund claims, give waivers and execute agreements on behalf of the combined group. Any refund claim, waiver given, agreement or any document executed, shall be considered as having also been given or executed by each combined group member.

  (2) Notices. Notices mailed to the reporting entity shall be deemed to have been mailed to each of the taxable entities in the combined group.

  (3) Change in the reporting entity. The reporting entity shall change only when the entity (other than the parent) is no longer subject to Texas' jurisdiction to tax or the reporting entity is no longer a member of the combined group, at which time the combined group shall designate another entity that qualifies as its reporting entity and notify the comptroller of the designation.

(f) Accounting period of the combined group.

  (1) The combined group's accounting period is determined as follows:

    (A) if two or more members of a combined group file a federal consolidated return, the group's accounting period is the federal taxable period of the federal consolidated group;

    (B) in all other instances, the accounting period is the federal taxable period of the reporting entity.

  (2) Members with different accounting periods. If the federal taxable period of a member differs from the federal taxable period of the combined group, the reporting entity will determine the portion of that member's revenue, cost of goods sold, compensation, etc. to be included by preparing a separate income statement based on federal income tax reporting methods for the period included in the group's accounting period.

(g) Liability for the combined tax, penalty, and interest. The members of a combined group shall be jointly and severally liable for the combined tax reported on the combined report and any interest and penalty.

(h) Credits. Unless otherwise provided by law, credits generally may be applied against the combined tax liability of the combined group. See §3.594 of this title (relating to Margin: Temporary Credit for Business Loss Carryforwards), and §3.593 of this title (relating to Margin: Credits).

(i) Standard Industrial Classification Code. For a combined group, the revenue from each retail and wholesale trade activity of each of the members of the combined group shall be aggregated for purposes of determining whether the combined group is engaged in retail or wholesale trade. The determination of whether a combined group is engaged in a retail or wholesale trade activity shall be made after eliminations.

(j) Tax rate, discounts, and E-Z Computation. The determination of whether a combined group is eligible for the 0.5% tax rate, discounts from tax liability, and the E-Z Computation under Tax Code, §§171.002, 171.0021, and 171.1016, shall be made based on the total revenue of the combined group as a whole after eliminations. See §3.584 of this title.

(k) Combined report filing. A taxable entity will only be included in a combined group report for the accounting period in which it belongs to the combined group.

  (1) Initial reports.

    (A) Combined groups. A combined group will not file an initial report. For the period that a combined group exists, the combined group will file only annual reports regardless of whether the reporting entity or any or all of the members of the combined group would have been required to file an initial report if filing as a separate entity.

    (B) Members of a combined group. This subparagraph applies to members of a combined group that became subject to the franchise tax prior to October 4, 2009. Members of a combined group that become subject to the tax on October 4, 2009 or later will file only annual reports (see paragraph (2)(B) of this subsection).

      (i) A newly-formed member of a combined group will not report its data on a separate initial report but will include its data with the combined group's report for the corresponding accounting period. If a member of a combined group receives a franchise tax initial report filing notice, the entity must return the notice to the comptroller identifying the reporting entity of the combined group unless the entity is required to file a separate initial report under clause (ii) or (iii) of this subparagraph.

      (ii) A newly formed member of a combined group that leaves the combined group during the accounting period that would be covered by its initial report is required to file a separate initial report for the period beginning on the date it leaves the group through the date of its last federal accounting year end that is at least 60 days prior to the original due date of its initial report. Example: Corporation A is formed on April 3, 2009 as a member of Combined Group Z. It is spun off as a separate non-unitary entity effective August 15, 2009. The federal accounting year end for all parties is December 31. Corporation A will file a 2010 initial report due July 1, 2010 for August 15, 2009 - December 31, 2009, the period after the spin-off of the corporation. Combined Group Z will file a 2010 annual report including Corporation A for April 3, 2009 - August 14, 2009, the period before the spin-off of the corporation.

      (iii) A newly-formed entity that is subsequently acquired by a combined group is required to file a separate initial report for the period that is prior to the acquisition date. Example: Corporation A is a separate entity that was formed on November 15, 2008 and has a June 30 federal accounting year end. Corporation A was acquired by Combined Group Z effective February 1, 2009. Combined Group Z has a December 31 federal accounting year end. Corporation A will file a 2010 initial report due February 12, 2010. Because Corporation A was acquired by Combined Group Z effective February 1, 2009, Corporation A will include only the period from November 15, 2008 - January 31, 2009 on its initial report. Combined Group Z will file a 2010 annual report including Corporation A for the period February 1, 2009 - December 31, 2009.

  (2) Annual reports.

    (A) Combined groups. For the period that a combined group exists, the combined group will file only annual reports.

    (B) Members of a combined group.

      (i) For any accounting period that an entity is not part of a combined group, the entity must file a separate report. Example: Corporation B is a separate entity that began filing franchise tax reports in 2000 and has a December 31 federal accounting year end. Corporation B was acquired by Combined Group X effective July 1, 2009. Combined Group X has a March 31 federal accounting year end. Corporation B is sold by Combined Group X to Combined Group Y effective October 1, 2009. Combined Group Y has a December 31 federal accounting year end. Corporation B will file a 2010 annual report for the period January 1, 2009 - June 30, 2009. Combined Group X will file a 2010 annual report for the period April 1, 2008 - March 31, 2009. Combined Group X will not include Corporation B in its 2010 annual report because Corporation B was not part of the combined group during the accounting period on which the report is based. Combined Group X will include Corporation B in its 2011 annual report for the period July 1, 2009 - September 30, 2009. Combined Group Y will file a 2010 annual report for the period January 1, 2009 - December 31, 2009 and will include Corporation B for the period October 1, 2009 - December 31, 2009.

      (ii) A taxable entity formed on October 4, 2009, or later, that is a member of a combined group and that leaves the combined group during the accounting period that would be covered by its first annual report, is required to file a separate annual report for the period beginning on the date it leaves the group through the date of its last federal accounting year end in the calendar year prior to the year its first annual report is originally due. Example: Corporation A is formed on April 3, 2010 as a member of Combined Group Z. It is spun off as a separate non-unitary entity effective August 15, 2010. The federal accounting year end for all parties is December 31. Corporation A will file a 2011 annual report due May 15, 2011 for August 15, 2010 - December 31, 2010, the period after the spin-off of the corporation. Combined Group Z will file a 2010 annual report including Corporation A for April 3, 2010 - August 14, 2010, the period before the spin-off of the corporation.

      (iii) A taxable entity formed on October 4, 2009, or later, and is subsequently acquired by a combined group is required to file a first annual report for the period that is prior to the acquisition date. Example: Corporation A is a separate entity that was formed on June 15, 2010 and has a December 31 federal accounting year end. Corporation A was acquired by Combined Group Z effective December 1, 2010. Combined Group Z has a December 31 accounting year end. Corporation A will file a 2011 annual report due May 15, 2011. Because Corporation A was acquired by Combined Group Z effective December 1, 2010, Corporation A will include only the period from June 15, 2010 - November 30, 2010 on its annual report. Combined Group Z will file a 2010 annual report including Corporation A for the period December 1, 2010 - December 31, 2010.

  (3) Final reports.

    (A) Combined groups. If every member of a combined group ceases doing business in Texas, a final report will need to be filed and paid before a taxable entity will receive clearance from the comptroller for termination, cancellation, withdrawal or merger. In all other cases, for the period a combined group exists, the combined group will file only annual reports.

    (B) Members of a combined group.

Cont'd...

Next Page Previous Page

Link to Texas Secretary of State Home Page | link to Texas Register home page | link to Texas Administrative Code home page | link to Open Meetings home page