| (f) Indirect or administrative overhead costs. A taxable
entity may subtract as a cost of goods sold service costs, as defined
in subsection (b)(9) of this section, that it can demonstrate are
reasonably allocable to the acquisition or production of goods. The
amount subtracted may not exceed 4.0% of total indirect and administrative
overhead costs.
(1) Any costs already subtracted under subsections
(d) or (e) of this section may not be subtracted under this subsection.
(2) Any costs excluded under subsection (g) of this
section may not be subtracted under this subsection.
(g) Costs not included. The cost of goods sold does
not include the following costs in relation to the taxable entity's
goods:
(1) the cost of renting or leasing equipment, facilities,
or real property that is not used for the production of the goods;
(2) selling costs, including employee expenses related
to sales;
(3) distribution costs, including outbound transportation
costs;
(4) advertising costs;
(5) idle facility expenses;
(6) rehandling costs;
(7) bidding costs, which are the costs incurred in
the solicitation of contracts ultimately awarded to the taxable entity;
(8) unsuccessful bidding costs, which are the costs
incurred in the solicitation of contracts not awarded to the taxable
entity;
(9) interest, including interest on debt incurred or
continued during the production period to finance the production of
the goods;
(10) income taxes, including local, state, federal,
and foreign income taxes, and franchise taxes that are assessed on
the taxable entity based on income;
(11) strike expenses, including costs associated with
hiring employees to replace striking personnel, but not including
the wages of the replacement personnel, costs of security, and legal
fees associated with settling strikes;
(12) officers' compensation;
(13) costs of operation of a facility that is:
(A) located on property owned or leased by the federal
government; and
(B) managed or operated primarily to house members
of the armed forces of the United States;
(14) any compensation paid to an undocumented worker
used for the production of goods, provided that, as used in this paragraph
only, the following terms shall have the following meanings:
(A) "undocumented worker" means a person who is not
lawfully entitled to be present and employed in the United States;
and
(B) "goods" includes the husbandry of animals, the
growing and harvesting of crops, and the severance of timber from
realty; and
(15) costs funded by a partnership contribution, to
the extent that the contributing taxable entity made the cost of goods
sold deduction under subsection (d)(13) of this section.
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| Source Note: The provisions of this §3.588 adopted to be effective January 1, 2008, 32 TexReg 10034; amended to be effective May 21, 2009, 34 TexReg 2982; amended to be effective June 5, 2013, 38 TexReg 3415; amended to be effective July 13, 2016, 41 TexReg 5073; amended to be effective March 22, 2018, 43 TexReg 1640 |
