| (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) Capital asset--Any asset that is held for use in
the production of income, and that is subject to depreciation, depletion
or amortization.
(2) Employee retirement plan--A plan or other arrangement
that qualifies under Internal Revenue Code (IRC), §401(a) (Qualified
pension, profit-sharing, and stock bonus plans), or that satisfies
the requirement of IRC, §403 (Taxation of employee annuities),
or a government plan described in IRC, §414(d) (Definitions and
special rules).
(3) Gross receipts--Revenue as determined under §3.587
of this title (relating to Margin: Total Revenue), except as provided
in subsection (e)(2) (concerning capital assets and investments) and
subsection (e)(17) (concerning loans and securities) of this section.
Non-receipt items excluded from total revenue under §3.587 of
this title are not included in the calculation of total revenue under
that section and are not deducted from gross receipts. These non-receipt
items include the exclusion for uncompensated care, the $500 exclusion
per pro bono services case, the exclusion for the direct cost of providing
waterway transportation, the exclusion for the direct cost of providing
agricultural aircraft services, and the exclusion for the cost of
a vaccine. See subsection (d)(5) of this section for gross receipts
that are excluded from the apportionment calculation.
(4) Internal Revenue Code--The Internal Revenue Code
of 1986 in effect for the federal tax year beginning on January 1,
2007, not including any changes made by federal law after that date,
and any regulations adopted under that code applicable to that period.
(5) Inventory--Property held primarily for sale to
customers in the ordinary course of a trade or business. Securities
and loans held for investment, hedging, or risk management purposes
are not inventory.
(6) Investment--Any non-cash asset that is not a capital
asset or inventory.
(7) Legal domicile--The legal domicile of a corporation
or limited liability company is its state of formation. The legal
domicile of a partnership, trust, or joint venture is the principal
place of business of the partnership, trust, or joint venture.
(8) Location of payor--The legal domicile of the payor.
(9) Principal place of business--The place where an
entity's management directs, controls, and coordinates the entity's
activities.
(10) Regulated investment company--Any domestic corporation
defined under IRC, §851(a) (Definition of regulated investment
company), including a taxable entity that includes trustees or sponsors
of employee benefit plans that have accounts in a regulated investment
company.
(11) Security--An instrument defined under IRC, §475(c)(2)
(Mark to market accounting method for dealers in securities). This
term includes instruments described by §475(e)(2)(B), (C), and
(D) of that code.
(12) Tax reporting period--The period upon which the
tax is based under Tax Code, §171.1532 (Business on Which Tax
on Net Taxable Margin Is Based) or §171.0011 (Additional Tax).
(13) Taxable entity--Any entity upon which tax is imposed
under Tax Code, §171.0002(a) (Definition of Taxable Entity) and
not specifically excluded under Tax Code, §171.0002(b) or §171.0002(c).
See also §3.581 of this title (relating to Margin: Taxable and
Nontaxable Entities).
(14) Texas gross receipts--The portion of a taxable
entity's gross receipts that is from business done in Texas.
(c) Apportionment formula. Except as provided in paragraphs
(1) and (2) of this subsection, a taxable entity's margin is apportioned
to Texas to determine the amount of franchise tax due by multiplying
the taxable entity's margin by a fraction, the numerator of which
is the taxable entity's Texas gross receipts and the denominator of
which is the taxable entity's gross receipts from its entire business.
(1) Regulated investment company services. A taxable
entity's margin derived, directly or indirectly, from the sale of
management, distribution, or administration services to or on behalf
of a regulated investment company, is apportioned to Texas by multiplying
that portion of the taxable entity's total margin by a fraction:
(A) the numerator of which is the average of the sum
of shares owned at the beginning of the year and the sum of the shares
owned at the end of the year by the investment company shareholders
whose principal place of business is in this state or, if the shareholders
are individuals, are residents of this state; and
(B) the denominator of which is the average of the
sum of shares owned at the beginning of the year and the sum of shares
owned at the end of the year by all investment company shareholders.
(2) Employee retirement plan services. A taxable entity's
margin derived, directly or indirectly, from the sale of management,
administration, or investment services to an employee retirement plan
is apportioned to Texas by multiplying that portion of the taxable
entity's total margin by a fraction:
(A) the numerator of which is the average of the sum
of beneficiaries domiciled in Texas at the beginning of the year and
the sum of beneficiaries domiciled in Texas at the end of the year;
and
(B) the denominator of which is the average of the
sum of all beneficiaries at the beginning of the year and the sum
of all beneficiaries at the end of the year.
(d) General rules for reporting gross receipts.
(1) A taxable entity that files an annual report must
report gross receipts based on the business done by the taxable entity
beginning with the day after the date upon which the previous report
was based, 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.
(2) A taxable entity with a beginning date prior to
October 4, 2009 that files an initial report must report gross receipts
based on its activities commencing with the beginning date, as described
in §3.584 of this title (relating to Margin: Reports and Payments),
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. A taxable entity with a beginning date on or
after October 4, 2009 that files a first annual report must report
gross receipts based on its activities commencing with the beginning
date and ending on the last accounting period ending date for federal
income tax purposes in the same calendar year as the beginning date.
(3) Taxable entities that are members of an affiliated
group that are part of a unitary business must file a combined franchise
tax report. See §3.590 of this title (relating to Margin: Combined
Reporting), for determining gross receipts for a combined report.
(4) When a taxable entity computes gross receipts for
apportionment, the taxable entity is deemed to have elected to use
the same methods that the taxable entity used in filing its federal
income tax return.
(5) Any item of revenue that is excluded from total
revenue under Texas law or United States law is excluded from gross
receipts from an entity's entire business and Texas gross receipts
as provided by Tax Code, §171.1055(a) (Exclusion of Certain Receipts
for Margin Apportionment). For example, any amount that is excluded
from total revenue under the IRC, §78 (Dividends received from
certain foreign corporations by domestic corporations choosing foreign
tax credit) or §§951 - 964 (26 U.S. Code Subpart F - Controlled
Foreign Corporations), is excluded from gross receipts. Non-receipt
items that are excluded from total revenue under §3.587 of this
title, such as $500 per pro bono services case; the actual cost of
uncompensated care; the direct cost of providing waterway transportation;
the direct cost of providing agricultural aircraft services and the
cost of a vaccine, are not deducted from gross receipts under this
section. See subsection (b)(3) of this section, concerning definition
of gross receipts. For example, under Tax Code, §171.1011(g-3)
(Determination of Total Revenue from Entire Business), an attorney
may exclude $500 from total revenue for handling a pro bono case.
Since the $500 is not a receipt, there is no exclusion for pro bono
work when calculating gross receipts. Therefore, if a taxable entity
starts with its total revenue amount to calculate its gross receipts,
the taxable entity must add back the $500 per pro bono services case.
Cont'd... |
