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(iii)net distributive income from a taxable entity treated as a partnership or as an S corporation for federal income tax purposes, except as provided by subsection (c)(4) of this section; (iv)items of income attributable to an entity that is a disregarded entity for federal income tax purposes; and (v)other amounts authorized by subsection (e) of this section. (5)Single member limited liability company (LLC) filing as a sole proprietorship. For the purpose of computing its taxable margin, the total revenue of a taxable entity registered as a single member limited liability company and filing as a sole proprietorship for federal income tax purposes is computed by: (A)adding: (i)the amount reportable as income on line 3 of Internal Revenue Service, Form 1040, Schedule C; (ii)the amount reportable as income on line 17, Internal Revenue Service Form 4797, to the extent that it relates to the LLC; (iii)ordinary income or loss from partnerships, S corporations, estates and trusts, Internal Revenue Service Form 1040, Schedule E, to the extent that it relates to the LLC; (iv)the amount reportable as income on line 16 of Internal Revenue Service Form 1040, Schedule D, to the extent that it relates to the LLC; (v)the amounts reportable as income on lines 3 and 4, Internal Revenue Service Form 1040, Schedule E, to the extent that it relates to the LLC; (vi)the amounts reportable as income on line 11, plus line 2 or line 45, Internal Revenue Service Form 1040, Schedule F, to the extent that it relates to the LLC; (vii)the amount reportable as income on line 6 of Internal Revenue Service Form 1040, Schedule C, that has not already been included in this subparagraph; and (viii)any total revenue reported by a lower tier entity as includable in the taxable entity's total revenue under Tax Code, §171.1015(b); and (B)subtracting, to the extent included in the calculation under subparagraph (A) of this paragraph: (i)bad debt expensed for federal income tax purposes that corresponds to items of gross receipts included for the current reporting period or a past reporting period; (ii)foreign royalties and foreign dividends from an affiliated taxable entity that does not transact a substantial portion of its business or regularly maintain a substantial portion of its assets in the United States, including amounts determined under Internal Revenue Code, §78 or §§951 - 964; (iii)net distributive income from a taxable entity treated as a partnership or as an S corporation for federal income tax purposes, except as provided by subsection (c)(4) of this section; (iv)items of income attributable to an entity that is a disregarded entity for federal income tax purposes; and (v)other amounts authorized by subsection (e) of this section. (6)Other taxable entities. For a taxable entity other than a taxable entity treated for federal income tax purposes as a corporation, S corporation, partnership, trust, or single member limited liability company filing as a sole proprietorship, the total revenue will be an amount determined in a manner substantially equivalent to the amount calculated for the entities listed in this subsection. (e)Exclusions from total revenue. Except as otherwise provided in this section and only to the extent included in the calculation of total revenue under subsection (d)(1) - (6) of this section, the following items shall be excluded from total revenue: (1)Flow-through funds mandated by law. Flow-through funds that are mandated by law or fiduciary duty to be distributed to other entities, including taxes collected from a third party by the taxable entity and remitted by the taxable entity to a taxing authority; (2)Flow-through funds mandated by contract. Flow-through funds that are mandated by contract to be distributed to other entities, limited to: (A)sales commissions, as that term is defined by subsection (b)(11) of this section, to non-employees, including split-fee real estate commissions; (B)the tax basis as determined under the Internal Revenue Code of securities underwritten; and (C)subcontracting payments handled by the taxable entity to provide services, labor, or materials in connection with the actual or proposed design, construction, remodeling, or repair of improvements on real property or the location of the boundaries of real property; (3)Principal repayments. A taxable entity shall exclude the principal repayment of loans; (4)Tax basis of securities and loans. A taxable entity shall exclude the tax basis, as determined under the Internal Revenue Code, of securities and loans sold; (5)Legal services. A taxable entity that provides legal services shall exclude: (A)the following flow-through funds that are mandated by law, contract, or fiduciary duty to be distributed to the claimant by the claimant's attorney or to other entities on behalf of a claimant by the claimant's attorney: (i)damages due the claimant; (ii)funds subject to a lien or other contractual obligation arising out of the representation, other than fees owed to the attorney; (iii)funds subject to a subrogation interest or other third-party contractual claim; and (iv)fees paid an attorney in the matter who is not a member, partner, shareholder, or employee of the taxable entity; (B)reimbursement of the taxable entity's expenses incurred in prosecuting a claimant's matter that are specific to the matter and that are not general operating expenses; and (C)regardless of whether it was included in the calculation of total revenue under subsection (d) of this section, $500 per pro bono services case handled by the attorney, but only if the attorney maintains records of the pro bono services for auditing purposes in accordance with the manner in which those services are reported to the State Bar of Texas; (6)Pharmacy cooperative. A taxable entity that is a pharmacy cooperative shall exclude flow-through funds from rebates from pharmacy wholesalers that are distributed to the pharmacy cooperative's shareholders; (7)Staff leasing services company. A taxable entity that is a staff leasing services company shall exclude payments received from a client company for wages, payroll taxes on those wages, employee benefits, and workers' compensation benefits for the assigned employees of the client company; (8)Dividends and interest from federal obligations. A taxable entity shall exclude dividends and interest received from federal obligations; (9)Management company. A taxable entity that is a management company shall exclude reimbursements of specified costs incurred in its conduct of the active trade or business of a managed entity, including wages and cash compensation as determined under Tax Code, §171.1013(a) and (b); (10)Health care provider. A taxable entity that is a health care provider shall exclude: (A)the total amount of payments received: (i)under the Medicaid program, Medicare program, Indigent Health Care and Treatment Act (Health and Safety Code, Chapter 61), and Children's Health Insurance Program (CHIP); (ii)for professional services provided in relation to a workers' compensation claim under Labor Code, Title 5; and (iii)for professional services provided to a beneficiary rendered under the TRICARE military health system; and (B)the actual costs, regardless of whether it was included in the calculation of total revenue under subsection (d)(1) - (6) of this section, of uncompensated care provided, but only if the provider maintains records of the uncompensated care for auditing purposes and, if the provider later receives payment for all or part of that care, the provider adjusts the amount excluded for the tax year in which the payment is received. (11)Health care institution. A health care provider that is a health care institution shall exclude 50 percent of the exclusion described in paragraph (10) of this subsection. (12)Federal government and armed forces. A taxable entity shall exclude all revenue received that is directly derived from the 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. (13)Oil and gas. During the dates, certified by the comptroller, in which the monthly average closing price of West Texas Intermediate crude oil is below $40 per barrel and the average closing price of gas is below $5 per MMBtu, as recorded on the New York Mercantile Exchange (NYMEX), a taxable entity shall exclude total revenue received from oil or gas produced from: (A)an oil well designated by the Railroad Commission of Texas or similar authority of another state whose production averages less than 10 barrels a day over a 90-day period; and (B)a gas well designated by the Railroad Commission of Texas or similar authority of another state whose production averages less than 250 mcf a day over a 90-day period.
This agency hereby certifies that the proposal
has been reviewed by legal counsel and found to be within the agency's
legal authority to adopt.
Filed with the Office
of the Secretary of State on August 28, 2007
TRD-200703925 Martin Cherry
General
Counsel
Comptroller of Public Accounts
Earliest possible date of adoption: October 14, 2007
For further information, please call: (512) 475-0387
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