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(a)Effective date. The provisions of this section apply to franchise tax reports originally due on or after January 1, 2008. (b)Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1)Actual costs of uncompensated care--the amount determined by either (A) or (B) of this paragraph where total charges means all amounts for health care services, including uncompensated care and compensation includes amounts determined under Tax Code, §171.1013, regardless of whether the taxable entity elects to subtract compensation. See §3.589 of this title (relating to Margin: Compensation). (A)Uncompensated care divided by total charges multiplied by operating expenses. If this method is used to determine uncompensated care, a corresponding adjustment must be made in determining compensation by the ratio of uncompensated care divided by total charges. (B)Uncompensated care divided by total charges multiplied by the result of total operating expenses less compensation. (2)Federal obligations-- (A)stocks and other direct obligations of, and obligations unconditionally guaranteed by, the United States government and United States government agencies; and (B)direct obligations of a United States government-sponsored agency. (3)Health care institution--Any of the following types of institutions: an ambulatory surgical center; an assisted living facility licensed under Health and Safety Code, Chapter 247; an emergency medical services provider; a home and community support services agency; a hospice; a hospital; a hospital system; an intermediate care facility for the mentally retarded or a home and community-based services waiver program for persons with mental retardation adopted in accordance with the federal Social Security Act, §1915(c) (42 U.S.C. §1396n); a birthing center; a nursing home; an end stage renal disease facility licensed under Health and Safety Code, §251.011; or a pharmacy. (4)Health care provider--Any taxable entity that participates in the Medicaid program, Medicare program, Children's Health Insurance Program (CHIP), state workers' compensation program, or TRICARE military health system as a provider of health care services. (5)Lending institution--An entity that makes loans and; (A)is regulated by the Federal Reserve Board, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Commodity Futures Trading Commission, the Office of Thrift Supervision, the Texas Department of Banking, the Office of Consumer Credit Commissioner, the Credit Union Department, or any comparable regulatory body; (B)is licensed by, registered with, or otherwise regulated by the Department of Savings and Mortgage Lending; (C)is a "broker" or "dealer" as defined by the Securities Exchange Act of 1934 at 15 U.S.C. §78c; or (D)provides financing to unrelated parties solely for agricultural production. (6)Management company--A corporation, limited liability company, or other limited liability entity that conducts all or part of the active trade or business of another entity ("the managed entity") in exchange for: (A)a management fee; and (B)reimbursement of specified costs incurred in the conduct of the active trade or business of the managed entity, including wages and cash compensation as determined under Tax Code, §171.1013(a) and (b). (7)Net distributive income--The net amount of income, gain, deduction, or loss relating to a pass-through entity or disregarded entity reportable to the owners for the tax year of the entity. (8)Obligation--Any bond, debenture, security, mortgage-backed security, pass-through certificate, or other evidence of indebtedness of the issuing entity. The term does not include a deposit, a repurchase agreement, a loan, a lease, a participation in a loan or pool of loans, a loan collateralized by an obligation of a United States government agency, or a loan guaranteed by a United States government agency. (9)Pro bono services--The direct provision of legal services to the poor, without an expectation of compensation. (10)Product--Services, tangible personal property, and intangible property. (11)Sales commission-- (A)any form of compensation paid to a person for engaging in an act for which a license is required by Occupations Code, Chapter 1101; or (B)compensation paid to a sales representative by a principal in an amount that is based on the amount or level of certain orders for or sales of the principal's product and that the principal is required to report on Internal Revenue Service Form 1099-MISC (or would have been reported if the amount had met the Internal Revenue Service minimum reporting requirement). (C)for purposes of defining sales commission, a principal is a person who: (i)manufactures, produces, imports, distributes, or acts as an independent agent for the distribution of a product for sale; (ii)uses a sales representative to solicit orders for the product; and (iii)compensates the sales representative wholly or partly by sales commission. (12)Security--The meaning assigned by Internal Revenue Code, §475(c)(2), and includes instruments described by Internal Revenue Code, §475(e)(2)(B), (C), and (D). (13)Staff leasing services company--A business entity that offers staff leasing services, as that term is defined by Labor Code, §91.001, or a temporary employment service, as that term is defined by Labor Code, §93.001. (14)Tiered partnership arrangement--An ownership structure in which any of the interests in one taxable entity treated as a partnership or an S corporation for federal income tax purposes (a "lower tier entity") are owned by one or more other taxable entities (an "upper tier entity"). (15)Uncompensated care--Standard charges for the health care services provided by a health care provider, where the provider has not received any payment for health care provided to the patient. (16)United States government--Any department or ministry of the federal government, including a federal reserve bank. The term does not include a state or local government, a commercial enterprise owned wholly or partly by the United States government, or a local governmental entity or commercial enterprise whose obligations are guaranteed by the United States government. (17)United States government agency--An instrumentality of the United States government whose obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the United States government. The term includes the Government National Mortgage Association, the Department of Veterans Affairs, the Federal Housing Administration, the Farmers Home Administration, the Export-Import Bank, the Overseas Private Investment Corporation, the Commodity Credit Corporation, the Small Business Administration, and any successor agency. (18)United States government-sponsored agency--An agency originally established or chartered by the United States government to serve public purposes specified by the United States Congress but whose obligations are not explicitly guaranteed by the full faith and credit of the United States government. The term includes the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Farm Credit System, the Federal Home Loan Bank System, the Student Loan Marketing Association, and any successor agency. (c)General rules for reporting total revenue. (1)Variant of form. Any reference to an Internal Revenue Service form includes a variant of the form. For example, a reference to Form 1120 includes Forms 1120-A, 1120-S, and other variants of Form 1120. A reference to an Internal Revenue Service form also includes any subsequent form with a different number or designation that substantially provides the same information as the original form. (2)Amount reportable. Any reference to an amount reportable as income on a line number on an Internal Revenue Service form is the amount entered to the extent the amount entered complies with federal income tax law and includes the corresponding amount entered on a variant of the form, or a subsequent form, with a different line number to the extent the amount entered complies with federal income tax law. (3)Federal consolidated group. A taxable entity that is part of a federal consolidated group or is a disregarded entity shall compute its total revenue as if it had filed a separate return for federal income tax purposes; provided, however, that a disregarded entity may combine its revenue, cost of goods sold, compensation and gross revenue with its parent as provided by §3.590(d)(6) of this title (relating to Margin: Combined Reporting). Further information on combined entities can be found in §3.590 of this title (relating to Margin: Combined Reporting). (4)Passive entity. A taxable entity will include its share of net distributive income from a passive entity, but only to the extent the net income of the passive entity was not generated by any other taxable entity. (5)Exclusions from total revenue. For any amount that is excluded from total revenue, the related costs may not be included in the determination of cost of goods sold (see §3.588 of this title (relating to Margin: Costs of Goods Sold)) or the determination of compensation (see §3.589 of this title (relating to Margin: Compensation)). (6)Contract services. Except as provided by subsection (e)(2) of this section, a payment received under an ordinary contract for the provision of services in the ordinary course of business may not be excluded from the calculation of total revenue. (7)Payment to affiliated group members. If the taxable entity belongs to an affiliated group, the taxable entity may not exclude from the calculation of total revenue any payments described by subsection (e)(1) - (6) of this section that are made to entities that are members of the affiliated group. (8)Lower tier entities. A lower tier entity in a tiered partnership arrangement may exclude from total revenue any revenue reported to an upper tier entity subject to the following paragraphs: (A)The lower tier entity must submit a report to the comptroller showing the amount of total revenue that each upper tier entity should include with the upper tier entity's own taxable margin calculation, according to the ownership interest of the upper tier entity. (B)This paragraph does not apply to that percentage of the total revenue attributable to an upper tier entity by a lower tier entity if the upper tier entity is not subject to the tax under this chapter. In this case, the lower tier entity is liable for the tax on its taxable margin. (C)The no tax due thresholds, discounts and the E-Z Computation do not apply to an upper tier entity if, before the attribution of any total revenue by a lower tier entity to an upper tier entity under this section, the lower tier entity does not meet the criteria. See §3.584(d)(6) of this title (relating to Margin: Reports and Payments). (D)Total revenue reported from a lower tier entity to an upper tier entity under the provisions of Tax Code, §171.1015(b) is not a distribution from a partnership. (9)Allocated revenue. Revenue that Texas cannot tax because the activities generating that item of revenue do not have sufficient unitary connection with the entity's other activities conducted in Texas under the United States Constitution is not included in total revenue. (d)Reporting total revenue. The line items in this subsection refer to line items on the 2006 Internal Revenue Service forms. In computing total revenue for a subsequent report year, total revenue should be based on the equivalent line numbers from the corresponding federal report and computed based on the Internal Revenue Code of 1986 in effect for the federal tax year beginning on January 1, 2007. (1)Corporations. For the purpose of computing its taxable margin, the total revenue of a taxable entity treated as a corporation for federal income tax purposes is computed by: (A)adding: (i)the amount reportable as income on line 1c, Internal Revenue Service Form 1120; (ii)the amounts reportable as income on lines 4 through 10, Internal Revenue Service Form 1120; and (iii)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, 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)allowable deductions from Internal Revenue Service Form 1120, Schedule C, to the extent the relating dividend income is included in total revenue; (v)items of income attributable to an entity that is a disregarded entity for federal income tax purposes; and (vi)other amounts authorized by subsection (e) of this section. (2)S corporations. For the purpose of computing its taxable margin, the total revenue of a taxable entity treated as an S corporation for federal income tax purposes is computed by: (A)adding: (i)the amount reportable as income on line 1c, Internal Revenue Service Form 1120S; (ii)the amounts reportable as income on lines 4 and 5, Internal Revenue Service Form 1120S; and (iii)the amounts reportable as income on lines 3a and 4 through 10, Internal Revenue Service Form 1120S, Schedule K; (iv)the amounts reportable as income on line 17, Internal Revenue Service Form 8825; (v)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, 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. (3)Partnerships. For the purpose of computing its taxable margin, the total revenue of a taxable entity treated as a partnership for federal income tax purposes is computed by: (A)adding: (i)the amount reportable as income on line 1c, Internal Revenue Service Form 1065; (ii)the amounts reportable as income on lines 4, 6, and 7, Internal Revenue Service Form 1065; (iii)the amounts reportable as income on lines 3a and 5 through 11, Internal Revenue Service Form 1065, Schedule K; (iv)the amounts reportable as income on line 17, Internal Revenue Service Form 8825; (v)the amounts reportable as income on line 11, plus line 2 or line 45, Internal Revenue Service Form 1040, Schedule F; and (vi)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, 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. (4)Trusts. For the purpose of computing its taxable margin, the total revenue of a taxable entity treated as a trust for federal income tax purposes is computed by: (A)adding: (i)the amount reportable as income on lines 1, 2a, 3, 4, 7, and 8 of Internal Revenue Service Form 1041; (ii)the amount reportable as income on lines 3, 4, 32, and 37 of Internal Revenue Service Form 1040, Schedule E; and Cont'd...
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