(C)Gross receipts from the sale of
digital property (computer programs and any content in digital format
that is either protected by copyright law or no longer protected by
copyright law solely due to the passage of time) that is transferred
by fixed physical media are sourced as the sale of tangible personal
property under paragraph (29) of this subsection.
(D)Gross receipts from lease of digital
property that is transferred by fixed physical media are sourced as
the leasing of tangible personal property under paragraph (14)(B)
of this subsection.
(E)Gross receipts from the sale or
lease of digital property that is transferred by means other than
by fixed physical media are sourced as the sale of intangible property
under paragraph (21)(B) of this subsection.
(F)Gross receipts from the delivery
of digital property as a service are sourced under paragraph (26)
of this subsection, unless otherwise provided in this subsection.
(G)Gross receipts from the delivery
of digital property as part of an internet hosting service are sourced
as internet hosting receipts under paragraph (13) of this subsection.
(H)Gross receipts from the use (as
opposed to the sale or licensing) of digital property are sourced
under paragraph (21)(A) of this subsection.
(I)Example 1. Movie Studio produces
a copyrighted movie in digital format and successively sells the theatrical
rights to Movie Theater Chain Company, the broadcast rights to Cable
Company, the internet streaming rights to Internet Company A, the
internet rental rights to Internet Company B, the digital versatile
disc (DVD) sale rights to DVD Company, DVD rental rights to Kiosk
Company, and the permanent download sale rights to Download Company.
In each instance, Movie Studio's receipts are from the right to use
its copyrighted digital property and sourced to where the copyright
is used under paragraph (21)(A) of this subsection. Movie Theater
Chain Company receipts from ticket sales are from the sale of a service
and sourced to the audience location under paragraph (26)(A)(i) of
this subsection. Cable Company subscription receipts from broadcasting
the movie are from the sale of a service and sourced to the audience
location under paragraph (26)(A)(i) of this subsection. Internet Company
A's subscription receipts for its streaming service using its website
are from an internet hosting service and sourced to the location of
the customer under paragraph (13) of this subsection. Internet Company
B's receipts from the rental (access for a limited time) of the movie
using the company's website are from an internet hosting service and
sourced to the location of the customer under paragraph (13) of this
subsection. DVD Company's receipts from the sale of DVDs are from
the sale of tangible personal property and sourced under paragraph
(29). Kiosk Company's receipts from the rental of DVDs are from the
rental of property and sourced to the location of the property under
paragraph (14). Download Company's receipts from the sale of permanent
downloads of the movie are from the sale intangibles and sourced to
the location of payor under paragraph (21)(B) of this subsection.
(J)Example 2. Software Company designs
bookkeeping software for personal use. Software Company licenses the
software to Computer Company to include in the software sold with
its computers. Software Company sells digital versatile discs (DVDs)
of the bookkeeping software to Retail Company for resale to end users.
Software Company sells downloads of its bookkeeping software directly
to end users. Software Company sells an on-line version of its bookkeeping
software in which end users can enter and store data on-line using
the Software Company's website for a periodic fee. Software Company
receipts from licensing the software to Computer Company are from
the use of its digital product and sourced to the location of use
under paragraph (21)(A) of this subsection. Computer Company's receipts
from the sale of computers with pre-loaded software are from the sale
of tangible personal property and sourced under paragraph (29) of
this subsection. Software Company's receipts from the sale of DVDs
to Retail Company are from the sale of tangible personal property
and sourced under paragraph (29) of this subsection. Software Company's
receipts from the sale of downloads to end users are from the sale
of intangible property and sourced to the location of payor under
paragraph (21)(B) of this subsection. Software Company's receipts
from the sale of its on-line version are from the sale of an internet
hosting service and sourced to the location of the customer under
paragraph (13) of this subsection.
(4)Condemnation. Gross receipts [Revenues
] from condemnation [that result from the taking]
of property are sourced [gross receipts that are apportioned
based on] to the location of the property condemned.
(5)Debt forgiveness. If a creditor releases any part
of a debt, then the amount that the creditor forgives is a gross receipts
that is sourced [apportioned] to the legal domicile
of the creditor.
(6)Debt retirement. Gross receipts [Revenues
] from the retirement of a taxable entity's own indebtedness,
such as through the taxable entity's purchase of its own bonds at
a discount, [are gross receipts that] are sourced [
apportioned] to the taxable entity's legal domicile. The indebtedness
is treated as an investment in the determination of the amount of
gross receipts.
[(7)Deemed sales of assets under
Internal Revenue Code, §338. Amounts that are deemed to have
been received by the target taxable entity are treated as sales of
assets by the target taxable entity, and are apportioned according
to rules that otherwise apply to sales of such assets under Tax Code,
Chapter 171, or this section. For the purposes of this paragraph,
the purchaser of the target's stock is considered the purchaser of
the assets.]
(7)[(8)] Dividends[, and/
or interest].
(A)Dividends that are recognized as a reduction of
the taxpayer's basis in stock of a taxable entity for federal income
tax purposes are not gross receipts. Dividends that exceed the taxpayer's
basis for federal income tax purposes that are recognized as a capital
gain are treated as dividends for apportionment purposes.
(B)The following are excluded from Texas gross receipts
and gross receipts from an entity's entire business [
everywhere]:
(i)dividends from a subsidiary, associate, or 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;
(ii)Form 1120, Schedule [schedule]
C special deductions that are excluded from total revenue; and
(iii)dividends [and/or interest] on federal
obligations that are excluded from total revenue.[;]
[(iv)interest that is exempt from
federal income tax.]
(C)Dividends [and/or interest] that are
received from a corporation or other sources are sourced [
apportioned] to the location [legal domicile]
of the payor.
(D)Dividends [and/or interest that are]
received from a national bank are sourced [apportioned]
to Texas if the bank's principal place of business is located in Texas.
Dividends [and/or interest that are] received from a bank
that is organized under the Texas Banking Code are sourced [
apportioned] to Texas.
[(E)A banking corporation may exclude
from its Texas gross receipts interest that is earned on federal funds
and interest that is earned on securities that are sold under an agreement
to repurchase and that are held in a correspondent bank that is domiciled
in Texas, but the banking corporation must include the interest in
its gross receipts everywhere.]
(8)[(9)] Exchanges of property.
Exchanges of property are included in gross receipts to the extent
that the exchange is recognized as a taxable transaction for federal
income tax purposes. Such exchange must be included in gross receipts
based on the gross exchange value, unless otherwise required under
this section.
(9)[(10)] Federal enclave. Gross
receipts [All revenues] from a taxable entity's sales,
services, leases, or other business activities that are transacted
on a federal enclave that is located in Texas are sourced to Texas
[receipts], unless otherwise excepted by this section.
(10)Financial derivatives. Gross
receipts from the settlement of financial derivatives contracts, including
hedges, options, swaps, futures, and forward contracts, and other
risk management transactions are sourced to the location of the payor.
(11)Insurance proceeds.
(A)Business interruption insurance proceeds are gross
receipts when the proceeds are intended to replace lost profits. Such
receipts are Texas gross receipts when [apportioned
to] the location [legal domicile] of the
payor is in Texas [of the proceeds].
(B)Gross receipts [Revenues]
from fire and casualty insurance proceeds are sourced [apportioned
] to the location of the damaged or destroyed property.
(12)Interest.
(A)Except as provided in subparagraph (B) of this
paragraph, interest received is sourced to the location of the payor.
(B)Interest received from a national bank is a Texas
gross receipt if the bank's principal place of business is located
in Texas. Interest received from a bank that is organized under the
Texas Banking Code is a Texas gross receipt.
(C)The following are excluded from Texas gross receipts
and gross receipts from an entity's entire business:
(i)interest on federal obligations that is excluded
from total revenue; and
(ii)interest that is exempt from federal income tax.
(D)A banking corporation may exclude from its Texas
gross receipts interest that is earned on federal funds and interest
that is earned on securities that are sold under an agreement to repurchase
and that are held in a correspondent bank that is domiciled in Texas,
but the banking corporation must include the interest in its gross
receipts from an entity's entire business.
(13)[(12)] Internet hosting
service. [access fee. A fee that is charged to obtain access
to the World Wide Web in Texas is a Texas gross receipt.] For
reports originally due on or after January 1, 2014, receipts from
Internet hosting are Texas gross receipts if the customer is located
in Texas.
(A)Internet hosting service means
providing to an unrelated user access over the Internet to computer
services using property that is owned or leased and managed by the
provider and on which the user may store or process the user's own
data or use software that is owned, licensed, or leased by the user
or provider.
(B)Internet hosting includes real-time,
nearly real-time, and on-demand access over the Internet to computer
services such as:
(i)data storage and retrieval;
(ii)video gaming;
(iii)database search services;
(iv)entertainment streaming services;
(v)processing of data; and
(vi)marketplace provider services.
(C)Internet hosting does not include:
(i)telecommunications service;
(ii)cable television service;
(iii)Internet connectivity service;
(iv)Internet advertising service; or
(v)Internet access solely to download digital content
for storage and use on the customer's computer or other electronic
device.
(D)The purchase of access over the
Internet to computer services is distinguished from the purchase or
lease of computer hardware or digital property by taking into account
all relevant factors, the relevance of which may vary depending upon
the circumstances. Some relevant factors indicating the purchase of
access to a computer service rather than the purchase or lease of
computer hardware or digital property include:
(i)the customer is not in physical possession of the
property;
(ii)the customer does not control the property, beyond
the customer's network access and use of the property;
(iii)the provider has the right to determine the specific
property used in the transaction and replace such property with comparable
property;
(iv)the property is a component of an integrated operation
in which the provider has other responsibilities, including ensuring
the property is maintained and updated;
(v)the customer does not have a significant economic
or possessory interest in the property;
(vi)the provider bears any risk of substantially diminished
receipts or substantially increased expenditures if there is nonperformance
under the contract;
(vii)the provider uses the property concurrently to
provide significant services to entities unrelated to the customer;
(viii)the provider's fee is primarily based on a measure
of work performed or the level of the customer's use rather than the
mere passage of time; and
(ix)the total contract price substantially exceeds
the rental value of the property for the contract period.
(E)The customer location is determined
by the physical location where the purchaser or the purchaser's designee
consumes the service. The location should be determined in good faith
using the most reasonable method under the circumstances, considering
the information reasonably available. Receipts from some services
may be sourced to multiple customer locations or to multiple customers.
Locations that may be reasonable under the circumstances include the
customer's principal place of business, the customer's business unit
that is using the computer services, the delivery addresses for individual
units of service provided to the customer, the primary place or places
of consumption by the customer, the service address of the customer,
the billing address of the customer, or a combination of methods.
Examples:
(i)An individual purchases access to a dating application.
The most reasonable customer location for consumption of the service
may be the billing address of the individual in the absence of information
regarding the individual's physical address.
(ii)A benefactor purchases access to a computer service
for a charitable organization. The customer is the purchaser's designee
for consuming the service - the charitable organization. The most
reasonable customer location for consumption of the service may be
the physical address of the charitable organization.
(iii)An intermediary purchases access to a computer
service for resale to a third party. The customer is purchaser's designee
for consuming the service - the third party. The most reasonable customer
location for consumption of the service may be the physical location
of the third party, if known.
(iv)A law firm purchases access to a database search
program for attorneys in multiple offices. The customers are the purchaser's
designees for consuming the service - its attorneys. The most reasonable
customer locations for consumption of the service may be physical
addresses of each office, with the access fee sourced proportionately
based on the number of attorneys in each office.
(v)A retailer with multiple sales outlets purchases
access to point of sales software that reports to the retailer's central
office. The most reasonable customer locations for consumption of
the service may be the physical addresses of the central office and
each designated point of sale, with the access fee sourced proportionately
between the central office and each designated point of sale.
(vi)A retailer with multiple sales outlets purchases
access to federal income tax preparation software. The most reasonable
customer location for consumption of the service may be the principal
place of business of the retailer.
(vii)An individual pays a fee to an Internet ride-sharing
service connecting the individual with a driver at a particular location.
The most reasonable customer location for consumption of the service
may be the physical address of rendezvous point for the ride.
(14)[(13)] Leases and subleases.
(A)Gross receipts [Revenues]
from the lease, [or] sublease, [(or
] rental, or subrental[)] of real property
are sourced [apportioned] to the location of
the property.
(B)Gross receipts [Revenues]
from the lease, [or] sublease, [(or
] rental, or subrental[)] of tangible
personal property are sourced [apportioned]
to the location of the property. If the property is used both inside
and outside Texas, then lease payments are sourced [apportioned]
based on the number of days that the tangible personal property was
used in Texas divided by the number of days that the tangible personal
property was used everywhere. If the amount [of revenue that
is] due under the lease is based on mileage, then the lease
payments are sourced [apportioned] based on
the number of miles in Texas divided by the number of miles everywhere.
(C)If a lump sum is charged for the lease, sublease,
rental, or subrental of more than one item of [leased or
subleased (or rented or subrented)] property, and the items
are [that is] located both inside and outside Texas,
the lump-sum is sourced to Texas [then the allocation of
such revenue is] based on a ratio of the fair rental
value of the items located in Texas[ each item of
property] to the fair value of the items located outside of
Texas.
(D)Gross receipts [Revenues]
from the lease, [or] sublease, [(or
] rental, or subrental[)] of a vessel
that engages in commerce are sourced [apportioned]
to Texas based on the number of days that the vessel is engaged in
commerce in Texas waters divided by the number of days that the vessel
is engaged in commerce everywhere.
(E)Gross receipts from [If]
a lease, sublease, rental, or subrental of real property or tangible
personal property that is treated as a sale for federal
income tax purposes[, then the receipts from the transaction]
are sourced [apportioned] in the same manner
as a sale. Any portion of the payments that the contracting parties
designate as interest is sourced as provided in paragraph (12)
of this subsection, concerning interest [receipts].
(15)[(14)] Litigation awards.
Litigation [Revenues that are realized from litigation]
awards are gross receipts that are sourced [apportioned]
to the location [legal domicile] of the payor
[of the proceeds]; however, if the litigation awards are
intended to replace receipts for which another [apportionment]
rule [is] provided in this section applies,
then the gross receipts are sourced [apportionment
must be made] in accordance with that rule. For example, if
a taxable entity sues a Delaware corporation to recover on a sale
of goods delivered to a Texas location, then a judgment for the amount
of that sale would not convert the receipts from Texas gross receipts
to Delaware receipts. See subsection (f) of this section, for the sourcing
[apportionment] of receipts from judgments, compromises,
or settlements that relate to natural gas production.
(16)[(15)] Loan servicing [of
real property].
(A)Gross receipts [Receipts]
from [the] servicing [of] loans secured by real
property are sourced [apportioned] to the location
of the collateral real property that secures the loan being serviced.
(B)Gross receipts from servicing
loans that are not secured by real property are sourced as provided
in paragraph (26) of this subsection, concerning services.
(17)[(16)] Loans and securities
treated as inventory of the seller.
(A)Gross proceeds from the sale of [If]
a loan or security [is] treated as inventory of the seller
for federal income tax purposes are included in gross receipts
even though the tax basis is not included in total revenue under §3.587(e)(4)
of this title. Securities and loans held for investment or risk management
purposes are not inventory. Gross receipts from the sale of a loan
or security treated as inventory of the seller are sourced to the
location of the payor as provided in paragraph (25) of this subsection,
concerning securities. See paragraph (2) of this subsection, concerning
capital assets and investments, or paragraph (10) of this subsection,
concerning financial derivatives, for the treatment of gains and losses
from sales of loans and securities not treated as inventory of the
seller. [, the gross proceeds of the sale of that loan
or security are considered gross receipts.]
(B)If [For reports originally due
on or after January 1, 2010, if] a lending institution categorizes
a loan or security as "Securities Available for Sale" or "Trading
Securities" under Financial Accounting Standard No. 115, the gross
proceeds of the sale of that loan or security are considered gross
receipts. In this subparagraph, "Financial Accounting Standard No.
115" means the Financial Accounting Standard No. 115 in effect as
of January 1, 2009, not including any changes made after that date.
(18)[(17)] Membership or enrollment
fees paid for access to benefits. Membership or enrollment fees paid
for access to benefits are [should be considered]
gross receipts from the sale of an intangible asset and are sourced [
apportioned] to the location [legal domicile]
of the payor.
(19)[(18)] Mixed transactions.
If a transaction involves elements of both a sale of tangible personal
property and a service, but no documentation exists to show separate
charges for the tangible personal property [sale]
and service elements, then the comptroller may determine the amounts
that are allocable to each element based on fair values or on any
available evidence.
(20)[(19)] Net distributive
income. The net distributive income or loss from a passive entity
that is included in total revenue is sourced [apportioned
] to the principal place of business of the passive entity.
[(20)Newspapers or magazines. All
advertising revenues of a newspaper or magazine, including those revenues
derived from out-of-state advertisements, are apportioned to Texas
based on the number of newspapers or magazines distributed in Texas.
All other receipts must be apportioned in accordance with the apportionment
rules otherwise set out in this section. For example, receipts from
sales of newspapers or magazines are to be apportioned based on paragraph
(29) of this subsection.]
(21)Patents, copyrights, and other intangible assets
[rights].
(A)Gross receipts [Receipts ]from
the use of intangible assets [intangibles].
(i)Revenues from a patent royalty are included in
Texas receipts to the extent that the patent is utilized in production,
fabrication, manufacturing, or other processing in Texas.
(ii)Revenues from a copyright royalty are included
in Texas receipts to the extent that the copyright is utilized in
printing or other publication in Texas.
(iii)Gross receipts [Revenues]
that the owner of a patent, copyrighted material, trademark,
franchise, or license receives from licensing the use of the
patent, copyrighted material, trademark, franchise, or license are
sourced to [included as] Texas [receipts]
to the extent the patent, copyrighted material, trademark,
franchise or license is used in Texas.
(iv)Royalties 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
are excluded from Texas gross receipts and gross receipts
from an entity's entire business [everywhere].
Cont'd...
|
