By Evan Hamme and Marc Simonetti

The Texas Comptroller upheld a taxpayer’s separate Franchise Tax return filing position, rejecting an Administrative Law Judge’s finding that the taxpayer and its affiliate shared a strong centralized management structure that required a unitary combined report. Although the companies were commonly owned and shared an administrator, the Comptroller found

In his State of the State address at the beginning of the year, Texas Governor Greg Abbott tasked the Legislature with enacting meaningful business tax relief. The Legislature responded by reducing the franchise (also called the margin) tax rate and creating new exemptions and incentives for sales tax. At the same time, however, the Legislature

On July 29, 2011, a petition was filed with the Texas Supreme Court seeking a declaratory judgment that the Texas margins tax (TMT) is unconstitutional. Regardless of whether the Texas Supreme Court will strike down the TMT in its entirety, the court’s decision could have significant implications for many corporate taxpayers. 


Read Sutherland SALT’s Legal

In a continuing effort to clarify certain Texas Margins Tax issues, the Texas Comptroller of Public Accounts (Comptroller) issued Tax Policy News in July 2010, which provides additional guidance on the Texas Margins Tax costs of goods sold computation; apportionment; and margin tax recovery fees. Texas statutes and regulations do not provide significant guidance on how these provisions should be applied. 

Regarding the costs of goods sold deduction, the Comptroller clarified that this deduction may only be taken by taxpayers that produce “goods,” i.e., real property, tangible personal property, and specifically enumerated services related to video and radio programming. To the extent a taxpayer sells “mixed transactions”—transactions containing elements of both a “good” and a service—the taxpayer may only subtract as costs of goods sold those costs “in relation to” the good. However, a taxpayer may nonetheless deduct as costs of goods sold up to 4% of its back-office (“indirect or administrative overhead”) costs allocable to “the acquisition or production of goods.”Continue Reading Texas Margins Tax Roundup: Comptroller Provides Additional Margins Tax Guidance