Texas State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Texas, with full citations and the original source on every page.
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Does an out-of-state insurance and bonding company have Texas franchise tax nexus if its representatives periodically enter Texas to inspect job sites?
Yes. An out-of-state corporation that provides insurance and bonds for Missouri and Kansas contractors doing work in Texas has Texas franchise tax nexus because its representatives periodically enter …
Does a Delaware holding company that only owns a Texas bank's stock and collects dividends have Texas franchise tax nexus, and are those dividends counted in the Texas parent's Texas receipts?
No on both. A newly formed Delaware holding company whose only activity is owning a Texas bank's stock and receiving dividends - with no Texas employees, assets, services, or meetings - is not doing b…
Does an out-of-state corporation create Texas franchise tax nexus merely by hiring legal counsel to defend itself in Texas litigation?
No. It is the Comptroller's policy that a corporation hiring legal counsel to defend itself in litigation in Texas does not create nexus for Texas franchise tax purposes. Here, an out-of-state corpora…
Is all IRC Section 1245 property first placed in service in a strategic investment area a 'qualified capital investment' for the Texas franchise tax capital investment credit?
Not automatically. A qualified capital investment (QCI) is tangible personal property first placed in service in a 'strategic investment area' (SIA) - or first placed in service in a Texas county with…
If an out-of-state company has employees based in Texas but performs all its services outside Texas, is it subject to the Texas franchise tax and does it owe any tax?
It is subject to the franchise tax but may owe nothing. A Florida company performing services for the U.S. Army whose employees are based at a Texas military base is subject to the Texas franchise tax…
Does the Texas franchise tax wholesale-center exemption still apply to an out-of-state company that leases trade-show space in Texas but also uses an independent representative soliciting in Texas year-round?
No. The Tax Code Section 171.084(c) wholesale-center exemption does not apply. Although HB 2424 expanded the definition of a 'wholesale center' (a permanent wholesale facility with permanent tenants t…
How are receipts from Texas oil and gas production payments treated as mortgage loans under IRC Section 636 apportioned for the earned-surplus and taxable-capital components of the Texas franchise tax?
The two franchise tax components can source the same receipts differently. For earned surplus, a corporation uses the same accounting method it uses for reportable federal taxable income (Tax Code Sec…
For the Texas franchise tax taxable-capital component, must accrued but unused vacation pay be added back to surplus, or does it count as a debt that is excluded?
Accrued but unused vacation pay is generally added back to taxable capital as 'surplus' unless it qualifies as a true debt - certain as to both amount and time. Under Tax Code Sec. 171.109(a)(1), an e…
For a Texas refiner shipping fuel out of state through a common-carrier pipeline, are the sales Texas receipts, and when does the franchise tax throwback rule apply?
It turns on care, custody, and control - and, if delivery is not in Texas, on the throwback rule. If the buyer has care, custody, and control of the product once it is injected into the pipeline in Te…
Does a Delaware holding company that only owns a Texas bank's stock and collects dividends have Texas franchise tax nexus, and are those dividends part of the Texas parent's Texas receipts?
No on both. A newly formed Delaware holding company whose only activity is owning a Texas bank's stock and receiving dividends - with no Texas employees, assets, services, or meetings - is not doing b…
For the Texas franchise tax jobs creation credit, can a company claim the credit for the individual jobs that meet the wage requirement even if other new jobs do not?
Possibly for the qualifying jobs, but only if a county-wide averaging test is also met. A job claimed for the jobs creation credit must pay at least 110% of the county average weekly wage. So if 27 of…
For the Texas franchise tax taxable-capital component, can a corporation net unrealized losses against unrealized gains, or must both be included in surplus?
Both are included in surplus, and the unrealized losses cannot be netted against the unrealized gains. Under Tax Code Sec. 171.109(b), surplus, assets, and debts are computed under GAAP unless the sta…
For a new fiscal-year corporation, which accounting-period ending dates apply to the taxable-capital and earned-surplus components on its initial and first annual Texas franchise tax reports?
The taxable-capital and earned-surplus components use different accounting-period dates. For this fiscal-year filer (September 30 year-end; certificate of authority and start of business in late Septe…
How does an insurance agency get the Texas franchise tax clearance the Department of Insurance requires for a license - a Certificate of Account Status or a No Nexus Letter?
It depends on whether the agency is doing business in Texas. The Texas Department of Insurance requires a franchise tax clearance before licensing an insurance agency. A corporation doing business in …
How should an internet advertising company apportion its various revenues — banner and click ads, commissions, subscriptions, hosting, and licensing — for Texas franchise tax?
At the time, the Comptroller treated nearly all of these internet revenues as receipts from performing a service, sourced to where the service is performed — so a company doing all its advertising wor…
How is income a pharmaceutical parent recognizes under the IRC Section 936 Profit Split Method sourced for the Texas franchise tax earned-surplus gross receipts factor?
The Profit Split Method (PSM) income splits into two categories that source differently. The parent's share of the split profit is a receipt from the use of an intangible: it is a gross receipt (Tax C…
Can an out-of-state seller deduct sales of sales-tax-exempt health care supplies from Texas receipts when the goods are shipped to Texas reps and sold to hospitals only later on a consignment basis?
No, not on these facts. A corporation may deduct from Texas receipts the sales of health care supplies that are shipped from outside Texas and are exempt from sales and use tax under Tax Code Sec. 151…
Are federal and state motor fuel taxes a seller collects from customers included in the Texas franchise tax gross receipts factor?
Yes, based on the facts - and the test is revenue recognition, not who the tax is imposed on. This amended ruling keeps the earlier conclusion (motor fuel taxes are included in gross receipts) but cha…
Does a foreign corporation that only holds title to - or only holds a lien on - Texas real property have Texas franchise tax nexus?
It depends on title versus lien. Holding title to real property in Texas is 'doing business' (Rule 3.546(a)(5)), so an out-of-state corporation that holds title to Texas property is subject to both co…
Can a corporation amend a Texas franchise tax report to include excise/motor-fuel taxes in gross receipts when its own books excluded them, arguing GAAP would also allow inclusion?
No, not without proving the original reporting was an error. Under Rule 3.547(c)(5)(A), an amended report may correct an accounting error - a mathematical mistake, a mistake in applying accounting pri…
Is a single-member LLC that is a 'disregarded entity' for federal income tax still subject to the Texas franchise tax?
Yes. Being a 'disregarded entity' for federal income tax does not exempt an LLC from the Texas franchise tax. Every LLC organized under Texas law, or doing business in Texas, is subject to the franchi…
Is a nonprofit water supply corporation exempt from the Texas franchise tax, and what sales/use tax exemption does it get?
A qualifying nonprofit water supply corporation is exempt from the Texas franchise tax under Texas Tax Code Sec. 171.065. Separately, because this corporation is designated by the Texas Commission on …
For Texas franchise tax, how are receipts from licensing seismic data apportioned - by where the license is used or where any service is performed?
Receipts a company earns from licensing already-collected seismic data are apportioned to Texas to the extent the license is used in Texas (Texas Tax Code Secs. 171.103(4) and 171.1032(a)(4); Rule 3.5…
When a company both gathers/analyzes seismic data and licenses it, which receipts are apportioned as services and which as a license for Texas franchise tax?
It depends on whether the work was done for a specific customer. If the company contracts to do specific seismic data work for a customer, those receipts are for services and are apportioned to the lo…
For Texas franchise tax, is selling compiled information an intangible or a service, and where is it apportioned?
Compiling information and selling it is the performance of a service, not the sale of an intangible - and the format in which the information is delivered does not change that. So the receipts are app…
For Texas franchise tax, are sales of commodity futures contracts reported gross or net, and how are the receipts apportioned - by the exchange or the buyer's domicile?
Two separate questions. First, gross vs net: calling a futures contract an intangible does not decide it - that only affects apportionment, not the amount of gross receipts. If the taxpayer holds futu…
Do business cards showing a salesperson's local Texas phone number - but no local address - create earned-surplus franchise tax nexus beyond PL 86-272?
No. Merely handing out business cards showing the salesperson's local telephone number - without a local address - does not go beyond Public Law 86-272 and does not subject the represented corporation…
For the Texas franchise tax, may an oil and gas company exclude estimated well-abandonment costs from surplus by carrying them as accumulated depletion/depreciation - and can it amend to do so?
Before FAS 143 took effect, an oil and gas company could treat estimated well-abandonment costs as either an estimated liability or an allowance for depletion, depreciation and amortization (DD&A), an…
After 2001's House Bill 2686, can a corporation still take the enterprise-zone franchise tax deduction, and what replaced it?
It depends on when the project was designated. House Bill 2686 (2001) repealed the enterprise-zone franchise tax deductions in Texas Tax Code Secs. 171.1015 and 171.1016, but only for enterprise and d…
When does a homeowners association qualify for the Texas franchise tax exemption - and does it qualify while the developer still controls the votes?
Not yet. Under Texas Tax Code Sec. 171.082, a homeowners, residential property owners, or residential condominium association qualifies for the franchise tax exemption only if - among other requiremen…
Are a Texas company's out-of-state salespeople - who hand out business cards with a local phone number but no local address - protected by PL 86-272, so the throwback rule applies?
Business cards that show a local telephone number but no local address do not, by themselves, establish that a corporation has an office or place of business in another state. Under Rule 3.554(d)(18),…
For Texas franchise tax, are a contractor's receipts apportioned as a sale of real property, a sale of goods, or a service - and when are rebilled (resold) services gross receipts?
Texas franchise tax apportionment follows the activity that generates the receipts. If a contractor buys real estate, constructs or refurbishes facilities on it, and sells the completed facilities, th…
Can a homeowners association get the Texas franchise tax exemption if its declaration lets it lease common property for commercial (for-profit) use?
No. The Texas Tax Code Sec. 171.082 exemption for a homeowners, residential property owners, or residential condominium association applies only to residential property. Here the association's Declara…
A single-member LLC is disregarded for federal tax and shares its tax-exempt owner's status - is it exempt from Texas franchise tax and sales tax too?
The LLC is exempt from the Texas franchise tax as a public interest organization under Tax Code Sec. 171.057, but Texas sales tax has no comparable exemption, so the LLC is NOT exempt from sales and u…
Can a corporate partner claim Texas franchise jobs/investment credits for the partnership's jobs or investments, and must the business be in a specific industry?
No, a corporate partner cannot take the jobs creation credit (Texas Tax Code Sec. 171.752) or the capital investment credit (Sec. 171.802) based on jobs created or investments made by the partnership.…
What must a homeowners association show to get the Texas franchise tax exemption, and when has voting control passed to the owners?
Before the Comptroller can grant a homeowners association the franchise tax exemption under Texas Tax Code Sec. 171.082, the association must show that voting control is vested in the owners of the in…
Does a company engaged in solar or wind energy qualify for a Texas franchise tax exemption, and what deduction or credits are available?
Yes, potentially. Texas Tax Code Sec. 171.056 exempts a corporation or LLC engaged SOLELY in the business of manufacturing, selling, or installing solar energy devices (as defined by Sec. 171.107), an…
Does a foreign (non-Texas) corporation that owns oil-and-gas working (mineral) interests in Texas have franchise-tax nexus, even if an independent contractor operates the interests?
Yes. The Comptroller treats mineral interests as real property for franchise tax purposes, and owning real property in Texas creates nexus for both franchise-tax components - taxable capital under Com…
Can a homeowners association get the Texas franchise-tax exemption if its deed restrictions let some lots be used for commercial or business purposes?
No. The Sec. 171.082 franchise-tax exemption for certain homeowners associations applies only to residential property and does not allow for commercial use. Because this association's original deed re…
Do a Texas corporation's franchise-tax business loss carryovers survive converting to a Texas LLC, and then converting that LLC to an out-of-state (Nevada) LLC?
Yes to both steps. A Texas corporation's Texas business loss carryovers remain available for use on the future franchise tax reports of the Texas LLC it converts into, and they continue to be availabl…
Can a bank deduct interest earned on federal funds from its earned surplus (or taxable capital) for Texas franchise tax under Sec. 171.106(h)?
No. Texas Tax Code Sec. 171.106(h) is an apportionment provision only: it requires a banking corporation to exclude from the numerator of its apportionment factor the interest earned on federal funds …
Are stock options granted to a corporation's officers and directors added back to earned surplus for Texas franchise tax, and in what year?
Yes. Under Texas Tax Code Sec. 171.110(a)(1), a corporation that is not exempt from the add-back must add officer and director compensation back to its earned surplus to the extent that compensation w…
When does a homeowners association's Texas franchise-tax exemption take effect, and what must it still file to reinstate its charter?
A homeowners association qualifies for the Texas franchise-tax exemption under Tax Code Sec. 171.082 only once voting control of the organization is vested in the owners of the individual lots or unit…
How does a homeowners association apply for the Texas franchise-tax exemption, and does it also cover sales tax?
A homeowners association has two routes to a Texas franchise-tax exemption. Under Tax Code Sec. 171.063, if it has obtained a federal exemption under IRC Sec. 501(c)(2), (3), (4), (5), (6), (7), (8), …
Does a professional membership association get the Texas franchise-tax exemption, and does calling itself 'educational' qualify it - or exempt it from sales tax?
A professional membership association that holds a federal 501(c)(6) exemption qualifies for the Texas franchise-tax exemption under Tax Code Sec. 171.063 - here effective January 1, 1998. It does not…
Can a nonprofit that promotes a specific county, city, or area get the Texas franchise-tax exemption, and what must it show?
A nonprofit corporation organized solely to promote the public interest of a specific county, city, town, or other area within Texas can qualify for a franchise-tax exemption under Tax Code Sec. 171.0…
Does the federal 'bonus depreciation' from the Job Creation and Worker Assistance Act of 2002 apply for the Texas franchise tax?
It depends on which component. For the earned surplus component of the Texas franchise tax, bonus depreciation has no effect: earned surplus is calculated under the Internal Revenue Code of 1986 as in…
When a corporation gets a franchise-tax extension but doesn't file by November 15, does the statute of limitations run from May 15 or November 15?
It depends on how the extension was obtained. If the corporation got its extension by paying 100% of the tax reported in the prior period, Texas Tax Code Sec. 171.202(c)(2)(B) makes the extension mand…
What are the carryback and carryforward rules for a corporate franchise-tax 'business loss,' and is it the same as a federal NOL?
A Texas franchise-tax 'business loss' is defined by Texas Tax Code Sec. 171.110(e) and Franchise Tax Rule 3.555(b)(1), which allow it to be carried forward to the five successive years following the l…
Can an auditor adjust a corporation's Texas earned surplus based on a federal Form 1139 tentative-refund application carrying back an NOL?
Yes, an auditor may adjust the corporation's net taxable earned surplus. The taxpayer filed a federal Form 1139 (Application for Tentative Refund) carrying back NOLs, which reduced a prior-year charit…
Does the federal FSC Repeal and Extraterritorial Income Exclusion Act of 2000 affect the Texas franchise tax, and how is a Foreign Sales Corporation treated?
The federal FSC Repeal and Extraterritorial Income Exclusion Act of 2000 has no effect for Texas franchise tax purposes. Texas franchise tax is calculated under the Internal Revenue Code of 1986 as in…
When a subsidiary with federal NOLs liquidates into its parent, do the losses carry over to the parent for Texas franchise tax?
No. A parent (P) bought all the stock of a subsidiary (S) that had unused federal net operating losses (NOLs), then liquidated S into P with non-recognition under IRC Sections 332 and 337, and under I…
When a Texas parent's LLC (taxed federally as a partnership) sells all its assets, is the gain included in the parent corporation's Texas franchise-tax receipts?
No. The taxpayer (a corporation) owns an LLC that elected to be taxed federally as a partnership; the LLC sold all of its telecommunications assets to a buyer, and the taxpayer did not sell any of its…
Does the newly enacted federal Job Creation and Worker Assistance Act of 2002 change the Texas franchise tax?
No. The new provisions of the federal Job Creation and Worker Assistance Act of 2002 have no effect for Texas franchise tax purposes. Texas franchise tax is calculated under the Internal Revenue Code …
Are sales from Texas-Mexico border duty-free stores, picked up in 'No Man's Land,' Texas receipts for franchise tax even though the goods are exported?
Yes. Sales of goods from border duty-free stores (Class 9 U.S. customs bonded warehouses) - where a store employee delivers the goods to the customer in 'No Man's Land' at the border - are Texas recei…
What must a cooperative (organized as an LLC) show to get the Texas franchise-tax cooperative-association exemption, and can it use the marketing-association exemption instead?
To qualify for the Texas franchise-tax exemption for a cooperative association under Tax Code Sec. 171.075, the cooperative must be incorporated under (or, if foreign, abide by the provisions of) the …
Does warehousing products in Texas for less than a week qualify as a 'necessary delay in transit,' or are the receipts subject to the throwback rule?
The Texas warehousing here is not a 'necessary delay in transit,' so the receipts are Texas sales subject to the throwback rule. Franchise Tax Rules 3.549(e)(41)(G) and 3.557(e)(37)(G) recognize no Te…
Does a nonprofit providing housing and job-training services qualify for the Texas franchise-tax charitable exemption?
No, not under the state charitable exemption. To qualify under Texas Tax Code Sec. 171.062, a corporation must devote all or substantially all of its activities to the alleviation of disease, poverty,…
Must a federally tax-exempt homeowners association still file a Texas franchise tax report, and how can it get exempt?
Being exempt from federal tax does not by itself relieve a homeowners association from the Texas franchise tax. The franchise tax is imposed on all corporations, including nonprofit corporations, so t…
How did the pre-2008 Texas franchise tax apply to a transmission and distribution utility (TDU) and a retail electric provider (REP) after electricity deregulation?
For the pre-2008 Texas franchise tax, the key effect of electricity deregulation was on gross receipts and apportionment. A transmission and distribution utility (TDU) that only moves electricity is p…
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These are official tax letter rulings and advisory opinions issued by Texas's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.