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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Did a Texas professional association become subject to franchise tax because it elected federal S-corporation treatment?
No. The Comptroller looked to the entity's legal formation for Texas franchise-tax status. Assuming the entity was legally organized as a professional association under the Texas Business Corporation …
When a corporation or LLC converts into a Texas limited partnership and the partnership sells its assets, who owes franchise tax, and what final filings are required?
The converting corporation files a final report; the resulting limited partnership and its sale gain owe no franchise tax, but a corporate or LLC general partner does. When a corporation (or LLC) conv…
Could an oil and gas taxpayer use Rule 3.553 reserve methods for its full-cost pool, and when could proved producing reserves be used?
No. Rule 3.553's four reserve-estimation methods applied only to amortizing intangible drilling costs, not the full-cost pool including leasehold costs and equipment. The ad valorem method required ce…
Did buying raw agricultural materials in Texas and picking them up with company employees and a truck create franchise-tax nexus?
No. The client bought raw agricultural product from a Texas seller, sent three employees and a company truck from Missouri to pick it up, and hauled all of it to the Missouri processing plant. It owne…
Did a foreign corporation create Texas franchise-tax nexus when its only asset and activity was an interest in an LLC doing business in Texas?
No. The foreign corporation's sole asset was a membership interest in an LLC doing business in Texas, it conducted no other activity, and it had no Texas certificate of authority. The Comptroller conc…
Did a homeowners' association qualify for the former Texas franchise-tax exemption when the development included commercial ranching property?
No. Section 171.082 required the development or project to be legally restricted to residential use. Because the development included commercial-use ranching property, the corporation did not qualify …
Could an S corporation include capital losses, including excess losses after netting gains, in the former Texas earned-surplus calculation?
Yes. Rule 3.556(e)(9) included both capital gains and capital losses in the S corporation's federal-taxable-income and earned-surplus calculation. Gains and losses were netted, and any excess capital …
Were oil-and-gas lease receipts partnership receipts when a corporation transferred title by executed but unrecorded documents and kept collecting payments as agent?
Yes. Properly executed transfer documents vested ownership of the oil-and-gas leases in the partnership for franchise-tax purposes even if they were not recorded. The corporate general partner could c…
Did a passive Delaware corporation owe Texas franchise tax because it held a Texas certificate of authority and had a Texas mailing address?
Yes. The corporation's only asset was a limited-partnership interest, and it had no employees, operations, or tangible property. Even so, Section 171.001 taxed a corporation authorized to do business …
How did a QSSS and parent S corporation report separately for the former Texas franchise tax, including parent investment and dividends?
The QSSS and parent were separate Texas taxpayers. The QSSS filed using its own income, deductions, assets, and liabilities, while Rule 3.556 computed earned surplus as if separate federal S-corporati…
Could a corporation deduct a federal net operating loss in Texas earned surplus, and how did the separate Texas business-loss carryforward work?
A federal net operating loss was not deductible because earned surplus began with federal taxable income before NOL deductions. Texas instead allowed a business loss—any negative amount after apportio…
After a midyear corporate buyout produced two federal short-period returns, did the acquired corporation file separate Texas franchise-tax reports?
No additional Texas reports were required. Assuming the acquired C corporation remained a separate legal entity doing business in Texas and continued its calendar year, both former tax components used…
How did the former Texas throwback rules treat out-of-state delivery to a Texas buyer, independent solicitation, and foreign-country sales?
Delivery to another state was non-Texas unless throwback applied, and the buyer's Texas incorporation did not change that. Independent solicitation in the destination state created taxable-capital nex…
Could a corporation amend its 1994 franchise-tax report to claim the temporary credit for sales tax paid on qualifying manufacturing equipment?
Yes, assuming the equipment qualified and the corporation had a valid filing extension. An amended report claiming the temporary credit could be filed within four years of the report due date, includi…
Did a domestic nonprofit corporation have to file and pay Texas franchise tax before the Comptroller approved its exemption?
Yes. Nonprofit formation alone did not create franchise-tax exemption. Sections 171.001 and 171.051, with Rule 3.541, required a domestic nonprofit corporation to apply and provide evidence of qualifi…
Did filing a final federal return and liquidating operations dissolve a Texas corporation for franchise-tax purposes?
No. Although the corporation had liquidated two years earlier and filed a final 1996 federal return, Comptroller records still showed an active Texas charter. It remained responsible for franchise tax…
Was a for-profit corporation exempt from Texas franchise tax because it performed services formerly provided by government agencies?
No. Section 171.001 applied to corporations doing business or authorized in Texas, and the former law contained no exemption for a for-profit company performing services for federal, state, county, or…
Did maintaining a company office in Texas create nexus for both former franchise-tax components?
Yes. Rule 3.546(c)(15) treated maintaining a Texas place of business as taxable-capital nexus. Rule 3.554(d)(18) treated an office paid for directly or indirectly by the company and formally attribute…
Did converting a Texas corporation to an LLC by filing articles of conversion require final franchise- and sales-tax returns?
No, if the corporation filed articles of conversion. Texas treated the converted LLC as the same legal entity, so no final franchise-tax or sales-tax return was required; the state would update its re…
Did independent agents soliciting Texas orders for publications create nexus for both former franchise-tax components?
They created taxable-capital nexus. Independent agents soliciting Texas orders for tangible publications made the corporation responsible for franchise-tax reports under Rule 3.546(c)(4). The corporat…
Did an investor-owned electric utility include transformers in taxable capital when GAAP required capitalization as plant assets?
Yes, if GAAP required capitalization. Section 171.109(b) required the corporation to compute surplus, assets, and debts under generally accepted accounting principles. Transformers classified by GAAP …
Did a federal Section 368(a)(1)(F) reincorporation eliminate Texas final and initial reports when state records showed one entity terminated and another was authorized?
No. Although the taxpayer viewed the state-of-incorporation and name change as a federal F reorganization with uninterrupted tax attributes and no short year, Texas records showed the old corporation …
Could one corporation receive another corporation's Texas business-loss carryover through a merger when state records still showed separate certificates of authority?
No. Comptroller records showed one corporation still had an active Texas certificate of authority, the other had received a separate certificate on December 23, 1996, and the agency had no record of t…
Did delivering products to Texas in vehicles borrowed or assigned from a parent corporation create earned-surplus nexus for both companies?
Yes. Solicitation already created taxable-capital nexus for both foreign corporations. For earned surplus, Corporation A controlled the borrowed, assigned, or leased vehicles and used them to deliver …
Could a Texas state agency grant a license to a corporation that was not in good standing for franchise-tax purposes?
No. The Comptroller confirmed that a state agency could not grant a license to a corporation that was not in good standing with respect to franchise tax. The letter attributed that requirement to Arti…
Could a corporation eliminate transactions between partnerships by applying consolidated-reporting principles under the former Texas franchise tax?
No. The Tax Policy Director said eliminating transactions between the partnerships would effectively allow consolidation contrary to the statute and agency rulings. Partnership receipts were includabl…
Was holder-redeemable preferred stock debt when the certificate of incorporation allowed the corporation to refuse redemption under legal, charter, or lender restrictions?
No. Although holders could request redemption at $1,000 per share, the certificate of incorporation allowed the corporation to refuse a request when redemption was prevented by law, the certificate, o…
Did a corporation owe a payment with its 1998 annual-report extension request when its prior initial report showed zero taxable capital and zero taxable earned surplus?
No. The electronic-funds-transfer taxpayer chose the option requiring 100 percent of the tax reported for the previous year. Because its previous report was an initial report showing zero net taxable …
Could a licensed CPA sign a Texas franchise-tax extension as an authorized agent after receiving verbal authorization from a corporate officer?
Potentially, but CPA status and verbal authorization did not make the answer automatic. The letter said an authorized agent was a person legally empowered to act for the corporation, and a CPA was not…
Was a member's transfer of funds to an LLC excluded from stated capital and surplus as debt?
Only if the transfer was debt under Section 171.109: a legally enforceable obligation for a certain amount of money payable within an ascertainable period or on demand. Funds intended as contributed c…
How does a Texas bank treat interest from, and gains and losses on the sale of, U.S. government obligations for franchise tax?
Interest from federal obligations is excluded from the earned-surplus base and gross-receipts factor, but is included in the bank's taxable-capital gross receipts. For a Texas-domiciled bank, interest…
For former earned-surplus apportionment, was a federal capital-loss carryforward used in the year applied or the year the loss actually occurred?
The actual-loss year controlled. Rule 3.557(e)(4) required excess capital losses carried back or forward for federal purposes to be used in computing receipts in the year the loss occurred, not the ye…
Did a Texas corporation's gain from selling an interest in a Texas LLC to a Delaware-formed LLC produce Texas gross receipts?
No, to the extent the gain was recognized as federal revenue. The Comptroller treated the 87.5% LLC membership interest as an intangible asset. Because the acquiring payor was legally formed in Delawa…
Did a corporation have Texas nexus when its only Texas activity was employees developing software rather than soliciting business?
Yes. The corporation had no other Texas operations, but Texas employees wrote software code for products sold to real-estate-industry customers. Even though those employees did not solicit business, t…
How did two successive mergers affect receivable collections, final reporting, and the new surviving corporations' initial franchise-tax reports?
Company C's collection of Company A's existing trade receivables produced no gross receipts for C. A still owed its 1998 annual report and a final report within 60 days after merging out of existence.…
When were a subsidiary's billings to reimburse parent-company expenses excluded from former franchise-tax gross receipts?
With a written agency agreement, reimbursements no greater than the subsidiary's cost were excluded, but any excess entered gross receipts everywhere. Without a written agreement, exact dollar-for-dol…
Did an out-of-state sign manufacturer create Texas franchise-tax nexus by arranging local installation for customers?
Yes. Although signs arrived by common carrier and the manufacturer had no other Texas representatives, Texas installers acted as its agents when it arranged installation for purchasers. That activity …
When were foreign-source dividends excluded from former Texas taxable earned surplus and its receipts factors?
Foreign-source dividends were excluded from taxable earned surplus when included in federal taxable income under I.R.C. Section 78 or Sections 951-964, or when they met Rule 3.555(b)(3). An excluded d…
How were receipts from long-haul telecommunications circuits sourced when the provider supplied facilities but did not originate or terminate calls?
The provider was distinguished from the telephone companies covered by the call-originating and terminating rules because it supplied facilities but did not originate or terminate calls. Revenue attri…
Did temporarily bringing an aircraft to Texas for repair while completing outside-signed sales, leases, and a novation create franchise-tax nexus for the parties?
No. The aircraft entered Texas temporarily for repair and renovation while Companies A through D completed a purchase, lease, later sale, and novation. Each company otherwise had no Texas business or …
Did an out-of-state company create Texas franchise-tax nexus by providing capital-lease financing without representation or financial activity in Texas?
No, on the stated facts. The company had no Texas representation and provided only capital-lease financing. The Comptroller said it was not subject to franchise tax. But Texas credit checks, gathering…
How were distributions from funds treated as series of one trust sourced for former Texas franchise-tax apportionment?
The trust's principal place of business controlled for both former tax components. Because each fund was described as a series of the trust, the Comptroller presumed the funds were not separate entiti…
If a Texas partnership elects to be taxed as a corporation federally, is it subject to franchise tax, and can a corporate general partner deduct the partnership's losses?
The partnership is still not subject to franchise tax, and the corporate general partner cannot use the partnership's losses. A Texas limited partnership elected under Treasury Regulation § 301.7701-3…
Could a qualified Subchapter S subsidiary and its parent S corporation file one consolidated Texas franchise-tax report?
No. The QSSS and parent S corporation each had to file a separate franchise-tax report because Section 171.001(a)(1) imposed tax on each corporation and Rule 3.544(c) prohibited consolidated reporting…
Did a foreign corporation have Texas nexus because it was the general partner of a partnership doing business in Texas?
Yes. Although the foreign corporation described itself as a passive pass-through entity with no direct Texas business, its business questionnaire showed that it was general partner of a partnership do…
How did an LLC that elected out of federal partnership treatment compute earned surplus when members had different asset bases and depreciation methods?
It used a pro forma Form 1065. The LLC had to make the federal elections required of an LLC treated as a partnership and compute asset basis as though it had not elected out of partnership treatment. …
How did Texas treat income from in-state and out-of-state municipal bonds under the 1998 franchise tax?
For taxable capital, municipal-bond revenue entered surplus and the gross-receipts factor. For earned surplus, bond income excluded from federal taxable income because it was exempt also stayed out of…
Did a Pennsylvania online retailer create Texas franchise-tax nexus by placing link and icon code on a Texas company's server and paying sales commissions?
No, on the stated facts. The retailer's own website, headquarters, offices, property, payroll, and representatives were outside Texas. A Texas online magazine displayed the retailer's link and buy-now…
Could corporations claim a Texas franchise-tax manufacturing credit for sales taxes paid by a related partnership?
The Tax Policy Director said no. Texas consistently treated a partnership as an entity rather than an aggregate of its partners, and Section 171.0021's tax-credit language controlled even if an aggreg…
Did on-site Texas software training create nexus for both the service subcontractor and the software company promising the training?
Yes. Corporation A provided on-site training and consulting in Texas, creating nexus under Rule 3.546(c)(2), whether it used its own staff or subcontractors. Corporation B also had nexus when its cust…
Could a C corporation inherit an LLC's franchise-tax credits or business loss when the LLC merged into it?
No. Franchise-tax credits could not transfer from one corporation or LLC to another through merger for either former tax component, and the survivor could not use the nonsurvivor's business loss in co…
Did a qualified Subchapter S subsidiary file separately from its parent, and how did it compute taxable earned surplus?
The QSSS and its parent S corporation had to file separate franchise-tax reports because Section 171.001 taxed each corporation and Rule 3.544(c) barred consolidated reporting. But the Comptroller did…
Did six single-member Texas LLCs treated as divisions of a Colorado corporation file separately, and did ownership alone tax the parent?
Each Texas-organized LLC had to file its own franchise-tax report even though federal law treated all six as divisions of their sole corporate member; consolidated or combined reporting was not allowe…
How were zero Texas receipts, an apportionment ratio over 100%, and weekend due dates handled on 1997 Texas franchise-tax reports?
On Form 05-147, zero Texas gross receipts meant entering zero in Item 23 and leaving lines 17-22 blank. Texas receipts could not exceed receipts everywhere, so the apportionment factor could not excee…
How did a same-day multi-entity restructuring affect OldSub's final report, business-loss carryforward, merger credit, and transitory subsidiaries?
OldSub had to file a final report and could use its existing business-loss carryforward against its own final taxable earned surplus. Any remaining loss disappeared and did not transfer to NewSub2. Ne…
Could an S corporation using the federal-income-tax method value a management contract at zero for taxable-capital surplus when its balance sheet showed $2 million?
Only with documentation. The balance sheet's $2 million value appeared to be the asset's cost unless the corporation proved that the management contract had zero federal-income-tax value when recogniz…
How did a federal Section 338(h)(10) stock acquisition affect the target's former Texas earned-surplus and taxable-capital franchise-tax calculations?
For the former earned-surplus component, the target included the Section 338(h)(10) deemed asset-sale amounts and apportioned receipts according to the assets sold. Texas did not recognize the electio…
Were an S corporation and its wholly owned qualified subchapter S subsidiary treated as one taxpayer or as separate corporations for former Texas franchise tax?
They were separate Texas franchise-tax entities even though federal income-tax law treated the QSSS as a division of its S-corporation parent. Section 171.001 imposed tax on each corporation, and Rule…
Did a bank create former Texas franchise-tax nexus by leasing automobiles used in Texas, despite having no Texas real property, payroll, or active solicitation?
Yes. Leasing tangible personal property used in Texas created nexus for the lessor. The bank was subject to Texas franchise tax even though it had no Texas real property or payroll and did not activel…
Did a corporation need to file another public information report with its 1997 final franchise-tax report after filing one with its 1997 annual report?
No. Section 171.203(b) required the public information report once a year. Because the client had already filed a PIR with its 1997 annual franchise-tax report, it did not need another PIR with its 19…
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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.