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 a private petrochemical refinery owe Texas motor vehicle tax on a fire truck, command van, and breathing-air truck?
Yes. A private refinery's fire truck, command van, and breathing-air truck were taxable motor vehicles because the purchaser was not a public agency or independent volunteer fire department, the two e…
After Home Interiors & Gifts v. Strayhorn, when are a corporation's sales thrown back to Texas for the earned-surplus franchise tax?
Texas changed its throwback rule. This internal audit memo tells auditors that, after the Texas Supreme Court decision in Home Interiors & Gifts, Inc. v. Strayhorn, sales protected by Public Law 86-27…
Are street sweepers built on standard cab chassis subject to Texas motor vehicle sales tax despite special title or registration treatment?
Yes. The standard cab chassis was a motor vehicle and the added sweeper was an accessory, so the completed street-sweeping unit was subject to Texas motor vehicle sales tax despite special registratio…
After a seller-finance dealer transfers a note to a qualifying related finance company, who reports tax and how is tax allocated to payments?
The selling dealer kept the full tax in the installment contract and remained responsible for collecting and remitting it as payments arrived. The qualifying RFC did not report tax on each principal p…
What happens to Texas seller-finance vehicle tax when notes are sold to a partnership that fails the related-finance-company ownership test?
Selling the notes to the children's partnership would accelerate all remaining motor vehicle tax because it was not a qualifying RFC: its ownership was not at least 80% identical to the dealer's. A me…
Does the 1,820-hour employment requirement in the Texas Enterprise Zone Program include paid leave?
Yes. The Governor's Office of Economic Development and Tourism advised the Comptroller that the 1,820-hours requirement in Government Code Section 2303.401 for the Texas Enterprise Zone Program is inc…
Can proceeds from selling an old vehicle to a relative reduce Texas motor vehicle sales tax on a new vehicle bought from a dealer?
No. Only a vehicle transferred directly to the seller of the new vehicle as part of that purchase can reduce taxable consideration. Cash proceeds from a separate sale to a relative or other third part…
Can a franchised dealer use its Texas rental permit to defer tax when rental-plan vehicles are titled to the manufacturer's finance affiliate?
Yes. Under the described manufacturer rental-purchase plan, the dealer could use its Texas rental permit on Form 130-U even though title named the manufacturer's affiliate in care of the dealer. The d…
Can a 48-foot flatbed trailer with Texas token-trailer registration qualify for the interstate motor vehicle tax exemption?
Potentially yes. A token-registered flatbed trailer could qualify if used exclusively with a truck or tractor operating under IRP apportioned registration in interstate service. The claimant had to pr…
What timing, rematching, and valuation rules apply when a Texas rental company uses retired vehicles for fair market value deductions?
The retired vehicle had to leave service before the replacement purchase and no more than 18 months earlier. The company could rematch eligible deductions with records, but had to keep the same book v…
For the Texas franchise-tax capital investment credit, what costs count as a qualified capital investment?
Transportation and direct labor costs count, but the full federal depreciable basis does not. For the pre-2008 franchise-tax capital investment credit, the Comptroller advised that a qualified capital…
Is a non-profit's unrelated business income subject to Texas franchise tax?
It depends on whether the non-profit has obtained a Texas franchise-tax exemption. A non-profit corporation doing business in Texas is subject to the franchise tax, and it must file and pay until the …
For a credit-card company, how are annual membership fees and merchant discount fees sourced for Texas franchise-tax apportionment?
They are sourced differently. In this internal franchise-tax policy memo to an auditor, the Comptroller treated a credit-card company's annual membership fee as the sale of an intangible right, source…
When a single-member LLC doing business in Texas is owned by a multi-member LLC with no other Texas contact, which entity owes franchise tax?
The single-member LLC owes the tax; its parent does not. Because Texas bases franchise-tax responsibility on an entity's legal formation rather than its federal treatment, a single-member LLC doing bu…
Does Texas require any special franchise-tax filing or short-period report when a corporation changes its fiscal year end?
No special filing is required. For Texas franchise-tax purposes, a corporation does not need to notify the Comptroller or obtain approval to change its accounting year end, and it does not file any sh…
If an LLC dissolves mid-year, is any of its Texas franchise tax for the full privilege period refunded?
No. An LLC that dissolves must pay all Texas franchise tax through the end of the privilege period that contains the effective date of the dissolution, and no refund is paid or credit given for the pe…
For a healthcare-savings (PPO access) program, how are membership fees and marketing-representative enrollment fees sourced for Texas franchise tax?
Both fees are sourced to the payor's location. The Comptroller advised that a Texas company selling access to preferred provider organizations (PPOs) through a network-marketing model earns two intang…
Must Texas dealers collect sales tax on documentary and inventory-tax charges for off-road vehicles, and how can they document farm exemptions?
Off-road vehicle documentary fees and passed-through vehicle inventory tax were part of the Chapter 151 sales-tax base. The documentary-fee collection start date was later corrected to November 1, 200…
For a mortgage banker, how are loan-servicing receipts sourced for Texas franchise-tax apportionment?
By where the mortgaged property sits. The Comptroller advised a mortgage banker that receipts from loan-servicing activities, where the loans are secured by real property, should be sourced based on t…
Can a Texas day-care provider claim the franchise-tax child-care credit for the care it provides to the children of its own employees?
Yes. The Comptroller adopted a new policy allowing a child-care provider that is subject to franchise tax to claim the Chapter 171, Subchapter N child-care credit for the care it provides to the child…
Can a Texas manufacturer amend its franchise-tax reports to remove throwback based on the Home Interiors decision, and how will the refund be handled?
It can file, but the refund will be denied and held pending the Home Interiors appeal. A Texas heavy-equipment-trailer manufacturer had apportioned 100% of its gross receipts to Texas under the earned…
Is a vehicle rental to a Texas state employee on official business exempt when made under a state master contract?
Yes. A state employee's official-business rental was exempt when made under a state master contract and supported by a Motor Vehicle Rental Exemption Certificate. The rule applied to IBA, CLIBA, and C…
Can a lessee use a currently leased vehicle as a trade-in toward another leased vehicle for Texas motor vehicle tax purposes?
No. Returning the old leased vehicle to its lessor, or having the new-vehicle dealer buy it separately, did not make it a trade-in. The lessee had to first purchase the old vehicle and pay sales tax, …
Through what report years could an enterprise project claim the Texas franchise-tax jobs creation credit and capital investment credit?
The credits had firm cutoff dates. The Comptroller explained that the franchise-tax jobs creation credit (Tax Code Sections 171.751-171.761) and capital investment credit (Sections 171.801-171.811) we…
Does the time a Texas tax refund claim spends under informal review pause (toll) the statute of limitations?
It depends on when the claim was filed. For refund claims filed BEFORE June 20, 2003, the Third Court of Appeals held in Strayhorn v. Willow Creek Resources, Inc. that the period a claim is under info…
Must a wholly-owned company with no Texas gross receipts still file a separate Texas franchise-tax report if it was physically present in Texas?
Yes, if it was physically present in Texas. Because Texas prohibits consolidated franchise-tax reporting, an entity cannot rely on its parent's report. The Comptroller advised that a wholly-owned comp…
Can a Texas franchise taxpayer with zero Texas receipts and zero total receipts carry forward a business loss?
No. A corporation that had zero Texas gross receipts and zero gross receipts everywhere in the year cannot generate or carry forward a business loss for franchise tax. The apportionment factor is Texa…
Is a political action committee (PAC) exempt under IRC Section 527 also exempt from Texas franchise tax?
No. A political organization or PAC that is exempt under Internal Revenue Code Section 527 does not qualify for exemption from the Texas franchise tax. The franchise tax is imposed on corporations and…
How must a Texas seller-finance vehicle dealer allocate and remit motor vehicle sales tax across the down payment and installments?
The dealer had to calculate total tax, collect the tax attributable to the down payment, subtract it, and divide the remaining tax equally among the scheduled installments. The Comptroller rejected a …
After a Texas audit assessment, how long does a taxpayer have to raise credit issues in a redetermination, and can limitations-barred credit issues be added later?
A taxpayer has the 30 days set by Tax Code Sec. 111.009 to raise both redetermination and credit issues, and issues already barred by limitations cannot be added after that. The Comptroller's General …
Does a Texas corporation need advance approval or certification before claiming franchise-tax incentive credits?
No advance approval or certification is required. The Comptroller explained that a corporation does not need prior approval to claim the franchise-tax incentive credits - the three economic developmen…
Are sales to foreign customers who pick up the goods in Texas counted as Texas gross receipts for franchise-tax apportionment?
Yes, they are Texas gross receipts. Where a company's customers from Mexico travel into Texas to pick up (take possession of) the merchandise, the receipts from those sales are delivered to the purcha…
Must a Texas PLLC taxed as a partnership pay franchise tax, and are guaranteed payments deductible in computing earned surplus?
Yes, the PLLC owes Texas franchise tax, and guaranteed payments can be deductible with limits. A professional LLC is subject to franchise tax under Tax Code Sec. 171.001(a)(2) based on its legal forma…
Must a Texas franchise taxpayer file the long form to preserve a business loss carryforward, and how does the carryforward work?
No long form is required. The Comptroller explained that a corporation does not have to file the franchise-tax long form to preserve or add to a business loss carryforward, though it should keep a wor…
Can a Texas enterprise project outside a strategic investment area claim both the jobs creation and investment credits, and abate more than 50% of its franchise tax?
Yes to both, within limits. An enterprise project designated on or after September 1, 2001 that creates qualifying jobs or makes a qualified capital investment within an enterprise zone may claim both…
Does a Texas business in a federal empowerment zone qualify for strategic investment area franchise-tax credits?
Yes. The Comptroller confirmed that a business located in a federally designated empowerment zone is eligible for strategic investment area (SIA) franchise-tax credits. The definition of an SIA in Tax…
When does a Texas salesperson create franchise-tax nexus for an out-of-state seller, and does Public Law 86-272 protect it?
It depends on what the Texas employee does. If an out-of-state company's only Texas contact is shipping goods from outside Texas to a Texas customer, it is not subject to Texas franchise tax. Once it …
Does common ownership or using independent-contractor sales reps give a Texas manufacturer nexus elsewhere, or are its shipments thrown back as Texas receipts?
The shipments are thrown back to Texas. Texas is a separate-entity state, so common ownership with a related distributor does not extend that affiliate's nexus to a Texas manufacturer; if the manufact…
Is an out-of-state service company taxed on all services to Texas clients, or only on the services its employees perform in Texas?
The company is subject to Texas franchise tax, but only the services performed in Texas are Texas receipts. Providing any service in Texas - regardless of whether the people performing it reside in Te…
When a Texas broker-dealer books all the revenue but affiliates perform much of the work, how are its service receipts sourced for franchise tax?
The broker-dealer includes all the revenue it books and sources service receipts to where the services are actually performed - including work done by affiliates. Company A, a Texas registered broker-…
Does Texas motor vehicle sales tax apply when a borrower buys a replacement vehicle but keeps the old loan through a substitution of collateral?
Yes. Buying the replacement vehicle was a separate taxable retail sale. Keeping the old loan and merely substituting the new vehicle as collateral did not change the purchase's taxability, even if the…
Is a gain recognized under IRC Section 336 on a liquidating distribution included in Texas taxable earned surplus, and how is it apportioned?
Yes, and it is apportioned as a sale of the distributed assets. IRC Section 336 requires a liquidating corporation to recognize gain or loss on a distribution of property in complete liquidation as if…
Must an LLC amend prior No Tax Due franchise-tax reports to carry a business loss from those years to a current report?
No amended reports are needed. An LLC that filed Form 05-141 Texas Franchise No Tax Due Information Reports for three years while accruing business losses does not have to amend those prior reports to…
A hotel guest reserved a room by phone stating he'd stay at least a month, but paid a weekly rate instead of a monthly rate -- does paying weekly (rather than monthly) disqualify him from the 30-day 'permanent resident' hotel-tax exemption, as his hotel claimed?
No -- the payment interval (daily, weekly, monthly, or any combination) has NO effect on the permanent-resident hotel-tax exemption. In this consumer dispute, a guest called ahead and reserved a room …
Can a Texas lab source outsourced service revenue by a cost ratio, or must service receipts be sourced by the fair value of work performed in Texas?
Service receipts must be sourced by the fair value of the services performed in Texas, and the Comptroller declined to approve a cost-ratio method. A Texas corporation that analyzed blood samples - pe…
Can a Texas dealer obtain title to a vehicle tax-free for resale, and when does registration or a manufacturer's certificate trigger tax?
A licensed dealer could title a vehicle tax-free for resale only while holding it exclusively for resale and leaving it unregistered. Registration created a presumption of taxable use. New MCO vehicle…
For Texas earned surplus, what are the IRC Section 179 expensing limit and the phase-out threshold?
The Section 179 election is capped at $25,000, and it phases out once the cost of Section 179 property exceeds $200,000. Because earned surplus for the Texas franchise tax is calculated using the Inte…
For Texas franchise-tax apportionment, when may software embedded in tangible personal property be treated separately from the property?
Software embedded in tangible personal property is generally treated as part of the property sale. The Comptroller said the software receipt may instead be apportioned to the payor's location only if …
Can off-the-shelf software expensed under the 2003 federal Section 179 amendment be deducted for Texas earned surplus?
No for earned surplus, but yes for taxable capital under the FIT method. The Jobs & Growth Tax Relief Reconciliation Act of 2003 expanded IRC Section 179 property to include off-the-shelf computer sof…
How are receipts from selling digital products apportioned for Texas franchise tax - as services or as license receipts?
It depends on whether the product is custom or generic. If the client contracts to create specific digital products for a customer, those receipts are for services and are apportioned to the location …
Does a corporation that controls a trust leasing railcars in Texas have franchise-tax nexus, and how are the trust's receipts and distributions apportioned?
The corporation has nexus, the trust is respected as separate, and apportionment turns on the trust's legal domicile. A California corporation that controlled a Connecticut-administered trust leasing …
For the 2004 Texas franchise tax, how much IRC Section 179 depreciation from a 2003 federal return is allowed in earned surplus?
Only $25,000 is allowed in earned surplus. The Comptroller confirmed in writing that IRC Section 179 depreciation taken on a 2003 federal return is allowed on the 2004 Texas franchise tax report only …
For Texas franchise tax, are receipts from goods shipped from Texas to the U.S. government thrown back to Texas, and does it matter that the buyer is the federal government?
The throwback rule looks at the state the goods are delivered to, and it does not matter that the purchaser is the U.S. government. Sales of tangible personal property shipped from Texas to a buyer in…
What did Texas's December 2003 revision to Form 14-202 cover for motor vehicle tax and surcharge refund claims?
The 2003 revision made Form 14-202 cover refunds of motor vehicle sales tax, diesel motor vehicle surcharge, and commercial vehicle registration surcharge paid in error, including the then-new diesel …
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…
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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.