Can a partner in a licensed title agency claim the Texas franchise-tax exemption for title insurance agents subject to the premium receipts tax?

Plain-English summary

This internal Comptroller memo explains why a taxpayer was denied a franchise-tax exemption it claimed as a title insurance agent. The problem was who was actually subject to the premium receipts tax.

• The claim. The taxpayer sought a franchise exemption on the basis that it was a title insurance agent subject to the premium receipts tax under Insurance Code Art. 9.59.
• The exemption's requirement. Both the Insurance Code and Tax Code Sec. 111.052 (as cited in the memo) exempt from franchise tax the licensed insurance companies and title insurance agents that are subject to the premium receipts tax under Insurance Code Chapter 4 or 9.
• Why it failed. Per Department of Insurance records, the taxpayer was not itself a licensed title agent - it was one of several partners owning a licensed title agency. The agency is the party subject to the premium receipts tax and therefore franchise-exempt; the partner, as a separate entity, is not subject to the premium receipts tax and so does not meet the exemption requirement.
• Separate-entity backing. The memo starts from the separate-entity reporting rule - each entity is separate and distinct for reporting - and cites hearing decision 36,495, where an ALJ held that a corporate partner could not take a credit the partnership had established, weighing against the partner's exemption claim.

Currency note: This applies the pre-2008 franchise tax (replaced by the margin tax effective January 1, 2008 under House Bills 3 and 3928). Confirm the current insurance-related exemption and its citation before relying on this.

What this means for you

Owners and partners of insurance/title agencies

An exemption that belongs to the agency (because the agency pays the premium receipts tax) does not automatically extend to its owners or partners. Texas treats each entity separately, so a partner that is not itself subject to the premium receipts tax must file franchise tax on its own footing.

Tax professionals

The analysis rests on who bears the premium receipts tax, not on the general line of business. Trace the exemption to the specific entity actually taxed under Insurance Code Chapter 4/9; a separate upstream owner does not inherit it. Note the memo's citation to "Section 111.052, Tax Code" is reproduced as written - verify the current, correctly numbered exemption provision.

Common questions

Q: Does a partner in a licensed title agency get the title-agent franchise exemption?
A: No. The partner is a separate entity not subject to the premium receipts tax, so it does not meet the exemption requirement.

Q: Who does the exemption cover?
A: The licensed insurance company or title insurance agent that is actually subject to the premium receipts tax under Insurance Code Chapter 4 or 9.

Q: What supports treating the partner separately?
A: The separate-entity reporting rule, illustrated by hearing decision 36,495 (a corporate partner could not take a credit the partnership established).

Citations and references

Statutes and authority:

• Texas Tax Code Sec. 111.052 - cited in the memo as the franchise-tax exemption for licensed insurance companies and title insurance agents subject to the premium receipts tax (Insurance Code Chapter 4 or 9)
• Texas Insurance Code Art. 9.59 - premium receipts tax on title insurance agents
• Comptroller hearing decision 36,495 - separate-entity theory: a corporate partner could not take a credit the partnership had established

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200108462L

Original ruling text

DATE: August 24, 2001

TO: Adina Christian

FROM: Gary Johnson and Jerry Bobbitt

SUBJECT: Request For Franchise Tax Exemption

Recently a taxpayer contacted the State Comptroller's Office requesting a
franchise tax exemption on the basis that the taxpayer was a title insurance
agent subject to the premium receipts tax under Art. 9.59, Texas Insurance
Code. The State Comptroller's Office denied the request for exemption on the
basis that the taxpayer is not a licensed title agent and therefore not subject
to the premium receipts tax.

Both the Insurance Code and Section 111.052, Tax Code provide for a franchise
tax exemption for licensed insurance companies and title insurance agents
subject to the premium receipts tax in either Chapter 4 or Chapter 9, Insurance
Code. According to the records of the Department of Insurance, the taxpayer is
not shown as a title agent, but is instead one of several partners owning a
licensed title agency. The licensed title agent is subject to the premium
receipts tax and is therefore exempt from the franchise tax. Since the
taxpayer is a separate entity, it is not subject to the premium receipts tax
and therefore does not meet the statutory requirement for the franchise tax
exemption.

In any franchise tax application, we start with the separate entity reporting
requirement. In other words, each entity is a separate and distinct legal
entity for reporting purposes. In hearing decision 36,495, the ALJ determined
that a corporate partner could not take a credit that the partnership had
established. The judge noted the State Comptroller's Office historical
application of the entity theory in dealing with partnership matters. This
decision would tend to weigh against the corporate partner's claim for the
title insurance exemption.