How did the former Texas throwback rule source receipts from medical products shipped from Texas, including exports?

Plain-English summary

Texas-buyer deliveries were Texas receipts, while interstate deliveries threw back only if the seller was not taxable in the destination state.

Both former franchise-tax components used Texas receipts divided by receipts everywhere, although their accounting methods and throwback results could differ. FOB terms did not determine Texas receipts.

The corporation described exports of medical products, but this letter only stated the general Texas and interstate rules. It did not expressly classify the foreign-country receipts, and it excluded sales-tax issues answered separately.

What this means for you

Texas product sellers

Buyer location and destination-state taxability—not FOB wording—controlled the framework stated here.

Common questions

Q: Did FOB terms control Texas receipts?
A: No.

Q: When did an interstate sale throw back?
A: When the seller was not subject to taxation in the buyer's state.

Q: Did this letter decide the export receipts?
A: No, not expressly.

Citations and references

• 34 Tex. Admin. Code Sec. 3.549 and Sec. 3.557, as cited in the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9608113L

Original ruling text

August 27, 1996

Dear **:

Thank you for your letter concerning Texas gross receipts. I will address only
the franchise tax implications in this letter. The sales tax issues were
answered by a sales tax specialist and have
been sent under a separate cover.

You stated in your letter that your corporation was formed in California in
June of 1981. The
coorporation moved to CITY X, Texas in May of 1995. The corporation assembles
medical
products for resale. The majority of the products are shipped FOB CITY Y for
transport to
foreign countries.

The franchise tax consists of two components: Taxable Capital and Earned
Surplus. Both
components are apportioned by a single gross receipts apportionment factor. A
corporation
must compute an apportionment factor for each component. The apportionment
factors are
computed as gross receipts in Texas divided by gross receipts everywhere. The
factors may
be different because the factor for taxable capital is computed in accordance
with generally
accepted accounting principles (GAAP) while the factor for earned surplus is
computed in
accordance with the federal income tax methods of accounting. The two factors
may also
differ for various other reasons, one being the "throwback rule."

The "throwback rule" comes into play when a corporation is apportioning gross
receipts from
the sale of tangible personal property. (F.O.B. terms are not relevant to the
determination of
Texas receipts.) If a company delivers goods to a buyer located in Texas, the
receipts from
these sales are apportioned to Texas (included in both the numerator and
denominator of above
formula). If a company delivers goods to a buyer located in another state,
the gross receipts
from these sales are non-Texas receipts (included only in denominator of
factor) unless the
seller is not "subject to taxation" in that state. In such cases, the receipts
from those out-of-
state sales are "thrown-back" to Texas (and included in the numerator).

Rules 3.549 and 3.557 will aid you in determining Texas receipts.

If you have any questions about this or any other franchise tax matter, please
call me at
1-800-531-5441, extension 34612. My direct number is (512) 463-4612. You may
write me at
Tax Policy Division, Comptroller of Public Accounts, Austin, Texas 78774.

Sincerely,
Janet Spies
Tax Policy Division