TX 9609722L Franchise Tax (PRIOR TO 01/01/2008) 1996-09-10

Did holding interests in limited partnerships doing business in Texas create former franchise-tax liability for a corporation?

Short answer: Not if the corporation's only activity was holding limited-partnership interests. But if it was a general partner in any partnership doing business in Texas, the corporation was subject to former Texas franchise tax.

Apply this to your situation

This page answers the general question as of 1996. Ezel answers yours, under current Texas tax law, with citations.

Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. This 1996 response depends on the corporation's only activity being passive limited-partnership investment and distinguishes any general-partner role. Confirm current law. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

Passive limited-partnership interests alone did not create liability, but acting as a general partner did.

The corporation was not liable for former Texas franchise tax if its only activity was holding limited-partnership interests in partnerships doing business in Texas. If the corporation was a general partner in any of those partnerships, Rule 3.546(c)(12) made it subject to the tax.

What this means for you

Corporate investment holders

The result turned on the corporation's partner status, not merely on the underlying partnership's Texas business.

Common questions

Q: Did passive limited-partner ownership create liability?
A: No on the stated facts.

Q: Did a general-partner role change the result?
A: Yes.

Citations and references

34 Tex. Admin. Code Sec. 3.546(c)(12), 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/9609722L

Original ruling text

September 10, 1996

Dear **:

In your letter of August 29, you contend that CORPORATION A is not subject to
franchise tax because the company only holds investments in limited
partnerships that operate in Texas.

If CORPORATION A's only activity is holding limited partnership interests in
limited partnerships that are doing business in Texas, the company is not
liable for franchise tax. However, if CORPORATION A is a general partner in any
of these partnerships, the company is subject to franchise tax (see enclosed
Rule 3.546(c)(12)).

If you feel that CORPORATION A is not subject to franchise tax because it is
not doing business in Texas, you should send your information to the attention
of the Revenue Opportunities Program at:

Comptroller of Public Accounts
Austin, TX 78774-0100

The telephone number is 512/305-9899.

This response is based on the facts presented and current law. If there are
different or additional facts, the response may change.

If you have other questions, contact Tax Policy Division. You may call toll
free 1-800-531-5441, or our regular number is 512/463-4600. My extension is
3-4662. You may write me at Tax Policy Division, Comptroller of Public
Accounts.

Sincerely,

Bob Jeffcoat
Tax Policy Division

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