TX 9609733L Franchise Tax (PRIOR TO 01/01/2008) 1996-09-18

Did a Texas-organized LLC owe former franchise tax and have to file an initial report even if taxed federally as a partnership?

Short answer: Yes. Organization under Texas law made the LLC subject to former franchise tax despite federal partnership treatment. Its initial report used Rule 3.562 for taxable capital and earned surplus, including member contributions as stated capital, and the Comptroller directed prompt filing.

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 applies former LLC franchise-tax rules and report forms, and the filing was already overdue. Confirm current law and filing procedures. 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

A Texas-organized LLC owed former franchise tax even though it was taxed federally as a partnership.

The LLC had to file an initial franchise-tax report. Taxable capital followed Rule 3.562(c), with member contributions entered as stated capital, and earned surplus followed Rule 3.562(d). Because the initial report was late, the Comptroller directed the LLC to file promptly to avoid further action.

What this means for you

Texas-organized LLCs

Federal partnership classification did not remove the former Texas franchise-tax obligation.

Preparers reviewing old reports

Member contributions and the separate taxable-capital and earned-surplus instructions mattered to the initial filing.

Common questions

Q: Did federal partnership treatment exempt the LLC?
A: No.

Q: What amount entered stated capital?
A: The members' contributions.

Citations and references

34 Tex. Admin. Code Sec. 3.562(c) and (d), 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/9609733L

Original ruling text

September 18, 1996

Dear **:

In your letter of September 5, you requested information regarding the
franchise tax report that should be filed for COMPANY A.

You state (and our records indicate) that COMPANY A is a limited liability
company (LLC) organized in Texas.

First each LLC that is organized under the laws of Texas is subject to
franchise tax under even if the LLC is taxed as a partnership for federal
income tax purposes. Therefore, COMPANY A is subject to franchise tax because
it is organized under Texas law.

Second, as you requested, an initial franchise tax report with instructions
will be sent to you in a separate letter.

Third, you should note the following in completing the report:

The taxable capital component (Schedule A of the report) should be computed as
indicated in subsection (c) of enclosed Rule 3.562 and the report instructions.
In particular, you should enter the amount of the members' contributions as
stated capital in item 6.

The earned surplus component (Schedule B of the report) should be computed in
accordance with subsection (d) of Rule 3.562 and the instructions for Schedule
B.

If you need help in completing the report, I recommend that you contact our
field office in Corpus Christi at 5155 Flynn Parkway, Suite 106. The telephone
number of the field office is 854-2600.

Finally, COMPANY A should file the initial report as soon as possible to avoid
further action against the company.

If you have any 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

Get today's answer for your situation

You just read a 1996 ruling on this question. Ezel checks current Texas tax law and answers your specific situation, with citations.

Opens in Ezel Pro. Every answer cites the authority it relies on.