How did changing a corporation's year-end from July 31 to January 31 affect its 1997 and 1998 former Texas franchise tax reports?

Plain-English summary

Changing the accounting year added no separate filing requirement, but it changed the periods used on the next two reports.

The next report remained the 1997 annual report due May 15, 1997. Because the corporation had no financial-accounting year-end during calendar 1996, its 1997 taxable-capital component used December 31, 1996. Its 1997 earned-surplus component used August 1, 1995 through July 31, 1996.

For the 1998 report, taxable capital used the new January 31, 1997 year-end and twelve months of receipts ending on that date. Earned surplus used August 1, 1996 through January 31, 1997, with all revenue recognized during that period included in gross receipts.

What this means for you

Corporations changing fiscal year-end

Under the former rules, a year-end change could alter the accounting dates and receipt periods without creating an extra report.

Preparers handling short federal periods

The letter's result depends on its assumptions about the federal returns and both former franchise-tax components.

Common questions

Q: Did the year-end change require an additional Texas filing?
A: No.

Q: What date controlled taxable capital on the 1997 report?
A: December 31, 1996.

Q: What earned-surplus period applied to the 1998 report?
A: August 1, 1996 through January 31, 1997.

Citations and references

• 34 Tex. Admin. Code Sec. 3.544(a)(1)(C), as cited in the letter
• 34 Tex. Admin. Code Sec. 3.549(d)(2), as cited in the letter
• 34 Tex. Admin. Code Sec. 3.557(d)(1), 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/9610093L

Original ruling text

October 29, 1996

Dear **:

We received an inquiry from ** about the corporation's filing
status for Texas franchise tax reporting purposes. ** asked that
our response be directed to your attention.

The inquiry states that the corporation's 1996 fiscal year end will change from
July 31, 1996 to January 31, 1997. Your 1997 fiscal year will begin on
February 1, 1997. For purposes of our response, we presume that the change in
accounting year end affects both components of the franchise tax. Based on our
understanding of the Internal Revenue Code, we also presume that the
corporation will be required to file a federal income tax return for the period
ending July 31, 1996, as well as a short period federal income tax return for
the period beginning August 1, 1996 and ending January 31, 1997.

There are no additional franchise tax filing requirements as a result of the
corporation's change in accounting year end. Our records indicate that the
next report due from the corporation will be the 1997 annual report, due May
15, 1997.

Because of the corporation's change in accounting year end, it will not have an
accounting year end for financial accounting purposes during calendar year
1996. Per Rule 3.544(a)(1)(C) (copy enclosed), the corporation would use
December 31, 1996, as its accounting year end for purposes of the taxable
capital component [Schedule A] on the 1997 annual report. On its 1998 annual
report, the corporation would use January 31, 1997 as its accounting year end,
and report twelve months of gross receipts based on the January 31, 1997 ending
date. Please refer to Franchise Tax Rule 3.549(d)(2), enclosed.

For purposes of the earned surplus component [Schedule B] on the 1997 annual
report, the corporation will use a beginning date of August 1, 1995 and an
ending date of July 31, 1996. Please refer to Rule 3.544(a)(1)(C). On its
1998 annual report, the corporation would use a beginning date of August 1,
1996 and an ending date of January 31, 1997, and report as gross receipts all
revenues recognized during that period of time. Please refer to Franchise Tax
Rule 3.557(d)(1), enclosed.

This response is based on the facts presented and the assumptions stated
herein. If there are different or additional facts, the response may change.

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