Which periods did a December 11, 1996 corporation use on its initial former Texas franchise-tax report?

Plain-English summary

Both former tax components used the period from December 11, 1996 through December 31, 1997 on the initial report.

The corporation began December 11, 1996 and used a December 31 year-end. Its initial report was due March 10, 1998 and covered the privilege period through December 31, 1998.

December 31, 1997 was at least six months after the beginning date and at least 60 days before the due date, so taxable capital used that year-end. Its receipts covered December 11, 1996 through December 31, 1997.

The same year-end met the earned-surplus timing rule. Reportable federal taxable income and federal-income-tax revenues for earned-surplus apportionment used December 11, 1996 through December 31, 1997.

The next report was the 1999 annual report due May 15, 1999. Taxable capital used the December 31, 1998 year-end, and earned surplus used calendar-year 1998.

What this means for you

New corporations reviewing historical initial reports

One qualifying accounting year-end could supply both components, while the privilege period extended beyond the measurement period.

Tax professionals

Do not confuse the report's privilege period with the accounting and receipt periods used to compute tax.

Common questions

Q: When was the initial report due?
A: March 10, 1998.

Q: What period supplied taxable capital and earned surplus?
A: December 11, 1996 through December 31, 1997.

Q: What was the next report?
A: The 1999 annual report due May 15, 1999.

Citations and references

• 34 Tex. Admin. Code Secs. 3.544(a)(1)(B)-(C), 3.549(d)(3), and 3.557(d)(2)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9702410L

Original ruling text

February 6, 1997

Dear ***:

Thank you for your recent correspondence regarding the initial report of your
client.

You stated in your letter that CORPORATION A came into existence as of December
11, 1996. The normal accounting year end for CORPORATION A will be December
31.

CORPORATION A'S initial franchise tax report will be due March 10, 1998. That
report will cover the privilege period beginning December 11, 1996 and ending
December 31, 1998.

The taxable capital component of an initial report must be based on an
accounting period that is at least six (6) months after the beginning date and
sixty (60) days before the due date. [See Rule 3.544(a)(1)(B).] Your
client's normal accounting year end of December 31, 1997 meets both of these
criteria and should be used on the initial report. For apportionment purposes,
CORPORATION A must include the gross receipts based on its activities beginning
on December 11, 1996 and ending on December 31, 1997. [See Rule 3.549(d)(3).]

The earned surplus component of the initial report will be based on the
business done during the period beginning with the beginning date, December 11,
1996 and ending on the last accounting period ending date, used for federal
income tax purposes, that is at least 60 days before the original due date of
the report. [See Rule 3.544(a)(1)(C).] Again, December 31, 1997 will meet
this criteria. Therefore, CORPORATION A will report reportable federal taxable
income for the period beginning December 11, 1996 and ending December 31, 1997
for the earned surplus component on its initial report. For apportionment of
earned surplus, CORPORATION A will use all revenue recognized for federal
income tax purposes during the period beginning December 11, 1996 and ending
December 31, 1997. [See Rule 3.557(d)(2).]

CORPORATION A's subsequent report will be the 1999 annual franchise tax report
which will be due May 15, 1999. This report will cover the privilege period
beginning January 1, 1999 and ending December 31, 1999. The taxable capital
component of the tax will be based on CORPORATION A's normal accounting year
ending December 31, 1998. The earned surplus component will be based on the
period beginning January 1, 1998 and ending December 31, 1998.

This response is based on current law and the facts presented. 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