How did Texas calculate former franchise-tax penalty and interest when an annual report was extended, underpaid, or filed without an extension?

Plain-English summary

An extension preserved special payment tests, but the report still showed the original due date.

For an extended annual report, the 90% test used the total tax due on line 36, not the net amount on line 38. The taxpayer subtracted the payment made by the original due date. The unpaid portion of the required 90% drew a 5% penalty, a second 5% after 30 days, and 12% interest beginning on the 61st day after the original due date.

If the taxpayer had paid at least 100% of the previous calendar year's tax, no penalty or interest applied under the extension rule described in the letter.

That prior-year exception did not apply when the taxpayer failed to request an extension. In the letter's example, the remaining tax then drew both 5% penalties and interest from day 61.

What this means for you

Historical annual filers

The original due date remained the anchor for the form and underpayment calculations even when filing time was extended.

Tax professionals

Distinguish an extended return from a late unextended return before applying the 90% or prior-year payment tests.

Common questions

Q: Which due date appeared on an extended report?
A: The original due date.

Q: What amount supplied the 90% base?
A: Total tax due on line 36.

Q: What charges applied to the shortfall?
A: 5%, another 5% after 30 days, and 12% interest from day 61.

Q: Could an unextended filer use the prior-year exception?
A: No.

Citations and references

• Historical Texas franchise-tax Forms 05-110, 05-141, 05-142, 05-144, and 05-145
• Historical franchise-tax report instructions, Form 05-364

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9709282L

Original ruling text

September 16, 1997

Dear Mr. **:

Thank you for your letter concerning due dates for franchise tax reporting and
penalty and interest calculations. I have restated and answered your specific
questions below.

Question 1:
Should the due dates on franchise tax forms (05-110, 05-141, 05-142, 05-144 and
05-145) reflect the original due dates or the extended due dates if the return
has been extended?

Response:
The due date that should be reflected on the face on the franchise tax reports
in either item 3 or item f should be the original due date of the franchise tax
report. This date is preprinted on the forms sent to each taxpayer.

Question 2:
The instructions for the franchise tax reports (05-364) state that Annual
filers who have extended their returns will have penalty and interest apply to
any part of the 90% not paid by the original due date and to any part of the
10% not paid by the extended due date if their payment is not at least 90% of
the tax that will be due or 100% of the tax paid during the previous calendar
year.

In calculating the penalty and interest that will apply to any part of the 90%
not paid by the original due date of an extended return, is the 90% calculated
from line 36 or line 38? E.g., A taxpayer has a tax due (line 36) of $3,199
and prior payments (line 37) of $1,000. Does the penalty apply to 90% of
$3,199 (line 36, total du on this report) * 90% = $2,879 - $1,000 (prior
payment, line 37) = $1,879 * 10% = $187.90 (penalty)?

Response:
The penalty calculation in your example is correct based on the dates provided.

In your example, the 90% would be calculated based on the amount of tax due
reported on line 36 of the return. Penalty would be due on the difference
between the 90% and the amount of the payment made on the original due date. A
5% penalty is applied to the difference that wasn't paid by the original due
date. An additional 5% penalty is assessed if the difference is not paid
within 30 days of the original due date. Interest (at the rate of 12%) will
apply to any portion of the 90% that was not paid on the original due date
beginning on the 61st day after the original due date.

If the taxpayer paid at least 100% of the tax reported due for the previous
calendar year, then no penalty or interest would apply.

Question: 3
If the Annual filers, who have not extended their returns, eligible for
consideration of 100% of the tax paid during the previous calendar year
exception in deciding whether penalty and interest apply? E.g. A taxpayer has
a tax due (line 36) of $5,000 and prior payments (line 37) of $1,000. The
prior year's tax was $1,000. Could the taxpayer be excluded from penalty and
interest?

Response:
No. Because the taxpayer did not request an extension to file their report,
penalty and interest will be calculated from the original due date of the
report. In your example, the taxpayer would owe the remaining $4,000 in tax, a
5% penalty on $4,000 for not paying on the due date, an additional 5% penalty
on the $4,000 if not paid within 30 days, and interest (12%) beginning on the
61st day after the original due date.

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