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Ezel / Tax Rulings / TX
TX 9805501L Franchise Tax (PRIOR TO 01/01/2008) 1998-05-12

Was a member's transfer of funds to an LLC excluded from stated capital and surplus as debt?

Short answer: Only if the transfer was debt under Section 171.109: a legally enforceable obligation for a certain amount of money payable within an ascertainable period or on demand. Funds intended as contributed capital or a member contribution without repayment were included in stated capital. A qualifying debt was excluded from both surplus and stated capital for franchise-tax reporting.

Apply this to your situation

This page answers the general question as of 1998. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1998
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 rescued letter failed the scraper's historical-format content filter but was verified directly from STAR. The classification depends on whether the funds were repayable debt or a capital contribution under the former stated-capital and surplus rules; 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

Funds advanced to an LLC were excluded from stated capital and surplus only if they qualified as debt rather than contributed capital.

Section 171.109 defined debt as a legally enforceable obligation measured in a certain amount of money that had to be paid or performed within an ascertainable period or on demand.

If the transfer was intended as contributed capital or a member contribution without repayment, it entered the LLC's stated capital. If it met the statutory debt definition, it was not part of surplus or stated capital for franchise-tax reporting.

What this means for you

LLC members and managers

Calling a transfer a loan did not resolve the reporting treatment. Repayment terms and legal enforceability determined whether it fit the quoted debt definition.

Tax professionals

Separate genuinely repayable obligations from nonrepayable member contributions when reconstructing the former franchise-tax bases.

Common questions

Q: Was every member advance excluded?
A: No.

Q: What happened to a contribution without repayment?
A: It was included in stated capital.

Q: What happened to qualifying debt?
A: It was excluded from surplus and stated capital.

Citations and references

  • Texas Tax Code Sec. 171.109

Source

Original ruling text

May 12, 1998

Dear **:

Thank you for your email in which you requested information on the calculation
of stated capital and surplus for an LLC.

Your specific question relates to the loan of funds to the LLC.

Section 171.109 of the Texas Tax Code defines the term "debt" as a "legally
enforceable obligation measured in a certain amount of money which must be
performed or paid within an ascertainable period of time or on demand."

If the loan is intended to be contributed capital or a contribution of a member
to the LLC without repayment, then the loan would be included in the
calculation of stated capital for the LLC. If the loan is a debt as defined in
the tax code, then the debt is not part of surplus or stated capital for
franchise tax reporting purposes.

If you have questions about this, you may call me at 1-800-531-5441, extension
3-4612, or e-mail me at the address below.

Sincerely,

Janet Spies
[email protected]
Texas State Comptroller

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