What federal taxable income did a non-U.S. corporation report on Texas Schedule B when it was not required to file a federal income-tax return?

Plain-English summary

A non-U.S. corporation that was not required to file a federal income-tax return had no federal taxable income to enter on Texas Schedule B.

Section 171.110(d) defined reportable federal taxable income as federal taxable income after Schedule C special deductions and before net operating loss deductions, computed under the Internal Revenue Code.

Because the corporation had no federal return filing requirement, the Comptroller concluded it had no federal taxable income to report in the earned-surplus computation. The response also said the Texas franchise-tax statute and rules did not contain an independent Texas definition of "federal taxable income."

Currency note: This is a pre-2008 Schedule B earned-surplus ruling. Texas replaced that tax with the margin tax effective January 1, 2008.

What this means for you

Foreign corporations without federal returns

Under the former earned-surplus system, the Texas starting point did not create a substitute federal taxable-income amount when none existed under federal filing rules.

Tax professionals

The letter does not decide other Texas tax bases, filing duties, or whether a particular foreign corporation actually lacks a federal filing requirement.

Common questions

Q: What amount went on Schedule B?
A: No federal taxable income.

Q: Did Texas provide its own replacement definition?
A: No.

Q: Did the letter decide every Texas filing obligation?
A: No. It addressed the earned-surplus federal-income computation.

Citations and references

• Texas Tax Code Sec. 171.110(d)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9812591L

Original ruling text

December 28, 1998

Dear Ms. **:

In your FAX, you requested a determination regarding the computation of taxable
earned surplus for a non-U.S. corporation which is not required to file a
federal income tax return.

First, under Texas Tax Code Sec. 171.110(d), a corporation's reportable federal
taxable income (which is used in computing taxable earned surplus) is the
"...federal taxable income after Schedule C special deductions and before net
operating loss deductions as computed under the Internal Revenue Code..."
Thus, if the non-U.S. corporation is not required to file a federal tax return,
the corporation has no federal taxable income to report on Schedule B of the
franchise tax report.

Second, there is no statutory definition of "federal taxable income" in the
franchise tax statute or rules. Therefore, I am unable to provide you with a
"Texas" definition for this term.

This response is based on the facts presented and current law. If there are
different or additional facts, the response may change.

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