Could a dissolving corporation claim the former enterprise-zone deduction on its final Texas franchise-tax report?

Plain-English summary

A qualifying corporation could claim the enterprise-zone deduction on its final franchise-tax report if it maintained enterprise-project designation during the final period.

The corporation dissolved on December 31, 1998, and its final report covered earned surplus from January 1 through December 31, 1998. Section 171.1015(a)(2) allowed the deduction on a report based on a fiscal year during all or part of which the corporation was an enterprise project. The deduction therefore remained available if the Texas Department of Economic Development designation continued during 1998.

The Comptroller reached the same result for a December 29 dissolution. Section 171.0011(b) ended the final-report additional tax on the dissolution date, so the period would be January 1 through December 29. The corporation could still claim the deduction if it maintained the designation during that period.

Currency note: This is a historical enterprise-zone deduction and final-report ruling under the former franchise tax. Confirm current incentive and dissolution rules.

What this means for you

Enterprise projects winding up

Dissolution did not automatically eliminate the deduction. Maintaining the qualifying designation during the shortened final period was central.

Tax professionals

Use the dissolution date as the final earned-surplus endpoint and verify enterprise-project status during that exact period.

Common questions

Q: Could the deduction appear on a final report?
A: Yes.

Q: What if dissolution occurred before fiscal year-end?
A: The final period ended on the dissolution date, and the deduction could still apply.

Q: What condition had to continue?
A: Enterprise-project designation during the final report period.

Citations and references

• Texas Tax Code Secs. 171.1015(a)(2) and 171.0011(b)
• Texas Government Code Chapter 2303

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9903589L

Original ruling text

March 3, 1999

Dear Mr. **:

Thank you for the information contained in your inquiry of February 24, 1999
concerning the application of the enterprise zone deduction to a corporation's
final franchise tax report.

You have indicated that the corporation is eligible to take the enterprise zone
deduction on its franchise tax report. On December 31, 1998, the corporation
dissolved. Because of the dissolution, the corporation is required to file a
final franchise tax report which is based on its earned surplus for the period
1/1/98 through 12/31/98.

The inquiry asks if the corporation can take the enterprise zone deduction on
its final franchise tax report.

Sec. 171.1015(a) of the Texas Tax Code sets out the enterprise zone deduction
("deduction") eligibility requirements. This provision specifies that a
corporation designated as an enterprise project as provided by Chapter 2303 of
the Government Code is eligible for the deduction. The Texas Department of
Economic Development will make such a designation.

The Tax Code holds that the deduction may be taken on each franchise tax report
that is based on a corporation's fiscal year during all or part of which the
corporation is an enterprise zone. Sec. 171.1015(a)(2).

The corporation, therefore, would be allowed to take the deduction on its final
franchise tax report provided that it maintained its Texas Department of
Economic Development enterprise project designation in 1998.

You also asked if the corporation could take the deduction if its date of
dissolution was other than the last day of the corporation's fiscal year (i.e.,
12/29/98).

The Tax Code assesses the additional tax on the final franchise tax report
through the date in which the corporation is no longer subject to the earned
surplus component of the tax. Sec. 171.0011(b). In the above example,
12/29/98 is the dissolution date and the effective ending date for the
computation of the additional tax. Because the corporation would have
dissolved on 12/29/98, it could not have had a subsequent year-end date.

Sec. 171.1015(a)(2) ties the deduction to the report based on the corresponding
year-end date for that specific report. For a corporation dissolving on
12/29/98 (with a previous fiscal year end of 12/31/97 that was used on the
annual 1998 report), the final report would cover the period from 1/1/98
through 12/29/98. In this example, the corporation could take the deduction
provided it maintained its enterprise zone designation in 1998.

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

If you have questions, my internet address is [email protected], or
you may call toll free at 1-800-531-5441, extension 3-4496.

Sincerely,

Jerry Bobbitt
Tax Policy Division

cc: **