Did the former Texas taxable-capital throwback rule apply when goods were shipped from Texas to a state where the seller was not taxable?

Plain-English summary

Goods shipped from Texas were thrown back into Texas receipts when the seller was not subject to tax in the purchaser's state.

Rule 3.549(e)(41)(I) applied to sales of tangible personal property shipped from Texas to an out-of-state purchaser. If the corporation was not subject to taxation in the destination state, the sales became Texas gross receipts for taxable-capital apportionment.

The response did not address earned surplus or provide transaction-specific facts beyond the rule's conditions.

Currency note: This is a pre-2008 taxable-capital throwback rule. Texas replaced the former franchise tax with the margin tax effective January 1, 2008.

What this means for you

Sellers shipping physical goods from Texas

An out-of-state delivery did not automatically produce a non-Texas receipt. The seller's tax status in the destination state controlled throwback.

Tax professionals

Document destination-state taxability before classifying historical receipts under this rule.

Common questions

Q: What property did the rule cover?
A: Tangible personal property shipped from Texas.

Q: When was the sale thrown back?
A: When the seller was not subject to taxation in the purchaser's state.

Q: Which tax component did the letter address?
A: Taxable capital only.

Citations and references

• 34 Tex. Admin. Code Sec. 3.549(e)(41)(I)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9905702L

Original ruling text

May 21, 1999

Dear **:

This is in response to your inquiry about the application of the throwback rule
to the taxable capital component of the Texas franchise tax.

The throwback rule does apply to the apportionment of a corporation's taxable
capital when the corporation has sales of tangible personal property that is
shipped from Texas to a purchaser in another state in which the corporation is
not subject to taxation. If the corporation has sales as described above, the
gross receipts from those sales would be Texas gross receipts for taxable
capital purposes.

For more information about the throwback provision for taxable capital, please
see Franchise Tax Rule 3.549(e)(41)(I).

You can access information regarding the franchise tax and other state taxes
through the Comptroller's Web Site. The URL for our home page is
http://www.window.state.tx.us. Once our page is displayed on your screen,
select "Getting Help."

To access the franchise tax rules, you should then select "Current Tax Rules at
the Texas Secretary of State," "Tax Administration," and "Subchapter V.
Franchise Tax."

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