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Ezel / Tax Rulings / TX
TX 9911350L Franchise Tax (PRIOR TO 01/01/2008) 1999-11-09

How were a bank's interest and dividend receipts sourced for Texas franchise-tax reports due on or after January 1, 2000?

Short answer: They were apportioned to the payor's legal domicile. House Bill 2067 repealed Section 171.1031, which had sourced a bank's or savings and loan association's interest and dividends to Texas when the recipient's commercial domicile was in Texas. For reports due on or after January 1, 2000, Sections 171.103(6) and 171.1032(a)(6) applied instead.

Apply this to your situation

This page answers the general question as of 1999. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1999
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. This response addresses a historical sourcing transition after House Bill 2067 repealed Section 171.1031 for reports due on or after January 1, 2000. Texas later replaced the former franchise tax with the margin tax effective January 1, 2008; confirm current financial-institution sourcing rules. 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

For reports due on or after January 1, 2000, a bank sourced interest and dividend receipts to the payor's legal domicile.

Former Section 171.1031 had treated interest and dividends received by a banking corporation or savings and loan association as Texas receipts when the recipient's commercial domicile was in Texas.

House Bill 2067 repealed that provision. The Comptroller said Sections 171.103(6) and 171.1032(a)(6) applied after the repeal, moving the sourcing point from the recipient bank's commercial domicile to the legal domicile of the payor.

The effective line stated in the letter was franchise-tax reports due on or after January 1, 2000.

Currency note: This is a historical apportionment rule under the former franchise tax. Texas replaced that tax with the margin tax effective January 1, 2008; confirm current financial-institution sourcing.

What this means for you

Banks and savings and loan associations

The 2000 report transition changed which party's domicile controlled: the old rule looked to the recipient institution's commercial domicile, while the replacement rules looked to the payor's legal domicile.

Tax professionals

Use the report due date identified in the letter when analyzing this historical transition. The change applied to both interest and dividends.

Common questions

Q: What did former Section 171.1031 do?
A: It sourced a bank's or savings and loan association's interest and dividends to Texas when the recipient's commercial domicile was in Texas.

Q: What rule replaced it?
A: Sections 171.103(6) and 171.1032(a)(6), sourcing receipts to the payor's legal domicile.

Q: When did the new treatment apply?
A: For reports due on or after January 1, 2000.

Citations and references

  • Texas Tax Code Sec. 171.1031 - repealed historical rule
  • Texas Tax Code Secs. 171.103(6) and 171.1032(a)(6)
  • House Bill 2067, Section 7

Source

Original ruling text

November 9, 1999

Dear **:

Thank you for your FAX inquiry concerning the apportionment of a banking
corporation's interest receipts.

During the past legislative session, the Texas Legislature repealed Section
171.1031 of the Texas Tax Code. This provision apportioned the dividends and
interest of a bank (and savings and loan association) to Texas if the entity's
commercial domicile was is in Texas.

With the repeal of Section 171.1031, Sections 171.103(6) and 171.1032(a)(6) of
the Tax Code will apply to the apportionment of a bank's dividends and
interest. For reports due on or after January 1, 2000, a bank must apportion
its dividends and interest to the legal domicile of the payor.

The repeal of Section 171.1031 was made in House Bill 2067. This bill can be
found on the legislature's web page. See Section 7 of the bill for the repeal.
The Texas Legislature Online can be found at www.capitol.state.tx.us. The
text of the bill can be obtained by clicking "Search Bills" and then clicking
HB 2067 (enrolled version).

If you have any questions, please call toll-free 1-800-531-5441, extension
3-4496 or (512)463-4496.

Sincerely,

Jerry Bobbitt
Tax Policy Division

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