Texas State Tax Rulings
Free plain-English summaries of state tax letter rulings and advisory opinions issued in Texas, with full citations and the original source on every page.
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Did a corporate partner include its share of each partnership's net profit or gross receipts in its own Texas franchise-tax receipts factor?
Yes. Although each partnership was a separate legal entity, the corporate partner had an intangible right to its share of partnership profit and had to recognize its share of each partnership's net pr…
Did a remote Internet seller create Texas franchise-tax nexus by having a Texas corporation drop-ship hardware and software to customers nationwide?
No, on the assumptions stated. A remote seller used an out-of-state server to sell hardware and software, while a Texas corporation shipped products from its inventory by common carrier. If there was …
What interest did Texas pay on franchise-tax audit refunds before and after Senate Bill 1321's January 1, 2000 effective line?
Texas had paid no interest on refunds since December 14, 1985. Senate Bill 1321 authorized variable interest only for erroneous payments associated with report periods due on or after January 1, 2000;…
Were sales of tangible personal property Texas receipts when an affiliated distributor took possession at an out-of-state warehouse before shipment to customers?
No. The taxpayer retained title while an affiliate finished and stored the products outside Texas, then sold them to a distributor. The affiliate selected, packaged, and delivered the products to carr…
Did a New Jersey corporation create Texas franchise-tax nexus when independent contractors solicited consumers and merchants for its promotional program?
Yes. The independent contractors owned their territories, worked without supervision, could hire employees and represent other companies, and earned commissions from merchant billings. Even so, their …
How did Texas determine the legal domicile of grantor trusts holding leased aircraft or buildings, and what amount did the corporate beneficiary apportion?
A trust's legal domicile was its principal place of business—the location of day-to-day operations—or, if operations were fairly even across states, its commercial domicile. The letter lacked enough a…
Does a federally tax-exempt nonprofit have to file and pay Texas franchise tax, and does its unrelated business income get taxed?
Yes, at least until it gets a Texas exemption. Texas has no income tax, but its franchise tax reaches nonprofit corporations doing business in the state. A federally exempt nonprofit corporation must …
Does a federally tax-exempt nonprofit have to file and pay Texas franchise tax, and how is its unrelated business income handled?
Yes, until it obtains a Texas exemption. Texas has no income tax, but its franchise tax reaches nonprofit corporations doing business in the state. A federally exempt nonprofit corporation must file a…
What happened to Texas franchise-tax filings, loss carryovers, nexus, and income computation when a Texas corporation converted to a single-member LLC?
The converting corporation filed no final franchise-tax report, and its Texas business-loss carryover remained available to the post-conversion single-member LLC. The corporate parent did not acquire …
Did a cemetery association qualify for the former Texas franchise-tax exemption when its activities were not exclusively providing burial places?
No. The Comptroller reaffirmed that Section 171.059 did not exempt an association whose activities were not exclusively the provision of burial places, applying the rule that tax exemptions are narrow…
How did a Section 338(h)(10) stock sale affect the target's former Texas tax bases, loss carryforwards, and the seller's receipts?
Texas did not recognize the deemed asset sale in the target's taxable capital or taxable-capital receipts, but did recognize it in earned surplus because that component began with federal taxable inco…
What former Texas franchise-tax relief applied when a corporation's gross receipts for both tax components were below $150,000?
For reports due on or after January 1, 2000, Senate Bill 441 provided that a corporation owed no franchise tax if gross receipts from its entire business were each below $150,000 for both taxable capi…
If a Texas corporation converts into a limited partnership, does it still owe Texas franchise tax, and does a federal check-the-box election matter?
The corporation must settle its franchise tax through the conversion, and after conversion the partnership is not subject to it. A Texas S corporation converting to a Texas limited partnership stays l…
How does a corporation that is the general partner of a Texas limited partnership apportion its franchise tax, and are its out-of-state affiliated limited partners subject to the tax?
The out-of-state limited partners are not taxed, and the general partner apportions using either the net or an eligible gross method. An Ohio manufacturer was the general partner of a Texas limited pa…
How did a corporation report the former Texas franchise tax after changing its accounting year-end from January 31 to December 31?
No additional filing was required solely because the corporation changed its year-end. For the 1999 report, taxable capital used the new December 31, 1998 year-end and January-December 1998 gross rece…
Did business contributions to expand a nonprofit day-care center qualify for the former Texas employee child-care franchise-tax credit?
No, not on the facts provided. The proposed donations would expand a center that was not shown to operate primarily for children of employees of the contributing corporations. A corporation could inst…
Were transaction fees for processing nationwide telephone calls at a Texas operator center Texas franchise-tax receipts?
Yes. The corporation processed calls from across the United States at its Texas operator center and charged a transaction fee. Because the processing service was performed in Texas, the fee was a Texa…
How did 1999 Texas legislation affect dentist professional associations and corporations with less than $150,000 in gross receipts?
Senate Bill 1085 allowed dentists to organize as professional associations effective September 1, 1999, and the letter said professional associations were not subject to franchise tax. Separately, Sen…
Was net gain from selling trademarks, goodwill, source code, patents, and other intangibles to a California corporation a Texas receipt?
No. The Comptroller treated the trademark, customer base, workforce in place, goodwill, source code, patents, and intellectual property as capital-asset intangibles. Net gain from their sale was a gro…
Did an aircraft owner have Texas franchise-tax nexus when it leased planes to a carrier operating flights involving Texas?
It depended on the carrier's Texas activity. The aircraft owner was subject to franchise tax if its planes were leased to common carriers providing intrastate Texas transportation or maintaining Texas…
Does a corporation owe Texas franchise tax just because it owns, or is affiliated with, a limited partner in a Texas limited partnership?
Merely owning or being affiliated with a limited partner does not create franchise-tax nexus, but putting people in Texas can. The Comptroller declined to rule that two Florida corporations were free …
How were GNMA mortgage-backed security interest receipts apportioned when the underlying mortgagors could not be identified?
Rule 3.549(e)(13)(D) applied. The Comptroller rejected the taxpayer's argument that the private securities issuer was the payor, maintained that a GNMA security holder owned an undivided beneficial in…
When were Internet sales of tangible personal property Texas franchise-tax receipts under the former delivery and throwback rules?
The sales method did not matter. Tangible personal property sold online or otherwise was a Texas receipt when shipped or delivered to a Texas buyer. Property delivered from Texas to an out-of-state pu…
Did receiving financial assistance from a development corporation qualify a business for the former Texas enterprise-zone deductions?
No. Section 171.1015 required both designation as an enterprise project by the Texas Department of Economic Development and qualifying investment in an approved enterprise zone. Receiving financial as…
Did contributing Texas real estate to a partnership and liquidating two single-member LLCs change their taxable earned surplus when federal law recognized no gain or loss?
No, if the stated federal nonrecognition held. Two single-member LLCs would contribute Texas commercial property to a Virginia limited partnership for a combined 99% interest, then liquidate and distr…
Could a single-member LLC deduct the owner's one-half self-employment-tax adjustment when computing taxable earned surplus?
No. Rule 3.562(f) allowed income and deductions relating to the LLC but barred compensation deductions for the owner, who was not an LLC employee for federal purposes. The one-half self-employment-tax…
How did a Texas bank treat mortgage-security principal payments and interest on federal funds for the former franchise tax?
Principal repayments on available-for-sale debt securities were excluded from both Texas and everywhere receipts. Interest on federal funds was excluded under the federal-obligation rule only if the f…
Did a foreign investment corporation create Texas franchise-tax nexus by hiring a Texas company to provide investor-relations services?
Yes. The foreign corporation invested only for its own account, but contracted with a Texas company whose employees received and answered inquiries from investors and potential investors. Those Texas …
How did a bank report swap proceeds, repurchase-agreement securities, and federal-fund transactions under the former Texas franchise tax?
Swap gross proceeds were receipts when no capital asset or invested principal was involved, sourced to the payor; an unknown exchange buyer triggered a 6.5% Texas factor. A repo sale recorded as a lia…
For a bank's Texas franchise tax, are 'available-for-sale' securities treated as inventory, and how are proceeds from called or matured securities counted as gross receipts?
Yes — available-for-sale securities are generally treated as inventory, and proceeds from calls or maturities are gross receipts to the extent they are revenue under GAAP or federal tax rules. For a b…
What investments qualified for the former Texas enterprise-zone deduction, and could property placed in service before project designation count?
A designated enterprise project could deduct qualifying investment that was federally depreciable, placed in service and used in the normal course of business in the enterprise zone, and not removed e…
Did the former Texas taxable-capital throwback rule apply when goods were shipped from Texas to a state where the seller was not taxable?
Yes. When a corporation shipped tangible personal property from Texas to a purchaser in another state where the corporation was not subject to taxation, Rule 3.549(e)(41)(I) treated the sales as Texas…
What installment-sale gain entered a dissolving LLC's final Texas earned-surplus report after it distributed the note to its members?
The final report included installment-sale gain reported on the LLC's federal return for the period through dissolution. After the LLC distributed the installment note receivable to its members, later…
Did Company A's activities, including use of its name at Texas mall kiosks, remain protected from the former franchise tax by Public Law 86-272?
No. The Comptroller concluded that Company A was subject to both taxable capital and earned surplus because its activities—including use of the Company A name at kiosks in Texas malls—were not protect…
Did Texas allow the federal Section 179 maximum-deduction phase-in when computing the 1999 franchise-tax report?
Yes. Because Section 171.001(b)(5) defined the applicable Internal Revenue Code by reference to the 1996 calendar-year code, and Public Law 104-188's 1996 changes included a phase-in of the Section 17…
After a 1999 spin-off required two short-period federal returns, did the corporation file one or two Texas franchise-tax reports for 2000?
One. The corporation's 2000 annual Texas report covered January 1 through December 31, 1999 for earned surplus, even though it filed one short-period federal return in the former consolidated group an…
Were employees titled vice president treated as officers for the former compensation add-back if they could not legally bind the corporation?
No, if the corporation could factually establish that the employees lacked legal authority to bind it to third parties by contracts or other legal documents. If the corporation had included those empl…
How does a corporation that is the general partner of a Texas limited partnership apportion its franchise tax, and are its out-of-state affiliated limited partners subject to the tax?
The out-of-state limited partners are not taxed, and the general partner apportions using either the net or an eligible gross method. An Ohio manufacturer was the general partner of a Texas limited pa…
Did preparing a Nevada subsidiary's incorporation documents in Texas create franchise-tax nexus for the passive holding company?
No, on the facts presented. The Nevada subsidiary would primarily be a passive holding company, hold its board meeting outside Texas, and own a 99% limited-partnership interest in a Texas limited part…
Were computer components delivered through Texas border facilities Texas receipts when the ultimate customers were maquiladora operators in Mexico?
It depended on where the buyer took possession or control. Delivery to a Texas freight forwarder hired by the purchaser was not a Texas receipt when the forwarder delivered the goods to the purchaser …
Were computer components delivered through Texas border facilities Texas receipts when the ultimate customers were maquiladora operators in Mexico?
It depended on where the buyer took possession or control. Delivery to a Texas freight forwarder hired by the purchaser was not a Texas receipt when the forwarder delivered the goods to the purchaser …
Did an Illinois S corporation create Texas franchise-tax nexus merely by owning an interest in a Texas LLC that did business in Texas?
No. The Texas LLC filed and paid its own franchise tax, while the Illinois S corporation's only income came from its LLC interest. The Comptroller said mere ownership of a membership interest in an LL…
Did out-of-state sales solicitation and warranty repair make an ATM manufacturer subject to tax there for Texas throwback purposes?
For taxable capital, yes: sales representatives promoting goods and subcontractors performing contracts or warranty repairs were activities that made the corporation subject to taxation in the other s…
How did a money-transmission processor apportion service charges when Texas agents began transactions and New Jersey personnel completed them?
The corporation included the entire customer service charge in gross receipts and could not subtract the amount retained by Texas agents as a cost. Texas receipts included the fair value of services t…
Could a dissolving corporation claim the former enterprise-zone deduction on its final Texas franchise-tax report?
Yes, if the corporation maintained its Texas Department of Economic Development enterprise-project designation during the final report period. A December 31 dissolution produced a January 1-December 3…
Did subleasing office space create nexus and establish other-state taxability that prevented Texas throwback?
Yes. An investment company's sublease of former Texas office space was leasing Texas property and created nexus for taxable capital and earned surplus. In the separate throwback scenario, a Texas sell…
Did four New Mexico LLCs have Texas franchise-tax nexus when Texas-resident members performed administration, financing, and purchase decisions in Texas?
Yes. Although the four LLCs operated exclusively in New Mexico, had no Texas receipts, and were taxed under New Mexico law at the member level, their Texas-resident members performed administrative se…
How were three tiers of related-party product sales sourced when Texas inventory was drop-shipped to U.S., Canadian, and overseas customers?
Each related entity transferring title for consideration recognized a gross receipt. Because the first two buyers did not take possession, the transactions were drop shipments and ultimate customer de…
Did an Oregon equipment lessor have Texas franchise-tax nexus when its leased property was used by Texas lessees?
Yes. Although the Oregon corporation had no other physical presence or business activity in Texas and executed its operating leases under Oregon law, it retained ownership of equipment used by Texas l…
Could a qualified subchapter S subsidiary elect the federal-income-tax method for taxable capital even if it was not a close corporation and exceeded $1 million?
Yes. Section 171.113 allowed certain close corporations and S corporations to use the federal-income-tax accounting method instead of GAAP for taxable capital. Because the Comptroller already treated …
Did a bank report mortgage loans and debt securities at gross sales price or net gain, including when inventory securities matured or were called?
Held-for-sale mortgage loans and debt securities were inventory and entered receipts at gross sales price; held-for-investment items entered only net gain. The January follow-up clarified that gross p…
Did a company earn taxable Texas service income when it solicited beer orders for another corporation and received commissions?
Yes. The company solicited orders for Beck's beer, sent the orders to the manufacturer for processing and sale, and earned only a commission or fee. The Comptroller treated that solicitation for anoth…
How did Texas treat nexus and cash distributions when a REIT placed partnership interests into two wholly owned single-member LLCs?
The non-Texas LLC had no nexus if its only Texas connection was the partnership interest and it proved all activities it could perform occurred outside Texas. Both LLCs remained separate from their RE…
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?
None. Section 171.110(d) defined reportable federal taxable income by reference to federal taxable income computed under the Internal Revenue Code. If the non-U.S. corporation was not required to file…
Did a lease-contract broker create Texas franchise-tax nexus by hiring Texas agents to repossess and liquidate property after defaults?
Yes. The broker bought and resold short-term rights to lease cash flows and sometimes serviced contracts without owning the leased property. When defaults occurred, it hired Texas companies to reposse…
Could a single-owner LLC deduct the owner's one-half self-employment-tax deduction when computing taxable earned surplus?
No. Although the LLC was treated as a sole proprietorship for federal income tax, Texas treated the LLC itself as a taxable entity. Rule 3.562(f) required it to compute reportable federal taxable inco…
Is converting a Texas corporation into a partnership a taxable event for franchise tax, and does electing to be taxed as a corporation federally make the partnership taxable in Texas?
No to both. The Comptroller's Franchise Tax Administration Division approved a taxpayer's requested rulings that (1) if converting a Texas corporation into a partnership is not a taxable event for fed…
Did a treaty-country corporation with a Texas inventory warehouse owe earned-surplus tax when it filed no federal return and had no federal taxable income?
No earned-surplus tax, assuming the treaty meant the corporation filed no federal return and had no federal taxable income. The foreign corporation planned to establish a Texas inventory warehouse. Th…
Did Texas pass a law letting a corporation convert to a partnership to avoid franchise tax, and what are the franchise-tax consequences of such a conversion?
Partly true: a 1997 law created a 'conversion' transaction, and a corporation that converts to a Texas limited partnership does escape franchise tax at the partnership level — but the converting corpo…
Who reported oil-and-gas lease receipts after an unrecorded written transfer of all equitable and beneficial ownership rights?
The equitable or beneficial owner reported the receipts. Although legal title remained with the managing partner, the written transfer moved all rights, obligations, liabilities, benefits, and propert…
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These are official tax letter rulings and advisory opinions issued by Texas's revenue authority in response to questions from specific taxpayers about how the tax law applies to their facts. A ruling is binding on the department only for the taxpayer who requested it and cannot be relied on by anyone else, but it is strong evidence of how the state reads the law. Every ruling above has a plain-English question and short answer, plus a link to the full original source.