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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Is selling bitcoin (or other cryptocurrency) taxed as a sale of tangible personal property or a security for Texas franchise (margin) tax purposes, and where is that revenue sourced?
Neither. Texas ruled that selling bitcoin (and cryptocurrency generally) is the sale of intangible property for franchise (margin) tax purposes — not tangible personal property and not a security. Tha…
Do the costs of building and maintaining private logging roads count as cost of goods sold (COGS) for Texas franchise (margin) tax purposes?
Yes. The Texas Comptroller ruled that a timber company's costs to build and maintain private logging roads — used to move harvested timber from the woods to its own lumber mill — qualify as cost of go…
Can an oil-and-gas well-servicing consulting company exclude from its Texas franchise (margin) tax total revenue the payments it passes through to subcontractors?
Yes, partly. A company providing on-site consulting and supervision for oil-and-gas well completions and workovers can exclude from its Texas franchise tax total revenue the payments it passes through…
If a company sells 100% of a subsidiary's stock to an unrelated third party, but makes federal tax elections treating the deal as an asset sale followed by a liquidation into another group member, does the subsidiary's Texas franchise tax temporary credit for business loss carryforward stay with the combined group?
No. Selling 100% of a subsidiary's stock to an unrelated third party moves that subsidiary out of the seller's combined group for Texas franchise tax purposes, ending the group's right to use the subs…
Does a revenue-sharing agreement between a hospital district and its radiologists create a separate entity subject to Texas franchise (margin) tax?
Yes. The Texas Comptroller ruled that a revenue-sharing agreement between a hospital district and a group of radiologists — under which the parties jointly manage imaging centers, share net revenue, a…
For a combined group's Texas franchise tax report, how do you apportion receipts from sales to a Texas warehouse, sales to unaffiliated buyers in and out of Texas, and sales between the group's own members?
A four-part combined-group apportionment ruling: (1) a supplier has Texas nexus and Texas-sourced receipts just from having inventory in a Texas warehouse it still owns, even before selling it; (2) sa…
Does a joint ownership agreement, where a nominee holds legal title to real property for five co-owners, create a separate entity subject to Texas franchise (margin) tax?
No. A nominee that holds bare legal title to real property for five co-owners under a joint ownership agreement (JOA) is not a taxable entity for Texas franchise tax purposes — it's not a partnership …
Does a retail bakery that bakes and sells its own kolaches and pastries qualify for Texas's reduced retail/wholesale franchise tax rate?
No. Even though a retail bakery's sales of kolaches and pastries count as "retail trade" revenue, the bakery doesn't qualify for Texas's reduced retail/wholesale franchise tax rate because 88% of its …
Can an Accountable Care Organization (ACO) exclude the Medicare Shared Savings Program payments it receives from CMS from its Texas franchise (margin) tax total revenue?
Yes. An Accountable Care Organization (ACO) that receives payments from CMS under the Medicare Shared Savings Program (MSSP) and passes them on to its member health care providers may exclude those pa…
For a Texas-based wholesale/distribution combined group, how do you apportion receipts from sales to unaffiliated buyers in and out of Texas, and sales between the group's own members?
For a Texas-based wholesale/distribution company's combined group: receipts from sales delivered to unaffiliated buyers outside Texas count in total receipts but are not apportioned to Texas; receipts…
When does an out-of-state video-game company create Texas sales-tax and franchise-tax nexus by sending employees to plan and host a one-time eSports tournament in Texas, and when does that nexus end?
ALERT: This ruling's nexus analysis predates Wayfair-driven rule changes (Rule 3.586 added an economic-presence nexus test effective 12/29/2019; Rule 3.286 was amended effective 1/1/2019 for online sa…
Does an out-of-state video-game company create Texas sales-tax and franchise-tax nexus by sending employees to plan and host a one-time esports tournament in Texas?
Yes. An out-of-state gaming company and its subsidiaries created Texas nexus for both sales/use tax and franchise tax the moment their employees first entered Texas for pre-event planning visits ahead…
For Texas franchise tax purposes, is revenue from an online airport-parking reservation service apportioned based on where the parking lot is located or where the company's servers/customers are, and does a Multistate Tax Commission voluntary disclosure program cover franchise tax?
ALERT: This ruling's core apportionment holding has been PARTIALLY SUPERSEDED. As originally issued, the Comptroller ruled that an online airport-parking reservation company's receipts are apportioned…
Can a manufacturer's representative that buys equipment from manufacturers and resells it to customers under its own contracts take the cost of goods sold (COGS) deduction, even though it never physically handles the product?
Yes. A manufacturer's representative that contracts separately to buy equipment from manufacturers and resell it to its own customers — never physically touching the product, which ships directly from…
Does a company that leases mobile storage units (containers, trailers, office units) to construction contractors qualify for Texas's reduced retail/wholesale franchise tax rate?
No. A company that leases mobile storage units (containers, storage trailers, office units) to construction contractors and other commercial users does not qualify for Texas's reduced retail/wholesale…
If a company earns a Texas historic-structure rehabilitation tax credit and sells it to another company that later claims it, does the buyer need to make an extension payment, and when does the credit expire?
ALERT: A 2023 law (SB 1013) later moved the certified historic structure tax credit statute from Tax Code Chapter 171 to Chapter 172 and expanded a related federal-tax exception, effective 9/1/2023, a…
Does a single-member LLC, wholly owned by a tax-exempt IRC Section 401(a) trust and disregarded for federal income tax purposes, still owe Texas franchise tax?
Yes. A single-member LLC that is disregarded for federal income tax purposes (and so files no federal return of its own) is still a separate "taxable entity" for Texas franchise tax, even when its sol…
For Texas franchise tax apportionment, is a wholesale wireless reseller's revenue from selling voice/data services to a mobile virtual network operator sourced as an intangible asset (to the buyer's location) or as telecommunications/internet services (to where the service is performed)?
ALERT: This ruling cites Rule 3.591(e)(12) for internet access sourcing, but that provision was renumbered to Rule 3.591(e)(26) effective 1/24/2021 (the amended (e)(13) now covers internet hosting ins…
Does a joint development agreement between two unrelated oil-and-gas companies create a separate taxable entity for Texas franchise tax purposes, and can each company still deduct its own cost of goods sold?
Yes to both. Two unrelated oil-and-gas companies' Joint Development Agreement and Joint Operating Agreement — under which they jointly develop leasehold interests, share expenses, and each take their …
When an out-of-state holding company with no Texas nexus sells the stock of its Texas subsidiary, does the gain from that stock sale get counted in the combined group's Texas-apportioned receipts?
No, not fully. When an out-of-state holding company that has no Texas nexus of its own sells the stock of its Texas subsidiary, the combined group must still include the net gain from that sale in its…
When a Texas company sells substantially all of its business assets, how does it apportion the gross receipts among tangible personal property, contract rights, and other intangibles for Texas franchise tax purposes?
It depends on the asset type — when a company sells substantially all its business assets, Texas sources the gross receipts asset-by-asset: tangible personal property (TPP) delivered/possessed in Texa…
For Texas franchise tax, can a company include wages paid to employees at its foreign offices in its compensation deduction if those wages are reported on a foreign government form instead of an IRS Form W-2?
Yes, but only for actual employees — a company may include in its Texas franchise tax compensation deduction the wages and cash compensation it pays to employees at international offices, as long as t…
For Texas franchise tax, can a farmer deduct the costs of growing crops as cost of goods sold, and does it matter whether the farmer owns the crops?
Yes, but only if the farmer owns the crops he sells — a farmer who owns and sells crops he grows is the "producer" of those crops and may deduct as cost of goods sold all allowable direct production c…
For Texas franchise tax, can a concessionaire exclude the percentage-of-receipts payments it makes to a venue owner or event promoter from total revenue as 'flow-through funds,' or deduct them as cost of goods sold?
No — a food-and-beverage concessionaire's payments to facility owners or event promoters under a concession agreement are NOT excludable from total revenue as 'flow-through funds mandated by contract'…
Can a luxury movie-theater chain with dine-in food and bar service use the reduced retail/wholesale franchise tax rate for years when most of its revenue comes from food and beverage sales, and does it have to reclassify as a "dinner theater"?
ALERT: This ruling's specific Tax Rates, Compensation Deduction Limits, No Tax Due Thresholds, and Total Revenue Thresholds may be outdated -- see STAR Accession No. 202112002L or 202308006L for curre…
After Home Interiors & Gifts v. Strayhorn, when are a corporation's sales thrown back to Texas for the earned-surplus franchise tax?
Texas changed its throwback rule. This internal audit memo tells auditors that, after the Texas Supreme Court decision in Home Interiors & Gifts, Inc. v. Strayhorn, sales protected by Public Law 86-27…
For the Texas franchise-tax capital investment credit, what costs count as a qualified capital investment?
Transportation and direct labor costs count, but the full federal depreciable basis does not. For the pre-2008 franchise-tax capital investment credit, the Comptroller advised that a qualified capital…
Is a non-profit's unrelated business income subject to Texas franchise tax?
It depends on whether the non-profit has obtained a Texas franchise-tax exemption. A non-profit corporation doing business in Texas is subject to the franchise tax, and it must file and pay until the …
For a credit-card company, how are annual membership fees and merchant discount fees sourced for Texas franchise-tax apportionment?
They are sourced differently. In this internal franchise-tax policy memo to an auditor, the Comptroller treated a credit-card company's annual membership fee as the sale of an intangible right, source…
When a single-member LLC doing business in Texas is owned by a multi-member LLC with no other Texas contact, which entity owes franchise tax?
The single-member LLC owes the tax; its parent does not. Because Texas bases franchise-tax responsibility on an entity's legal formation rather than its federal treatment, a single-member LLC doing bu…
Does Texas require any special franchise-tax filing or short-period report when a corporation changes its fiscal year end?
No special filing is required. For Texas franchise-tax purposes, a corporation does not need to notify the Comptroller or obtain approval to change its accounting year end, and it does not file any sh…
If an LLC dissolves mid-year, is any of its Texas franchise tax for the full privilege period refunded?
No. An LLC that dissolves must pay all Texas franchise tax through the end of the privilege period that contains the effective date of the dissolution, and no refund is paid or credit given for the pe…
For a healthcare-savings (PPO access) program, how are membership fees and marketing-representative enrollment fees sourced for Texas franchise tax?
Both fees are sourced to the payor's location. The Comptroller advised that a Texas company selling access to preferred provider organizations (PPOs) through a network-marketing model earns two intang…
For a mortgage banker, how are loan-servicing receipts sourced for Texas franchise-tax apportionment?
By where the mortgaged property sits. The Comptroller advised a mortgage banker that receipts from loan-servicing activities, where the loans are secured by real property, should be sourced based on t…
Can a Texas day-care provider claim the franchise-tax child-care credit for the care it provides to the children of its own employees?
Yes. The Comptroller adopted a new policy allowing a child-care provider that is subject to franchise tax to claim the Chapter 171, Subchapter N child-care credit for the care it provides to the child…
Can a Texas manufacturer amend its franchise-tax reports to remove throwback based on the Home Interiors decision, and how will the refund be handled?
It can file, but the refund will be denied and held pending the Home Interiors appeal. A Texas heavy-equipment-trailer manufacturer had apportioned 100% of its gross receipts to Texas under the earned…
Through what report years could an enterprise project claim the Texas franchise-tax jobs creation credit and capital investment credit?
The credits had firm cutoff dates. The Comptroller explained that the franchise-tax jobs creation credit (Tax Code Sections 171.751-171.761) and capital investment credit (Sections 171.801-171.811) we…
Must a wholly-owned company with no Texas gross receipts still file a separate Texas franchise-tax report if it was physically present in Texas?
Yes, if it was physically present in Texas. Because Texas prohibits consolidated franchise-tax reporting, an entity cannot rely on its parent's report. The Comptroller advised that a wholly-owned comp…
Can a Texas franchise taxpayer with zero Texas receipts and zero total receipts carry forward a business loss?
No. A corporation that had zero Texas gross receipts and zero gross receipts everywhere in the year cannot generate or carry forward a business loss for franchise tax. The apportionment factor is Texa…
Is a political action committee (PAC) exempt under IRC Section 527 also exempt from Texas franchise tax?
No. A political organization or PAC that is exempt under Internal Revenue Code Section 527 does not qualify for exemption from the Texas franchise tax. The franchise tax is imposed on corporations and…
Does a Texas corporation need advance approval or certification before claiming franchise-tax incentive credits?
No advance approval or certification is required. The Comptroller explained that a corporation does not need prior approval to claim the franchise-tax incentive credits - the three economic developmen…
Are sales to foreign customers who pick up the goods in Texas counted as Texas gross receipts for franchise-tax apportionment?
Yes, they are Texas gross receipts. Where a company's customers from Mexico travel into Texas to pick up (take possession of) the merchandise, the receipts from those sales are delivered to the purcha…
Must a Texas PLLC taxed as a partnership pay franchise tax, and are guaranteed payments deductible in computing earned surplus?
Yes, the PLLC owes Texas franchise tax, and guaranteed payments can be deductible with limits. A professional LLC is subject to franchise tax under Tax Code Sec. 171.001(a)(2) based on its legal forma…
Must a Texas franchise taxpayer file the long form to preserve a business loss carryforward, and how does the carryforward work?
No long form is required. The Comptroller explained that a corporation does not have to file the franchise-tax long form to preserve or add to a business loss carryforward, though it should keep a wor…
Can a Texas enterprise project outside a strategic investment area claim both the jobs creation and investment credits, and abate more than 50% of its franchise tax?
Yes to both, within limits. An enterprise project designated on or after September 1, 2001 that creates qualifying jobs or makes a qualified capital investment within an enterprise zone may claim both…
Does a Texas business in a federal empowerment zone qualify for strategic investment area franchise-tax credits?
Yes. The Comptroller confirmed that a business located in a federally designated empowerment zone is eligible for strategic investment area (SIA) franchise-tax credits. The definition of an SIA in Tax…
When does a Texas salesperson create franchise-tax nexus for an out-of-state seller, and does Public Law 86-272 protect it?
It depends on what the Texas employee does. If an out-of-state company's only Texas contact is shipping goods from outside Texas to a Texas customer, it is not subject to Texas franchise tax. Once it …
Does common ownership or using independent-contractor sales reps give a Texas manufacturer nexus elsewhere, or are its shipments thrown back as Texas receipts?
The shipments are thrown back to Texas. Texas is a separate-entity state, so common ownership with a related distributor does not extend that affiliate's nexus to a Texas manufacturer; if the manufact…
Is an out-of-state service company taxed on all services to Texas clients, or only on the services its employees perform in Texas?
The company is subject to Texas franchise tax, but only the services performed in Texas are Texas receipts. Providing any service in Texas - regardless of whether the people performing it reside in Te…
When a Texas broker-dealer books all the revenue but affiliates perform much of the work, how are its service receipts sourced for franchise tax?
The broker-dealer includes all the revenue it books and sources service receipts to where the services are actually performed - including work done by affiliates. Company A, a Texas registered broker-…
Is a gain recognized under IRC Section 336 on a liquidating distribution included in Texas taxable earned surplus, and how is it apportioned?
Yes, and it is apportioned as a sale of the distributed assets. IRC Section 336 requires a liquidating corporation to recognize gain or loss on a distribution of property in complete liquidation as if…
Must an LLC amend prior No Tax Due franchise-tax reports to carry a business loss from those years to a current report?
No amended reports are needed. An LLC that filed Form 05-141 Texas Franchise No Tax Due Information Reports for three years while accruing business losses does not have to amend those prior reports to…
Can a Texas lab source outsourced service revenue by a cost ratio, or must service receipts be sourced by the fair value of work performed in Texas?
Service receipts must be sourced by the fair value of the services performed in Texas, and the Comptroller declined to approve a cost-ratio method. A Texas corporation that analyzed blood samples - pe…
For Texas earned surplus, what are the IRC Section 179 expensing limit and the phase-out threshold?
The Section 179 election is capped at $25,000, and it phases out once the cost of Section 179 property exceeds $200,000. Because earned surplus for the Texas franchise tax is calculated using the Inte…
For Texas franchise-tax apportionment, when may software embedded in tangible personal property be treated separately from the property?
Software embedded in tangible personal property is generally treated as part of the property sale. The Comptroller said the software receipt may instead be apportioned to the payor's location only if …
Can off-the-shelf software expensed under the 2003 federal Section 179 amendment be deducted for Texas earned surplus?
No for earned surplus, but yes for taxable capital under the FIT method. The Jobs & Growth Tax Relief Reconciliation Act of 2003 expanded IRC Section 179 property to include off-the-shelf computer sof…
How are receipts from selling digital products apportioned for Texas franchise tax - as services or as license receipts?
It depends on whether the product is custom or generic. If the client contracts to create specific digital products for a customer, those receipts are for services and are apportioned to the location …
Does a corporation that controls a trust leasing railcars in Texas have franchise-tax nexus, and how are the trust's receipts and distributions apportioned?
The corporation has nexus, the trust is respected as separate, and apportionment turns on the trust's legal domicile. A California corporation that controlled a Connecticut-administered trust leasing …
For the 2004 Texas franchise tax, how much IRC Section 179 depreciation from a 2003 federal return is allowed in earned surplus?
Only $25,000 is allowed in earned surplus. The Comptroller confirmed in writing that IRC Section 179 depreciation taken on a 2003 federal return is allowed on the 2004 Texas franchise tax report only …
For Texas franchise tax, are receipts from goods shipped from Texas to the U.S. government thrown back to Texas, and does it matter that the buyer is the federal government?
The throwback rule looks at the state the goods are delivered to, and it does not matter that the purchaser is the U.S. government. Sales of tangible personal property shipped from Texas to a buyer in…
Browse Texas rulings by topic
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.