For a tour company that sells all-inclusive tour packages, how much of the package revenue is a Texas gross receipt for the franchise tax?

Plain-English summary

A tour company assembled and sold complete tour packages and acted as the tour guide. Most tours originated in Texas but ran across the U.S. and some foreign countries, and customers paid one price covering travel, food, lodging, and event tickets. It asked how to figure its Texas gross receipts for the franchise tax. (A separate sales-tax question was referred to the Sales Tax section.)

• Services are sourced where performed. Under Sec. 171.103(2) (taxable capital) and Sec. 171.1032(2) (earned surplus), Texas gross receipts include receipts from each service performed in Texas; services performed outside Texas are not Texas receipts.
• Total package revenue = everywhere; Texas portion = Texas receipt. Because the company sells tour services, the total revenue from selling those services is gross receipts everywhere, and the price charged for the portion of the tour that takes place in Texas is a Texas gross receipt.
• A practical split method. A common method to separate Texas from non-Texas receipts is to look at the costs associated with the tour, including the mark-up, and determine which are in Texas and which are not.
• Fact-based. The response rests on the facts presented and current law.

Currency note: This 2000 letter applies the pre-2008 franchise tax (replaced by the margin tax effective January 1, 2008 under House Bills 3 and 3928). The margin tax sources service receipts under its own rules; confirm current law.

What this means for you

Tour operators and travel-service companies

Selling an all-in package did not make the whole price a Texas receipt just because the tour started (or the company sat) in Texas. Only the Texas-performed part of the tour was a Texas gross receipt, while the whole price went into the everywhere total - so a multi-state itinerary diluted the Texas factor. A defensible way to split was to trace the costs (plus markup) by location.

Tax professionals

The letter treats a bundled tour as the sale of services and applies the service-performed-in-Texas sourcing rule of Sec. 171.103(2) / 171.1032(2), with a cost-based allocation as an accepted splitting method. Document the allocation. Re-verify under the margin tax's service-sourcing rules.

Common questions

Q: Is my whole tour-package price a Texas gross receipt if the tour starts in Texas?
A: No. Only the portion of the tour performed in Texas is a Texas gross receipt; the total package revenue is gross receipts everywhere.

Q: How do I split Texas from non-Texas receipts?
A: A common method is to look at the tour's costs, including the mark-up, and determine which are attributable to Texas and which are not.

Q: Does this cover my sales tax too?
A: No. The letter addresses only the franchise tax; the sales-tax question was referred to the Sales Tax policy section separately.

Citations and references

Statutes:

• Texas Tax Code Sec. 171.103(2) - Texas gross receipts (taxable capital) include receipts from each service performed in Texas
• Texas Tax Code Sec. 171.1032(2) - Texas gross receipts (earned surplus) include receipts from each service performed in Texas

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200009750L

Original ruling text

September 28, 2000

Dear **:

Thank you for you letter requesting clarification of the calculation of Texas
gross receipts for your company. I have forwarded your sales tax question to
our Sales Tax policy section. You will receive a response regarding sales tax
under a separate cover. This response will address only the Texas franchise
tax.

You described the business of your corporation as follows: Your corporation
assembles complete tour packages, sells the packages and then acts as tour
guides on the trip. Most of the tours originate in Texas. The company
sponsors tours all over the United States and certain foreign countries. The
price charged the patrons is for the entire tour package and generally includes
the cost of travel, food, lodging, and any necessary tickets to events.

Sections 171.103(2) and 171.1032(2) of the Texas Tax Code hold that the gross
receipts of a corporation from its business in Texas includes receipts from
each service performed in the state. Services performed outside the state would
not be Texas receipts.

Based on the information in your letter, you are selling tour services.
Therefore, the total revenue from the sale of the tour services will be
considered gross receipts everywhere. The price charged for the portion of the
tour that takes place in Texas will be considered a Texas gross receipt. A
common method of determining the Texas vs. non-Texas receipts is to look at the
costs associated with the tour, including the mark-up, and determine which are
in Texas and which are not.

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

If you have any questions about this or any other franchise tax matter, please
call me at 1-800-531-5441, extension 34612. My direct number is (512)
463-4612. You may write me at Tax Policy Division, Comptroller of Public
Accounts, Austin, Texas 78774.

Sincerely,

Janet Spies
Tax Policy Division