Can a corporate partner claim Texas franchise jobs/investment credits for the partnership's jobs or investments, and must the business be in a specific industry?

Plain-English summary

A taxpayer asked two questions about the (pre-2008) Texas franchise tax jobs creation credit and capital investment credit: whether partners can use credits for a partnership's activity, and whether the business must be in a specific industry.

• Partners cannot claim the partnership's credits. A corporate partner cannot take the jobs creation credit (Tax Code Sec. 171.752) or the capital investment credit (Sec. 171.802) for jobs created or investments made by the partnership. The credits attach to the entity that created the jobs or made the investment, not to its partners.
• No specific industry is required - but you must be a "qualified business." Both credits are available to a qualified business, which Sec. 171.751(8) defines to include establishments primarily engaged in agricultural processing, central administrative offices, distribution, data processing, manufacturing, research and development, or warehousing.
• Central administrative offices are industry-neutral. A business that qualifies as a central administrative office does not have to be within a specific industry to be eligible.

Currency note: This describes the pre-2008 franchise tax jobs creation and capital investment credits. The franchise tax was replaced by the margin tax (House Bills 3 and 3928, effective January 1, 2008) and these credit provisions have since been repealed or changed. Treat as historical.

What this means for you

Partners in a partnership that creates jobs or invests

Do not plan to pass a partnership's jobs or capital-investment credits up to yourself as a corporate partner - the Comptroller said you cannot claim them for the partnership's activity. Eligibility and the credit stay with the entity that did the qualifying act.

Corporate service centers and back-office operations

You did not need to be a manufacturer or in any particular industry to qualify. A central administrative office was itself a listed "qualified business," so an industry-neutral back office could be eligible if it met the credit's other requirements.

Accountants and tax professionals

Two gates applied: the claimant had to be the entity that created the jobs/made the investment (not merely a partner), and it had to fit the Sec. 171.751(8) "qualified business" list. Because these credits no longer exist in their pre-2008 form, use this only as historical guidance.

Common questions

Q: Can a corporate partner claim the jobs or capital investment credit for the partnership's jobs or investments?
A: No. Sec. 171.752 (jobs) and Sec. 171.802 (investment) do not let a partner claim credits for the partnership's activity.

Q: Does the business have to be in a specific industry?
A: No. It must be a "qualified business" under Sec. 171.751(8) - which includes central administrative offices - but a central administrative office need not be in any particular industry.

Q: Are these credits still available?
A: No. They are pre-2008 franchise tax credits, superseded when the margin tax took effect January 1, 2008.

Citations and references

Statutes:

• Texas Tax Code Sec. 171.752 - jobs creation credit
• Texas Tax Code Sec. 171.802 - capital investment credit
• Texas Tax Code Sec. 171.751(8) - definition of "qualified business" (agricultural processing, central administrative offices, distribution, data processing, manufacturing, research and development, warehousing)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200208967L

Original ruling text

August 12, 2002

To: **

Dear **:

Thank you for your email regarding Texas franchise tax credits.

I have restated your questions below followed by a response.

1. Are the partners of a partnership eligible to use credits based on
   investments made by the partnership or jobs created by the partnership?

Response

A corporate partner cannot take the jobs creation credit under Texas Tax Code
(TTC) 171.752 or the investment credit under 171.802 for jobs created or
investments made by the partnership.

2. Does a taxpayer have to be in a specific industry to be eligible for
   credits for new jobs or capital investments related to administrative offices?

Response

The Texas Tax Code specifies that both the job creation credit and capital
investment credit are available for qualified businesses. TTC 171.751(8)
defines qualified businesses to include those establishments primarily engaged
in agricultural processing, central administrative offices, distribution, data
processing, manufacturing, research and development, or warehousing. A
business qualifying as a central administrative office does not have to be
within a specific industry.

The statutes mentioned, as well as other related information, are available
online at http://www.window.state.tx.us/taxinfo/franchise/index.html.

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

If you have questions about this, my internet address is
[email protected], or you may call toll-free at 1-800-531-5441,
extension 59952.

Sincerely,

Teresa Bostick
Tax Policy Division