Are federal and state motor fuel taxes a seller collects from customers included in the Texas franchise tax gross receipts factor?

Plain-English summary

A corporation collected federal and state motor fuel, lubricating oil, sales, and other taxes from its customers, recorded them as revenue, remitted them to the taxing agencies, and included the motor fuel taxes (net of state and local sales tax) in gross receipts. It asked whether the motor fuel taxes it collected should be included in the gross receipts computation. This letter is an amended response: it changes the analysis but not the conclusion - the motor fuel taxes are included in gross receipts on these facts.

• What is carved out. Rules 3.549(e)(36) and 3.557(e)(32) provide that state or local sales taxes collected by a seller are not gross receipts when the tax is imposed on the customer. Those rules do not extend to motor fuel taxes or other types of taxes.
• Why the reasoning changed. The earlier response had distinguished motor fuel tax on the theory that it is imposed on the seller. But a later inquiry showed a seller collecting motor fuel taxes from the first purchaser and not including them in its receipts. The Comptroller concluded that whether the tax is imposed on a seller or a customer is not determinative - and revised the analysis.
• The controlling test - revenue recognition. Unless specifically excluded, "gross receipts" for taxable capital are all revenues recognized under a GAAP method of accounting, without deducting costs (Tax Code Section 171.112(a)); "gross receipts" for earned surplus are all revenues reportable on the federal return, without deducting costs (Tax Code Section 171.1121(a)). These statutes control. If the taxes are included in the revenue recognized under GAAP or reported for federal income tax purposes, they are included in the respective receipts factor.

Currency note: This applies the pre-2008 franchise tax's gross-receipts definitions, replaced by the current margin tax (House Bills 3 and 3928) effective January 1, 2008, which computes receipts under its own rules. Treat as historical.

What this means for you

Fuel sellers and other collectors of pass-through taxes

Only sales taxes imposed on the customer got the automatic exclusion from gross receipts. For every other tax you collect - motor fuel, lubricating oil, and the like - the question was simply whether you booked it as revenue (for GAAP) or reported it on your federal return. If you did, it counted in the receipts factor, regardless of who legally bore the tax.

Accountants and tax professionals

Apply the recognition test, not an incidence test: for taxable capital, ask whether the tax is in GAAP-recognized revenue (Section 171.112(a)); for earned surplus, whether it is in federal-return revenue (Section 171.1121(a)). Reserve the Rule 3.549(e)(36)/3.557(e)(32) exclusion for customer-imposed state and local sales taxes only. A related internal memo issued the same period (200302918L) addresses whether a taxpayer can later amend to change this treatment.

Common questions

Q: Are motor fuel taxes I collect included in gross receipts?
A: Yes if they are recognized as revenue under GAAP (taxable capital) or reported on your federal return (earned surplus). On the facts here, they were included.

Q: Doesn't it matter whether the tax is imposed on me or the customer?
A: No. The Comptroller concluded that the imposed-on-seller vs. imposed-on-customer distinction is not determinative for taxes other than customer-imposed sales taxes.

Q: Which taxes are excluded from gross receipts?
A: State or local sales taxes collected by the seller when imposed on the customer (Rules 3.549(e)(36) and 3.557(e)(32)) - not motor fuel or other taxes.

Citations and references

Statutes and rules:

• Tex. Tax Code Sec. 171.112(a) (taxable capital gross receipts = all GAAP-recognized revenues without deducting costs)
• Tex. Tax Code Sec. 171.1121(a) (earned surplus gross receipts = all revenues reportable on the federal return)
• 34 Tex. Admin. Code Secs. 3.549(e)(36), 3.557(e)(32) (state/local sales taxes imposed on the customer are not gross receipts)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200302917L

Original ruling text

February 13, 2003

Dear **:

On August 1, 2002, we issued a ruling response to your questions concerning the
treatment of motor fuel taxes for Texas franchise tax apportionment purposes.
This is an amended response changing the analysis leading to our conclusion,
but not our conclusion that motor fuel taxes are included in gross receipts for
apportionment purposes based on the facts provided.

In your ruling request, you presented the following facts: A division of a
corporation collected federal and state motor fuel, lubricating oil, sales, and
other miscellaneous taxes from their customers and recorded the taxes as
revenue. The corporation remitted the taxes to the respective taxing agencies
on behalf of their customers. The corporation included motor fuel taxes, net of
state and local sales tax, in gross receipts.

You asked the following questions: Should federal and state motor fuel taxes
collected from the customer by the seller be included in the gross receipts
computation? If not, what is the authority for excluding federal and state
motor fuel taxes collected from the gross receipts factor for taxable capital?
Should all state and local taxes be included in the gross receipts computation?

Comptroller's Rules 3.549(e)(36) and 3.557(e)(32) provide that state or local
sales taxes collected by a seller are not gross receipts when the tax is
imposed on the customer. In our earlier response, we stated that these rules
do not extend to motor fuel taxes or other types of taxes. That is still
correct. However, we distinguished motor fuel tax on the basis that motor fuel
taxes are the taxes imposed on sellers of motor fuel. In a recent inquiry, it
was pointed out that a seller collected motor fuel taxes from the first
purchaser of the gasoline products. The seller, however, did not include those
taxes in its reported receipts and revenue accounts. After analyzing that
situation, we feel that whether the tax is imposed on a seller or a customer is
not determinative; thus, we are revising our response to you.

Unless specifically excluded, "gross receipts" for taxable capital are defined
as all revenues that would be recognized under a generally accepted accounting
principles (GAAP) method of accounting, without a deduction for costs incurred.
Texas Tax Code Section 171.112(a). "Gross receipts" for earned surplus are
defined as all revenues reportable by a corporation on its federal tax return,
without a deduction for the costs incurred. Texas Tax Code Section 171.1121(a).
These statutory provisions are controlling authorities for whether other
types of taxes are included in the receipts factor. If the taxes in question
are included in the revenue recognized under GAAP or the revenue reported for
federal income tax purposes, they should be included in the respective receipts
factor.

The statute and rules mentioned above, 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
, or you may call toll free at 1-800-531-5441,
extension 3-4496.

Sincerely,

Jerry Bobbitt
Tax Policy Division