Ezel / Tax Rulings / TX
TX 8903L0934A13 Sales and/or Use Tax (State,Local,MTA) 1989-03-27

Did an unfunded $6 million paid-in-capital book entry have to be included in the subsidiary's 1989 franchise-tax surplus?

Short answer: The preserved STAR body states the facts and question but gives no answer, so the surplus treatment cannot be determined from this record.

Apply this to your situation

This page answers the general question as of 1989. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1989
Subsequent statutory amendments, regulation changes, court decisions, or later rulings may have changed the analysis. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, rate, or position mentioned here.
Disclaimer: This is an official Texas Comptroller of Public Accounts letter published on the State Tax Automated Research (STAR) system. Letters on STAR can be the basis of a detrimental reliance claim only for the taxpayer to whom the letter was directly issued (see 34 Tex. Admin. Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. Taxpayer-identifying details are redacted. This summary is informational only and is not legal or tax advice. Consult a licensed Texas tax professional about your specific situation.
About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page) is the authoritative source for any reliance.

Plain-English summary

A subsidiary sustained a $6 million loss and needed to improve its debt-to-equity ratio to avoid a loan default. Its parent recorded a $6 million investment and payable, while the subsidiary recorded an intercompany receivable and paid-in capital, without transferring funds. Funding was expected in July 1989.

The preserved STAR text asks whether the $6 million belonged in surplus on the subsidiary's 1989 franchise-tax report but then ends without stating the policy decision. No holding can be published from this record.

Common questions

Does the STAR body answer whether the entry was surplus? No.

Can the title or metadata supply the missing answer? No. They identify the subject but not the result.

Source

Original ruling text

COMPTROLLER OF PUBLIC ACCOUNTS
STATE OF TEXAS
AUSTIN, 78774

March 27, 1989

Dear **:

This is in response to your request for a policy decision on a
book entry made to the paid-in capital account of **,
a subsidiary of ****Corporation.

**'s sustained a $6 million loss for its fiscal year 1988.
To avoid default on a loan with a major lending bank which required
certain debt to equity ratios, * made a book entry in
July 1988 increasing its investment in *'s and crediting
a payable account. *'s debited an inter-company receiva-
ble account and credited paid-in capital. No actual transfer of funds
occurred. * intends to fund this $6 million in July of 1989.
Your question is should this $6 million be included in surplus reported
on ****'s 1989 franchise tax report?

This opinion is based on the facts presented. If there are additional
or different facts, this opinion could change.

If you have any additional questions, you may contact me at 1-800-531-
5441, toll-free from anywhere in the continental United States. The
local number is (512) 463-4502. You may write me at the Legal Services
Division.

Sincerely,
Gilbert Zamora
Taxability Section,
Legal Services Division

Get today's answer for your situation

You just read a 1989 ruling on this question. Ezel checks current Texas tax law and answers your specific situation, with citations.

Opens in Ezel Pro. Every answer cites the authority it relies on.