Ezel / Tax Rulings / TX
TX 9608112L Franchise Tax (PRIOR TO 01/01/2008) 1996-08-15

Where were information-service receipts sourced for the former Texas taxable-capital and earned-surplus components?

Short answer: They were sourced where the services were performed. The Comptroller classified the client's activity as information services and applied that performance-location rule to both taxable capital and earned surplus.

Apply this to your situation

This page answers the general question as of 1996. Ezel answers yours, under current Texas tax law, with citations.

Currency note: this ruling is from 1996
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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded. This short 1996 response depends on the Comptroller's fact-based classification of the activity as information services and applies former apportionment rules. Confirm current law. 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

Information-service receipts were sourced where the services were performed for both former tax components.

Based on the request and follow-up conversations, the Comptroller classified the client as providing information services. Rules 3.549 and 3.557 therefore apportioned the receipts by performance location for taxable capital and earned surplus.

What this means for you

Information-service providers

Under the former rules, customer or payment location was not the stated test; service performance location was.

Common questions

Q: Did the same sourcing principle apply to both components?
A: Yes.

Q: What classification drove the answer?
A: Information services.

Citations and references

  • 34 Tex. Admin. Code Sec. 3.549 and Sec. 3.557, as cited in the letter

Source

Original ruling text

August 15, 1996

Dear **:

Thank you for your letter concerning the calculation of your client's franchise
tax liability.

You asked several questions in your letter about the apportionment of receipts
for both the Taxable Capital and Earned Surplus components of the franchise
tax.

Based on the facts in your letter and our conversations on August 14 and 15, I
believe that your client is providing information services. Generally, the
receipts from services are apportioned, for both components of the tax, based
on where the service is being performed. See franchise tax Rule 3.549, Taxable
Capital: Apportionment, and Rule 3.557, Earned Surplus: Apportionment. Both
rules are enclosed for your review.

This response is based on the facts presented. If there are different or
additional facts, the response may change. I have enclosed copies of all rules
mentioned for your review.

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

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