Were receipts from goodwill and other intangibles sold to a Florida corporation included in former Texas receipts?

Plain-English summary

Goodwill and other intangible-sale receipts followed the Florida buyer's legal domicile and were not Texas receipts.

Several corporations sold substantially all business assets to a Florida corporation and allocated much of the price to goodwill and going-concern value under Internal Revenue Code Sec. 1060. Assuming the income was unitary, intangible receipts were sourced to the payor's legal domicile.

The throwback rule for tangible personal property did not apply to intangibles. If the intangibles were investments or capital assets, the special receipt-computation provisions in Rules 3.549(e)(3) and 3.557(e)(3) applied.

What this means for you

Businesses selling goodwill

Under the former rules, buyer domicile—not tangible-property throwback—controlled the Texas sourcing stated here.

Asset-sale tax preparers

The result assumes unitary income and leaves the investment-or-capital-asset computation to the cited rules.

Common questions

Q: Did the tangible-property throwback rule apply to goodwill?
A: No.

Q: Why were the receipts outside Texas?
A: The payor was legally domiciled in Florida.

Citations and references

• Internal Revenue Code Sec. 1060, as cited in the letter
• 34 Tex. Admin. Code Sec. 3.549(e)(30)(B), (b), and (e)(3), as cited in the letter
• 34 Tex. Admin. Code Sec. 3.557(e)(25)(B), (b), and (e)(3), as cited in the letter

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9609999L

Original ruling text

September 10, 1996

Dear **:

In your letter of August 30, you requested a ruling regarding the apportionment
of receipts from the sale of assets by your clients.

You state that several of your corporate clients sold substantially all of
their business assets to a Florida corporation. You also state that you
allocated the purchase price of the assets in accordance with the residual
method required by Internal Revenue Code Section 1060. As a result, much of the
gain was attributed to intangible assets such as goodwill and going concern
value.

For the purposes of my response, I presume that the income from the sale of
assets is unitary.

Receipts from the sale of intangibles are apportioned based on the location of
payor (i.e., the legal domicile of the payor) as indicated in Rule
3.549(e)(30)(B) and Rule 3.557(e)(25)(B). Specifically, although the throwback
rule can apply to sales of tangible personal property shipped from Texas into
other states, this rule does not apply to sales of intangibles. Therefore,
receipts attributed to the sale of intangibles to a Florida corporation would
not be included in Texas receipts.

If the intangibles qualify as investments or capital assets as defined in Rule
3.549(b) and Rule 3.557(b), receipts must be computed as indicated in Rule
3.549(e)(3) and Rule 3.557(e)(3) for the taxable capital and earned surplus
components respectively.

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 any questions, contact Tax Policy Division. You may call toll free
1-800-531-5441, or our regular number is 512/463-4600. My extension is 3-4662.
You may write me at Tax Policy Division, Comptroller of Public Accounts.

Sincerely,

Bob Jeffcoat
Tax Policy Division