Ezel / Tax Rulings / TX
TX 9610804L Franchise Tax (PRIOR TO 01/01/2008) 1996-10-01

Did a corporate member include its share of partnership-taxed LLC income and receipts in former Texas earned surplus?

Short answer: No. Assuming the LLC was treated as a partnership federally, the corporate member excluded its share of LLC income or loss from federal taxable income reported for Texas earned surplus and excluded the LLC's income and gross receipts from the earned-surplus receipts calculation.

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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 1996 response applies former earned-surplus rules and assumes the LLC was federally treated as a partnership. It points separately to a rule for taxable capital without deciding that computation. 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

The corporate member excluded its share of partnership-taxed LLC income, loss, and receipts from former earned surplus.

The corporation included its pro rata share of the LLC's income in federal taxable income because the LLC was assumed to be treated as a partnership federally. For the former Texas earned-surplus component, however, the corporation did not include that LLC income or loss in the federal-taxable-income line and did not include the LLC's income or gross receipts in earned-surplus receipts.

The letter did not compute taxable capital. It directed the requester to Rule 3.562(h)(1) for that separate component.

What this means for you

Corporate LLC members

Under the former framework, federal pass-through inclusion did not automatically carry the LLC amounts into the member's Texas earned-surplus calculation.

Historical-report reviewers

Keep the earned-surplus answer separate from taxable capital, which the letter only cross-referenced.

Common questions

Q: Did the corporate member include LLC income or loss on Schedule B, line 19?
A: No.

Q: Did it include the LLC's receipts in earned-surplus gross receipts?
A: No.

Citations and references

  • 34 Tex. Admin. Code Sec. 3.562(h)(2)(A), as cited in the letter
  • 34 Tex. Admin. Code Sec. 3.562(h)(1), as cited for taxable capital

Source

Original ruling text

October 1, 1996

Dear **:

In your letter of September 20, you requested a determination regarding the
computation of earned surplus for a corporation that is a member of a limited
liability company (LLC).

You indicate that ABC (ABC) is a member of an LLC. You state that ABC is taxed
at the federal level on the company's prorata share of the LLC's income.
Therefore, for the purposes of my response, I presume that ABC includes its
share of the LLC's income in federal taxable income because the LLC is treated
as a partnership for federal income tax purposes.

ABC should not include the LLC income or loss in computing federal taxable
income reported on Schedule B, line 19 of the franchise tax report (see
subsection (h)(2)(A) of enclosed Rule 3.562). Furthermore, the LLC's income
and gross receipts should not be included in computing gross receipts for the
earned surplus component.

In addition, you should review Rule 3.562(h)(1) regarding the computation of
taxable capital for corporate members of LLCs.

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

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