Ezel / Tax Rulings / TX
TX 9611958L Franchise Tax (PRIOR TO 01/01/2008) 1996-11-08

How did Texas source property sales, interest, rental-broker services, and railroad-car lease receipts under the former franchise tax?

Short answer: Tangible-property sales were sourced where delivery occurred; interest followed the payor's legal domicile; lease-negotiation and car-rental management receipts followed where services were performed; and railroad-car lease receipts followed where the cars were used, with mileage suggested for constantly moving cars. Other income categories remained unresolved for lack of facts.

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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 Code Rules 3.1 and 3.10); documents on STAR may no longer represent current policy even if not marked superseded.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 gives high-level former sourcing rules without cited provisions. It expressly leaves miscellaneous, mileage, mileage-equalization, and deferred income unresolved because the requester did not explain them. Do not infer treatment for those items. 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

Texas used delivery, payor domicile, service location, or property use depending on the receipt type.

The letter stated four sourcing rules:

  • Tangible-personal-property sales followed the delivery location.
  • Interest income followed the payor's legal domicile.
  • Receipts from negotiating leases or managing car rentals followed where the services were performed.
  • Railroad-car lease receipts followed where the cars were used; mileage could be a reasonable method when the cars constantly moved.

The Comptroller could not source miscellaneous income, mileage income, mileage-equalization income, or deferred income without more detailed facts.

What this means for you

Transportation and leasing businesses

Different revenue streams from the same business could use different sourcing rules.

Tax professionals

Classify each receipt before sourcing it and obtain the missing contractual and operational facts for catch-all income labels.

Common questions

Q: Where were interest receipts sourced?
A: To the payor's legal domicile.

Q: How were constantly moving railcars apportioned?
A: The letter suggested mileage as a possible method.

Q: Did the letter decide miscellaneous and deferred income?
A: No.

Citations and references

  • The letter states the sourcing rules without citing specific provisions.

Source

Original ruling text

November 8, 1996

Dear ***:

Thank you for your letter dated October 28, 1996,
concerning Texas franchise tax.

Receipts from the sales of tangible personal property
are apportioned based on where the item is delivered.

Interest income is apportioned based on the legal
domicile of the payor.

Receipts from negotiating leases between the lessee and
lessor or managing car rentals (broker car rentals and
managed car income) are apportioned based on where the
service was performed.

Receipts from the lease of railroad cars is apportioned
based on where the railroad cars are used. If the cars
are constantly moving, then mileage may be a good way to
apportion these receipts.

I do not know what miscellaneous income, mileage
income, mileage equalization income, and deferred income
are, so I can not explain how they should be apportioned.
Please provide a more detailed explanation if you would
like further guidance apportioning those items.

These responses are based on the facts presented in
your letter. If the facts change or if there are additional
relevant facts, the responses may change.

If I may be of further assistance, please do not
hesitate to write me or call me toll free at 1-800-531-5441,
extension 34662.

Sincerely,

Jerry Oxford
Franchise Tax Policy Section

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