Could a multistate air-freight carrier use a special four-factor formula for the former Texas franchise tax?

Plain-English summary

The carrier could not replace Texas's single gross-receipts factor with its proposed four-factor formula.

The taxpayer was a multistate express air carrier whose principal business was interstate air freight. It asked to apportion the former Texas franchise tax using a formula based on weekly miles, arrivals and departures, shipping weight, and sales.

The Comptroller denied the request. Section 171.106 supplied one gross-receipts apportionment factor for both the taxable-capital and earned-surplus components. The cited rules also excluded receipts from interstate transportation of goods from Texas receipts.

What this means for you

Transportation companies reviewing historical reports

A business could not substitute an operational four-factor formula merely because it believed that formula better measured its multistate activity.

Tax professionals

Apply the statutory gross-receipts factor and then classify transportation receipts under the cited rules. The answer concerns interstate freight even though STAR's subject label refers to intrastate receipts.

Common questions

Q: Was the proposed four-factor formula approved?
A: No.

Q: What factor did Texas require?
A: A single gross-receipts factor for both former franchise-tax components.

Q: Were interstate freight receipts treated as Texas receipts?
A: No, under the rules cited in the letter.

Citations and references

• Texas Tax Code Sec. 171.106
• 34 Tex. Admin. Code Secs. 3.549(e)(45) and 3.557(e)(41)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9709253L

Original ruling text

September 16, 1997

Dear Mr. **:

I received a letter from Ms. **, with ***, requesting
that your corporation be allowed a special apportionment factor for Texas
franchise tax reporting purposes. She asked that my response be directed to
you.

Ms. ** stated that your corporation is a multistate express air
carrier. The corporation's principal business activity is the transport of
interstate air freight. She requested that the corporation be allowed to use a
special four-factor formula for purposes of apportionment. The four-factor
formula utilizes weekly miles, weekly arrivals/departures, weekly weight
shipped and weekly sales to determine a uniform factor of income apportionment
among the states of operation.

Unfortunately, this request for special apportionment must be denied. Texas Tax
Code Section 171.106 provides for a single gross receipts apportionment factor
for both components of the franchise tax. However, receipts from the
interstate transportation of goods are not considered Texas receipts under our
apportionment rules. See Rule 3.549(e)(45) and Rule 3.557(e)(41). I have
enclosed copies of these rules for your review.

This response is based on current law and the facts presented. If there are
different or additional facts, the response may change.

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

cc: Ms. **