LIST OF SUBSTANTIVE CHANGES AND ADDITIONS Route To: Partners PPC's Texas Franchise Tax Deskbook Managers Staff File Fifteenth Edition (January 2014) Highlights of this Edition The following are some important update features of the 2014 edition of PPC's Texas Franchise Tax Deskbook: Franchise Tax Law Changes. In 2013, the Texas Legislature amended the franchise tax law. The new and amended provisions have been thoroughly covered throughout the book. Amended Comptroller Rules. In 2013, the Comptroller adopted amendments to the franchise tax administrative rules. The discussion has been updated for these changes. New $1 Million Deduction from Revenue. The new $1 million deduction from total revenue has been explained. Reduced Tax Rates. The temporary reduced tax rates for 2014 are discussed and illustrated. New Allowable Deduction. The new allowable deduction for relocating the taxpayer's main office to Texas has been explained. New Franchise Tax Credits. New tax credits for increasing research in Texas and rehabilitating historic structures in Texas are explained. Amendments to the clean energy project credit are also explained. New Franchise Tax Forms. New forms have been promulgated by the Comptroller for reporting common owner information, claiming franchise tax credits, and establishing the new credit for increasing research in Texas. These new forms are discussed and included along with the other sample franchise tax forms for 2014. Updated Practice Aids. The worksheets, tables, and checklists have been updated for 2014. For example, the quick reference tables have been revised for 2014. The tables of specific line references to the applicable IRS forms have been updated for the most recent IRS forms, and the gross receipts and apportionment worksheets have been expanded for the new revenue exclusions. In addition to these featured items, your Deskbook includes the following update items: CHAPTER 2 Margin Tax Formula 1. The discussion has been updated for the new $1 million deduction from total revenue, the new temporary tax rates, and the repeal of tax discounts. 2. The discussion of the election to deduct cost of goods sold or compensation, or accept the default deduction has been updated. Key Issues 2A and 2B Key Issue 2D 3. Identified a new allowable deduction. Key Issue 2G 4. Updated the discussion of tax rates for the new temporary Key Issue 2H rates for 2014. 5. Revised the discussion of tax discounts. Key Issue 2I 6. The discussion of the de minimis total revenue has been Key Issue 2M updated for the inflation adjusted amount. 2
CHAPTER 3 Foreign Entities and Nexus CHAPTER 4 Exemptions from the Texas Franchise Tax CHAPTER 6 Tax Rates CHAPTER 7 Tax Payments and Deposits CHAPTER 8 Filing Requirements and Due Dates CHAPTER 9 Extensions CHAPTER 10 Amended Reports CHAPTER 11 Public Information and Ownership Information Reports CHAPTER 13 Taxable, Nontaxable, and Passive Entities CHAPTER 14 Total Revenue from the Entire Business 1. Provided references to major cases affecting state tax nexus. 2. Pointed out the effect on the combined group's apportionment factor of including a non nexus entity in the combined group. 1. Expanded the discussion of exemptions from the franchise tax to cover a new exemption enacted in 2013. Key Issue 3A Key Issue 3B Key Issue 4A 1. The discussion has been updated for the new reduced tax Key Issue 6A rates. 2. The expanded definition of retail trade has been explained. Key Issue 6B 3. The applicability of tax discounts has been explained. Key Issue 6C 4. The discussion of the de minimis rules for filing a no tax due Key Issue 6D information report has been updated for the current inflation adjusted amount. 5. The table of industries included in the expanded definition of retail trade has been revised and updated. 1. Revised discussion has been provided on the requirement to remit tax payments electronically. 1. The de minimis annualized total revenue threshold amount has been updated for 2014. 2. The selected list of Comptroller approved software providers has been updated for 2014. 3. A revised discussion of the taxpayer's franchise account status has been updated to reflect the Comptroller's new policy. 1. The discussion on extending an annual report includes new tips on filing timely requests. 1. New tips have been included in the discussion of filing an amended report. 2. A sample limited power of attorney for a refund has been provided in this edition. 1. The discussion of the information reports has been revised to more closely follow the forms. 2. Additional discussion of the requirement to sign the public and ownership information reports has been provided. 1. The discussion of nontaxable entities has been updated for recent developments, and a new example has been provided. 1. Updated for the new margin tax formula and the inflation adjusted no tax due threshold. 2. Revised and reorganized discussion of exclusions from revenue has been provided. Illustration 6 3 Key Issue 7A Key Issue 8D Key Issue 8I Key Issue 8K Key Issue 9A Key Issue 10C Illustration 10 3 Key Issue 11B Key Issue 11F Key Issue 13D Key Issue 14A Key Issues 14D 14O 3. Added discussion of new revenue exclusions. Key Issues 14G, 14I, and 14L 3
CHAPTER 15 Gross Receipts and Apportionment CHAPTER 16 Cost of Goods Sold Deduction CHAPTER 17 Compensation Deduction CHAPTER 18 Combined Reporting and Unitary Taxation CHAPTER 19 Special Status Entities 4. Updated discussion for amendments relating to certain flow through contracts, professional employer organizations, and destination management companies. 1. Expanded the list of revenue exclusions for recent law changes. 2. Updated and expanded the illustrated sample filled in worksheets for computing revenue and apportionment. 1. New discussion explains the evolving opportunity for movie theaters to deduct certain costs as part of the COGS deduction. 2. A new provision in the franchise tax law provides a COGS deduction for pipeline companies that provide services to others. 3. Discussed developments on whether certain supervisory costs may be included in the COGS deduction. 4. Amendments to the Comptroller's COGS administrative rules (regulations) are covered in an updated discussion of indirect and administrative overhead costs. 1. The inflation adjusted cap on the per person compensation deduction for 2014 reports has been provided. 2. The ability to take a deduction for compensation paid to certain employees who are serving on active duty has been pointed out. 3. The impact of a recent case on computation of benefits and Comptroller policies has been explained. 1. Updated discussion of combined reports covers the repeal of tax discounts and points out a law change relating to electric utilities. 2. Covered a Comptroller hearing on whether a combined group can exclude intercompany payments for rents and royalties. 3. Updated discussion for the 2014 de minimis revenue threshold. 4. Revised discussion of the dual reporting requirement for a recent law change. Key Issues 14F, 14J, and 14K Key Issue 15C 15 2, 15 4, 15 6, and 15 8 Key Issue 16B Key Issue 16B Key Issue 16I Key Issue 16J Key Issues 17A, 17C, 17E, and 17O Key Issue 17B Key Issue 17F Key Issue 18A Key Issue 18G Key Issues 18H and 18K Key Issue 18L 1. A new key issue discusses pharmacies and vaccines. Key Issue 19D 2. The discussion of real estate subcontracting payments has Key Issue 19F been updated for recent law changes. 3. Expanded discussion reviews recent law changes for Key Issue 19F landman services and various methods of transportation. 4. The discussion of professional employer organizations, Key Issue 19G formerly known as staff leasing companies, has been revised and updated for recent law changes. 5. The discussion of destination management companies has been updated for recent law changes. Key Issue 19I 4
CHAPTER 20 Allowable Deductions CHAPTER 21 Temporary Credit CHAPTER 22 Tax Credits CHAPTER 24 Accounting Methods CHAPTER 25 Privilege Periods and Business Periods CHAPTER 26 Financial Statement Presentation CHAPTER 27 First Annual Franchise Tax Report CHAPTER 28 Final Franchise Tax Report CHAPTER 29 Penalties and Interest CHAPTER 30 Statute of Limitations 1. A new key issue discusses the recent law change allowing a deduction for certain relocation costs incurred when a taxable entity moves into Texas from another state. 2. The discussion on claiming an allowable deduction has been revised and updated. 1. The discussion of a combined group's annual requirement to report common owner information has been updated to point out the new form for this purpose. 2. The discussion of claiming the temporary credit has been updated for developments. 3. The discussion of the former 1992 temporary credit has been clarified to explain when it was available. 1. The discussion of available general tax credits has been revised and updated to clarify availability of carryover credits and introduce two new credits. 2. A new key issue explains the new credit for research and development activities. 3. A new key issue explains the new credit for rehabilitation of a certified historic structure. 4. The legislative amendments made to the credit for clean energy have been explained including the new date for issuing the credit. 1. Updated the discussion of the IRC as defined for franchise tax purposes, and included discussion of an exception to that definition for the new tax credit for R&D activities. 1. The discussion of the tax deferral opportunity that may be available through the interaction of a taxable entity's beginning date and its choice of fiscal tax year has been updated. 1. The discussion of IRS Schedule UTP has been updated as it relates to accounting for uncertainty in financial statements. 1. The discussion of the applicable tax rate has been updated for the temporary rate reduction. 2. Updated filled in sample first annual tax reports have been provided. 1. The discussion of the applicable tax rate for final reports has been updated. 2. Updated discussion of allowable deduction includes the new deduction for relocation costs. 3. Updated filled in sample final report forms have been illustrated. 1. The 2014 interest rates on tax deficiencies and tax overpayments have been provided. 1. New discussion identifies the Comptroller's policy regarding the statute of limitations on collections. Key Issue 20D Key Issue 20D Key Issue 21A Key Issues 21E and 21G Key Issue 21I Key Issue 22A Key Issue 22F Key Issue 22G Key Issue 22H Key Issue 24B Key Issue 25D and 25 1 and 25 2 Key Issue 26D Key Issue 27E 27 1 and 27 2 Key Issue 28F Key Issue 28H 28 1 and 28 2 Key Issues 29C and 29H Key Issue 30B 5
CHAPTER 31 Dealing Effectively with the Comptroller's Office CHAPTER 32 Franchise Tax Planning Ideas CHAPTER 33 Electronic Tax Research FRANCHISE TAX LAW COMPTROLLER'S RULES FORMS AND INSTRUCTIONS WORKSHEETS 1. The Comptroller's audit targets for 2014 have been updated for the most current general appropriations act. 2. The shortened time period for responding to a jeopardy determination has been noted. 3. The list of the Comptroller's audit and field offices has been updated for the current year. 1. Added a list cross referencing discussion of the various exclusions from total revenue for special status entities. 2. Expanded the discussion of planning ideas for cost of goods sold for new rules for movie theaters. 1. The illustrations showing various sample pages from the Comptroller's website and the STAR System, as well as the Texas Secretary of State's website, have been updated. 1. In 2013, the 83rd Texas Legislature amended the Texas franchise tax statute. The reproduction of the applicable law has been updated to include the new and amended sections of the law. 1. The Comptroller has amended the administrative rules (i.e., regulations) during the year. The new rules have been included in the reproduction of selected Comptroller rules. 1. Provided sample copies of 2014 franchise tax report forms and instructions. 1. Updated and expanded the worksheet for computing franchise tax revenue and apportionment of a C corporation 2. Updated and expanded the worksheet for computing franchise tax revenue and apportionment of an S corporation 3. Updated and expanded the worksheet for computing franchise tax revenue and apportionment of a partnership 4. Updated and expanded the worksheet for computing franchise tax revenue and apportionment of an SMLLC 5. The worksheet for computing the temporary credit has been updated for the new form that must be filed annually to report common owner information. Key Issue 31B Key Issues 31B and 31D Illustration 31 2 Key Issue 32B Key Issue 32D 33 1 33 13 Illustration 34 1 Illustration 35 1 Forms and Instructions W101 W102 W103 W105 W401 TABLES 1. The quick reference tables have been updated for 2014. Tables T101 and T102 2. The franchise tax exemptions table has been updated for a new exemption. Table T104 3. Updated tables provide specific line references to 2012 and 2013 IRS forms for use in determining total revenue on 2014 franchise tax reports. 4. The table of allowable deductions has been updated for a new deduction. Tables T105 and T106 Table T201 6
5. The table of franchise tax credits has been revised and clarified. Two new credits have been included. 6. The table of major federal tax legislation affecting the Internal Revenue Code has been updated for the latest changes. Table T203 Table T502 7