Route To: Partners Managers Staff File LIST OF SUBSTANTIVE CHANGES AND ADDITIONS PPC s Texas Franchise Tax Deskbook Seventeenth Edition (January 2016) Highlights of this Edition The following are some important update features of the 2016 edition of PPC s Texas Franchise Tax Deskbook: Veteran-owned Businesses. Qualifying new veteran-owned businesses formed on or after January 1, 2016, and before January 1, 2020, are exempt from franchise tax from the date they begin doing business until the fifth anniversary of that beginning date. Discussion of this new temporary exemption has been added to the Deskbook. TexAmericas Center. Starting on June 16, 2015, the property, revenue, and income of the TexAmericas Center is exempt from all taxes imposed by the state of Texas. Information about this new special law has been added. Franchise Tax Reduction Act of 2015.In2015, the Franchise Tax Reduction Act of 2015 made significant tax rate reductions. In addition, the eligibility to use the Elective EZ Computation Method has been expanded. These changes have been made throughout the Deskbook. Public Information Reports. After 2015, changes were made regarding which entities are required to file public information reports. These changes have been addressed in the current edition of the Deskbook. Multistate Tax Compact. A new key issue has been added that discusses the Multistate Tax Compact. Texas Franchise Tax Laws and Related Comptroller s Rules. The Texas Franchise Tax Laws and related Comptroller s rules have been updated for changes made within the last year. In addition to these featured items, your Deskbook includes the following update items: CHAPTER 2 1. Updated for the new reduced tax rates. Key Issue 2H Margin Tax Formula CHAPTER 3 Foreign Entities and Nexus CHAPTER 4 Exemptions from the Texas Franchise Tax 1. Updated the discussion on accessing Comptroller information related to the Comptroller s nexus questionnaires. 2. Included a description of the annual filing requirement oncenexusisestablished. 3. Updated the description of the final filing requirement when nexus is terminated. 1. Included descriptions of new exemptions from the franchise tax. 2. Added a key issue discussing the new temporary franchise tax exemption for veteran-owned businesses. Key Issue 3A Key Issue 3A Key Issue 3D Key Issue 4A Key Issue 4G 1
CHAPTER 5 Applicable Law and Rules CHAPTER 6 Tax Rates CHAPTER 8 Filing Requirements and Due Dates CHAPTER 9 Extensions CHAPTER 10 Amended Reports CHAPTER 11 Public Information and Ownership Information Reports 1. Clarified how the applicable statutory law may be accessed online through the Texas Legislature Online website. 2. Clarified how the applicable Comptroller rules may be accessed online through the Texas Secretary of State s website. 1. Provided a discussion of the Franchise Tax Reduction Act of 2015, which reduced tax rates and expanded eligibility for EZ method reporting. Included an example illustrating the potential tax reduction for taxpayers who can switch from the long form to the EZ form. Key Issue 5A Key Issue 5B Key Issue 6A 2. Explained the new reduced tax rates. Key Issues 6A and 6B 3. Added a discussion of a recent Texas appeals court case Key Issue 6B holding that rent-to-own taxpayers qualify for the lower tax rate for retailers and wholesalers. 4. Revised the discussion of the forms that require the reporting of SIC codes and NAICS codes. 1. The Comptroller s authorization to require electronic filing of the no tax due information reports has been explained. 2. The Comptroller s authorization to require information reporting by qualified new veteran-owned businesses has been discussed. 3. The discussion of electronic reporting has been revised and clarified. 4. Explained that the Comptroller is required to publish a list of state holidays for purposes of the holiday date rule. 1. Clarified the discussion of annual extensions to explain which taxpayers must remit tax electronically. 2. Updated the discussion of combined group extensions for the new Comptroller policy on taking the temporary credit on a late report. 3. Explained the new law requiring limited partnerships and professional associations to file public information reports. 4. Explained how to access the Comptroller s FAQs on disaster relief. 1. Added a discussion on amending reports to claim a previously denied temporary tax credit. 2. Updated the discussion for the new law relating to entities required to file public information reports and ownership information reports. 1. Explained the recent law change that requires limited partnerships and professional associations to file public information reports and eliminated a duplicate filing requirement with the Texas Secretary of State. 2. Included information on how to access the Texas Secretary ofstate sfaqsonregisteredagents. Key Issue 6B Key Issue 8D Key Issue 8E Key Issue 8G Key Issue 8H Key Issue 9A Key Issue 9A Key Issue 9C Key Issue 9D Key Issue 10A Key Issue 10F Key Issue 11A Key Issue 11H 2
CHAPTER 12 Filing Reports and Remitting Tax Payments Electronically 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 CHAPTER 21 Temporary Credit CHAPTER 22 Tax Credits 1. Noted that the Comptroller s office has provided additional guidance on setting up a WebFile account. 1. Discussed a new case that addressed the proper apportionment of gross receipts for franchise tax purposes. 2. Addressed a court case that upheld the validity of the Comptroller s interpretation of net gain. 3. Added a key issue that addresses the Multistate Tax Compact (MTC). 1. Noted the court of appeals ruling regarding a movie theater s treatment of the cost of exhibiting films and other content in its cost of goods sold as well as costs associated with the auditorium space. 2. Noted the issuance of a Comptroller Letter to provide guidance for farmers who own and sell the crops they grow. 3. Mentioned a recent Comptroller Administrative Hearing that ruled on the treatment of the costs to produce a publication that was distributed to the public at no costs. 4. Updated the discussion on the treatment of automotive repair. 1. Added a discussion regarding the wages of non-u.s. employees being included in the wages and cash compensation amount for franchise tax purposes. 2. Updated the per person limit for wages for 2016 2017 reports. 1. Added recent Comptroller decisions regarding affiliation through more than one owner. 2. Added information regarding combined group refund claims. 1. Revised the Comptroller policy regarding general contractors payments to subcontractors. 2. Updated the discussion on the automotive industry for recent changes in the definition of retail trade. 3. Mentioned a recent case that could affect the way cost of goods sold is handled for auto repair services. 1. Provided references to two Comptroller decisions on whether a business loss can be prorated for a short year. 2. Revised the discussion of electing and claiming the temporary credit for a recent decision of the Comptroller overturning a portion of a Comptroller rule. 1. Updated the discussion of the R&D activities credit for the release of TAC Rule 3.599. Key Issue 12C Key Issue 15A Key Issue 15D Key Issue 15E Key Issue 16B Key Issue 16B Key Issue 16C Key Issue 16D Key Issue 17B Key Issue 17B Key Issue 18B Key Issue 18P Key Issue 19F Key Issue 19M Key Issue 19M Key Issue 21B Key Issue 21C Key Issue 22E 3
CHAPTER 23 Tax Refund Opportunities CHAPTER 25 Privilege Periods and Business Periods CHAPTER 28 Final Franchise Tax Report CHAPTER 29 Penalties and Interest CHAPTER 30 Statute of Limitations CHAPTER 31 Dealing Effectively with the Comptroller s Office CHAPTER 32 Franchise Tax Planning Ideas CHAPTER 33 Electronic Tax Research CHAPTER 34 Franchise Tax Law 2. Provided references to information currently available on the Comptroller s website relating to the credits for R&D activities, rehabilitation of historic structures, and clean energy projects. 3. Updated the discussion of the credit rehabilitation of historic structures for the adoption of a new Comptroller rule and for recent legislation expanding the definitions of eligible costs and expenses for certain entities. 4. Updated the discussion for recent legislation redesignating the TTC sections authorizing the credit for clean energy projects. 1. Identified the Comptroller form that is filed with the Texas Workforce Commission for claiming a refund for employing persons receiving TANF payments. 1. Added a key issue that explains the implications on the business and privilege periods of the new rules for veteran-owned businesses. 1. Updated the discussion of whether to file public information reports or ownership information reports with a final report. 2. Explained that the Final No Tax Due Report is required to be filed electronically. 3. Updated the discussion of the applicable tax rate for the new lower rate and for the inflation-adjusted de minimis filing threshold for 2016 reports. 1. Provided additional references relating to officer and director liability on forfeiture of corporate privileges. 1. Explained the Texas Appeals Court decision holding that portions of a Comptroller rule requiring transactional detail and supporting documentation in a refund claim were invalid. 1. Updated the current addresses for the various helpful websites provided by the Comptroller s office. 1. The discussion of planning for the tax rate has been updated for the new reduced tax rates in effect for 2016. 2. A new Planning Tip points out that taxpayers in the rental-purchase business may be eligible for refunds if they paid the general tax on reports filed before 2014. 1. Updated the discussion of the Comptroller s website for the change to www.texas.gov. 2. Added a new discussion of the Comptroller s practitioners corner. 1. In 2015, the Texas Legislature, meeting in regular session, passed legislation that amended the Texas franchise tax law. The illustrative copy of the law has been updated to incorporate these changes. Key Issues 22E, 22F, and 22G Key Issue 22F Key Issue 22G Key Issue 23B Key Issue 25D Key Issue 28B Key Issue 28D Key Issue 28F Key Issue 29F Key Issue 30C throughout Key Issue 32F Key Issue 32F Key Issue 33B Key Issue 33B Illustration 34-1 4
CHAPTER 35 Comptroller Rules TABLES 1. New and amended Comptroller rules relevant to the Texas franchise tax released through January 15, 2016, have been included. 1. The franchise tax quick reference table has been updated for 2016. 2. The table of exemptions from the franchise tax has been updated to include new exemptions. Key Issue 35E and Illustration 35-1 Table T101 Table T103 5