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TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER VFRANCHISE TAX
RULE §3.584Margin: Reports and Payments

(a) Effective date. The provisions of this section apply to franchise tax reports originally due on or after January 1, 2008, except as otherwise noted.

(b) Nontaxable entities. See §3.581 of this title (relating to Margin: Taxable and Nontaxable Entities) for information concerning nontaxable entities. Except for passive entities (see §3.582 (relating to Margin: Passive Entities)), a nontaxable entity that has not notified the comptroller or the secretary of state that it is doing business in Texas, or that has previously notified the comptroller that it is not taxable, must notify the comptroller in writing only when the entity no longer qualifies as a nontaxable entity. If an entity receives notification in writing from the comptroller asking if the entity is taxable, the entity must reply to the comptroller within 30 days of the notice.

(c) Reports and due dates.

  (1) Each taxable entity subject to the franchise tax levied by Tax Code, §171.001, with a beginning date of October 4, 2009, or later, must file a first annual franchise tax report, and thereafter an annual franchise tax report, and at the same time must pay the franchise tax and any applicable penalties and interest due by the taxable entity. Each taxable entity subject to the franchise tax levied by Tax Code, §171.001, with a beginning date prior to October 4, 2009, must file an initial franchise tax report, and thereafter an annual franchise tax report, and at the same time must pay the franchise tax and any applicable penalties and interest due by the taxable entity. It is the responsibility of a receiver to file franchise tax reports and pay the franchise tax of a taxable entity in receivership. A debtor in possession or the appointed trustee or receiver of a taxable entity in reorganization or arrangement proceedings under the Bankruptcy Act is responsible for filing franchise tax reports and paying the franchise tax pursuant to the plan of reorganization or arrangement.

    (A) "Beginning date" means:

      (i) for a taxable entity chartered or organized in this state, the date on which the taxable entity's charter or organization takes effect; and

      (ii) for a foreign taxable entity, the date on which the taxable entity begins doing business in this state.

    (B) Initial report. For taxable entities with a beginning date prior to October 4, 2009, both the initial report and payment of the tax due, if any, are due no later than 89 days after the first anniversary date of the beginning date. The taxable margin computed on the initial report is based on the business done during the period beginning on the beginning date and ending on the last accounting period ending date for federal income tax purposes that is at least 60 days before the original due date of the initial report, or, if there is no such ending date, then ending on the day that is the last day of the calendar month nearest to the end of the taxable entity's first year of business. If the period used to compute business done for purposes of the initial report differs from the taxable entity's last accounting period for federal income tax purposes, then the taxable entity's total revenue for purposes of the initial report shall be computed as if the taxable entity had reported its federal taxable income on an Internal Revenue Service form covering the period used to compute business done for purposes of the initial report. The privilege period for the initial report is from the beginning date through December 31 of the year in which the initial report is originally due.

    (C) Annual report.

      (i) First annual report. For taxable entities with a beginning date of October 4, 2009, or later, both the first annual report and payment of the tax due, if any, are due no later than May 15 of the year following the year the entity became subject to the tax (i.e., the beginning date). The taxable margin computed on the first annual report is based on the business done during the period beginning on the beginning date and ending on the last accounting period ending date for federal income tax purposes that is in the same calendar year as the beginning date. The privilege period for the first annual report is from the beginning date through December 31 of the year in which the first annual report is originally due.

      (ii) Annual report. The annual franchise tax report must be filed and the tax paid no later than May 15 of each year. The taxable margin computed on an annual report is based on the business done during the period beginning with the day after the last date upon which tax was computed under Tax Code, Chapter 171 on a previous report, and ending with the last accounting period ending date for federal income tax purposes ending in the calendar year before the calendar year in which the report is originally due, or, if there is no such ending date, then ending on December 31 of the calendar year before the calendar year in which the report is originally due. A taxable entity that uses a 52 - 53 week accounting year end and has an accounting year ending the first four days of January of the year in which the annual report is originally due may use the preceding December 31 as the date through which taxable margin is computed. If the period used to compute business done for purposes of the annual report differs from the taxable entity's last accounting period for federal income tax purposes, then the taxable entity's total revenue for purposes of the annual report shall be computed as if the taxable entity had reported its federal taxable income on an Internal Revenue Service form covering the period used to compute business done for purposes of the annual report. The privilege period for an annual report is January 1 through December 31 of the year in which the annual report is originally due.

    (D) Extensions. See §3.1 of this title (relating to Request for Extension of Time in Which to File Report), for extensions of time to file an initial or final report. See §3.585 of this title (relating to Margin: Annual Report Extensions), for extensions of time to file an annual report, including the first annual report.

    (E) Final report. See §3.592 of this title (relating to Margin: Additional Tax) for information concerning the additional tax imposed by Tax Code, §171.0011.

    (F) Transition. See §3.595 of this title (relating to Margin: Transition) for transitional information concerning tax rates and privilege periods as a result of certain legislative changes.

    (G) Passive entities. See §3.582 of this title, for information concerning the reporting requirements for a passive entity.

    (H) Combined reporting. Taxable entities that are part of an affiliated group engaged in a unitary business must file a combined group report in lieu of individual reports, except that a public information report or ownership information report must be filed for each member of the combined group with nexus. See §3.590 of this title (relating to Margin: Combined Reporting), for rules on filing a combined report.

  (2) The postmark date (or meter-mark if there is no postmark) on the envelope in which the report or payment is received determines the date of filing.

(d) Calculation of tax.

  (1) Annual Election. If eligible, a taxable entity must make an annual election to deduct cost of goods sold or compensation by the due date or at the time the report is filed, whichever is later. The election is made by filing the franchise tax report using one method or the other. (See §3.588 of this title (relating to Margin: Cost of Goods Sold) and §3.589 of this title (relating to Margin: Compensation) for eligibility.). If an election is not made, the taxable entity's margin will be calculated as 70% of total revenue. After the due date of the report, a taxable entity may not amend its report to change its election to cost of goods sold or compensation. However, a taxable entity may amend its report to change its method of computing margin from cost of goods sold or compensation to 70% of total revenue or, if eligible, the E-Z Computation.

  (2) Calculation. A taxable entity's margin equals the least of the following three calculations, if eligible:

    (A) Total revenue minus cost of goods sold;

    (B) Total revenue minus compensation; or

    (C) 70% of total revenue.

  (3) Rate. A tax rate of 1.0% of taxable margin applies to most taxable entities. A tax rate of 0.5% of taxable margin applies to taxable entities primarily engaged in retail or wholesale trade under division F or G of the 1987 Standard Industrial Classification Manual published by the Federal Office of Management and Budget. A taxable entity is primarily engaged in retail or wholesale trade only if:

    (A) the total revenue from its activities in retail and wholesale trade is greater than the total revenue from its activities in trades other than the retail and wholesale trade;

    (B) less than 50% of the total revenue from activities in retail or wholesale trade comes from the sale of products it produces or products produced by an entity that is part of an affiliated group to which the taxable entity also belongs, except for those businesses under Major Group 58 (eating and drinking establishments). A product is not considered to be produced if modifications made to the acquired product do not increase its sales price by more than 10%; and

    (C) the taxable entity does not provide retail or wholesale utilities, including telecommunications services, electricity or gas.

  (4) Annualized Total Revenue. When the accounting period on which a report is based is more or less than 12 months, a taxable entity must annualize its total revenue to determine its eligibility for the no tax due threshold, discounts, and E-Z Computation. The amount of total revenue used in the actual tax calculations will not change as a result of annualizing revenue. To annualize total revenue, an entity will divide total revenue by the number of days in the period upon which the report is based, and then multiply the result by 365. Examples are as follows:

    (A) a taxable entity's 2010 franchise tax report is based on the period September 15, 2009 through December 31, 2009 (108 days), and its total revenue for the period is $375,000. The taxable entity's annualized total revenue is $1,267,361 ($375,000 divided by 108 days multiplied by 365 days). Based on its annualized total revenue, the taxable entity does not qualify for the $1,000,000 no tax due threshold but is eligible to file using the E-Z computation. The discounts do not apply in years when the no tax due threshold is $1,000,000;

    (B) a taxable entity's 2010 franchise tax report is based on the period March 1, 2008 through December 31, 2009 (671 days), and its total revenue for the period is $1,375,000. The taxable entity's annualized total revenue is $747,951 ($1,375,000 divided by 671 days multiplied by 365 days). Based on its annualized total revenue, the taxable entity qualifies for the $1,000,000 no tax due threshold and is eligible to file using the No Tax Due Information Report.

  (5) No tax due. See §3.587(c)(8)(C) of this title (relating to Margin: Total Revenue) for the tiered partnership exception.

    (A) A taxable entity owes no tax and may file a No Tax Due Information Report if its annualized total revenue is:

      (i) for reports originally due on or after January 1, 2008 but before January 1, 2010, $300,000 or less;

      (ii) for reports originally due on or after January 1, 2010 but before January 1, 2012, $1 million or less; and

      (iii) for reports originally due on or after January 1, 2012, $600,000 or less, or the amount determined under Tax Code, §171.006.

    (B) A taxable entity that has zero Texas receipts owes no tax and may file a No Tax Due Information Report.

    (C) A taxable entity that has tax due of less than $1,000 owes no tax; however, the entity cannot file a No Tax Due Information Report and must file a regular annual report or, if qualified, the E-Z Computation Report.

  (6) Discount. A taxable entity is entitled to a discount of the tax imposed as follows.

    (A) For reports originally due on or after January 1, 2008 but before January 1, 2010, if annualized total revenue is:

      (i) greater than $300,000 and less than $400,000, the discount is 80% of tax due;

      (ii) greater than or equal to $400,000 and less than $500,000, the discount is 60% of tax due;

      (iii) greater than or equal to $500,000 and less than $700,000, the discount is 40% of tax due;

      (iv) greater than or equal to $700,000 and less than $900,000, the discount is 20% of tax due.

    (B) For reports originally due on or after January 1, 2010 but before January 1, 2012, there are no discounts.

    (C) For reports originally due on or after January 1, 2012, if annualized total revenue is:

      (i) greater than $600,000 and less than $700,000, the discount is 40% of tax due;

      (ii) greater than or equal to $700,000 and less than $900,000, the discount is 20% of tax due.

  (7) E-Z Computation. A taxable entity with annualized total revenue of $10 million or less may choose to pay the franchise tax by using the E-Z Computation method. Under the E-Z Computation, a taxable entity's tax liability is computed by applying a tax rate of 0.575% to apportioned total revenue and subtracting any applicable discount as provided by paragraph (6) of this subsection. No deduction is allowed for cost of goods sold or compensation if a taxable entity chooses to compute its tax liability under the E-Z Computation. Additionally, no other credits or adjustments are allowed if a taxable entity chooses to compute its tax liability under the E-Z Computation.

Cont'd...

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