|(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) Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
(1) Actual cost of uncompensated care--The amount determined
by multiplying Operating Expenses by the Uncompensated Care Ratio
(A) operating expenses are the amounts reported on
line 2 and line 21, Internal Revenue Service Form 1065 or the amounts
reported on line 2 and line 20, Internal Revenue Service Form 1120S
or the corresponding line items from any other federal form filed,
less any items that have already been subtracted from total revenue
(e.g., bad debts);
(B) uncompensated care ratio means uncompensated care
charges less partial payments divided by total charges;
(C) uncompensated care charges are the standard charges
for health care services where the provider has not received any payment
or where the provider has received partial payment that does not cover
the cost of the health care provided to the patient. Uncompensated
care charges do not include any portion of a charge that the health
care provider has no right to collect under a private health care
plan, under an agreement with an individual for a specific amount
or under the charge limitations imposed by the programs described
in subsection (e)(10)(A)(i) - (iii) of this section;
(D) standard charges must be comparable to the charges
applied to services provided to all patients of the health care provider;
(E) partial payment is an amount that has been received
toward uncompensated care charges that does not cover the cost of
the services provided;
(F) total charges are charges for all health care services,
including uncompensated care;
(G) records that clearly identify each patient, the
procedure performed, and the standard charge for such a service, as
well as payments received from each patient must be maintained by
the health care provider for all uncompensated care;
(H) a corresponding adjustment must be made to reduce
the cost of goods sold deduction or the compensation deduction for
the portion of the cost of goods sold or compensation that has been
excluded from revenue:
(i) the cost of goods sold deduction is reduced by
subtracting the product of the cost of goods sold under §3.588
of this title (relating to Margin: Cost of Goods Sold) multiplied
by the uncompensated care ratio;
(ii) the compensation deduction is reduced by subtracting
the product of the compensation and benefits amounts under §3.589
of this title (relating to Margin: Compensation) multiplied by the
uncompensated care ratio.
(2) Federal obligations--
(A) stocks and other direct obligations of, and obligations
unconditionally guaranteed by, the United States government and United
States government agencies; and
(B) direct obligations of a United States government-sponsored
(3) Health care institution--An ambulatory surgical
center; an assisted living facility licensed under Health and Safety
Code, Chapter 247; an emergency medical services provider; a home
and community support services agency; a hospice; a hospital; a hospital
system; an intermediate care facility for the mentally retarded or
a home and community-based services waiver program for persons with
mental retardation adopted in accordance with the federal Social Security
Act, §1915(c) (42 U.S.C. §1396n); a birthing center; a nursing
home; an end stage renal disease facility licensed under Health and
Safety Code, §251.011; or a pharmacy.
(4) Health care provider--Any taxable entity that participates
in the Medicaid program, Medicare program, Children's Health Insurance
Program (CHIP), state workers' compensation program, or TRICARE military
health system as a provider of health care services.
(5) Lending institution--An entity that makes loans;
(A) is regulated by the Federal Reserve Board, the
Office of the Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Commodity Futures Trading Commission, the Office
of Thrift Supervision, the Texas Department of Banking, the Office
of Consumer Credit Commissioner, the Credit Union Department, or any
comparable regulatory body;
(B) is licensed by, registered with, or otherwise regulated
by the Department of Savings and Mortgage Lending;
(C) is a "broker" or "dealer" as defined by the Securities
Exchange Act of 1934 at 15 U.S.C. §78c; or
(D) provides financing to unrelated parties solely
for agricultural production.
(6) Management company--A corporation, limited liability
company, or other limited liability entity that conducts all or part
of the active trade or business of another entity ("the managed entity")
in exchange for a management fee and reimbursement of specified costs
incurred in the conduct of the active trade or business of the managed
entity, including wages and cash compensation as determined under
Tax Code, §171.1013(a) and (b). To qualify as a management company:
(A) the entity must perform active and substantial
management and operational functions, control and direct the daily
operations and provide services such as accounting, general administration,
legal, financial or similar services; or
(B) if the entity does not conduct all of the active
trade or business of an entity, the entity must conduct all operations,
as provided in subparagraph (A) of this paragraph, for a distinct
revenue-producing component of the entity.
(7) Net distributive income--The net amount of income,
gain, deduction, or loss relating to a pass-through entity or disregarded
entity reportable to the owners for the tax year of the entity.
(8) Obligation--Any bond, debenture, security, mortgage-backed
security, pass-through certificate, or other evidence of indebtedness
of the issuing entity. The term does not include a deposit, a repurchase
agreement, a loan, a lease, a participation in a loan or pool of loans,
a loan collateralized by an obligation of a United States government
agency, or a loan guaranteed by a United States government agency.
(9) Pro bono services--The direct provision of legal
services to the poor, without an expectation of compensation.
(10) Product--Services, tangible personal property,
and intangible property.
(11) Sales commission--
(A) any form of compensation paid to a person for engaging
in an act for which a license is required by Occupations Code, Chapter
(B) compensation paid to a sales representative by
a principal in an amount that is based on the amount or level of certain
orders for or sales of the principal's product and that the principal
is required to report on Internal Revenue Service Form 1099-MISC (or
would have been reported if the amount had met the Internal Revenue
Service minimum reporting requirement).
(C) for purposes of defining sales commission, a principal
is a person who:
(i) manufactures, produces, imports, distributes, or
acts as an independent agent for the distribution of a product for
(ii) uses a sales representative to solicit orders
for the product; and
(iii) compensates the sales representative wholly or
partly by sales commission.
(12) Security--The meaning assigned by Internal Revenue
Code, §475(c)(2), and includes instruments described by Internal
Revenue Code, §475(e)(2)(B), (C), and (D).
(13) Staff leasing services company--A business entity
that offers staff leasing services, as that term is defined by Labor
Code, §91.001, or a temporary employment service, as that term
is defined by Labor Code, §93.001.
(14) Tiered partnership arrangement--An ownership structure
in which any of the interests in one taxable entity treated as a partnership
or an S corporation for federal income tax purposes (a "lower tier
entity") are owned by one or more other taxable entities (an "upper
(15) United States government--Any department or ministry
of the federal government, including a federal reserve bank. The term
does not include a state or local government, a commercial enterprise
owned wholly or partly by the United States government, or a local
governmental entity or commercial enterprise whose obligations are
guaranteed by the United States government.
(16) United States government agency--An instrumentality
of the United States government whose obligations are fully and explicitly
guaranteed as to the timely payment of principal and interest by the
full faith and credit of the United States government. The term includes
the Government National Mortgage Association, the Department of Veterans
Affairs, the Federal Housing Administration, the Farmers Home Administration,
the Export-Import Bank, the Overseas Private Investment Corporation,
the Commodity Credit Corporation, the Small Business Administration,
and any successor agency.
(17) United States government-sponsored agency--An
agency originally established or chartered by the United States government
to serve public purposes specified by the United States Congress but
whose obligations are not explicitly guaranteed by the full faith
and credit of the United States government. The term includes the
Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Farm Credit System, the Federal Home Loan Bank System,
the Student Loan Marketing Association, and any successor agency.
(c) General rules for reporting total revenue.
(1) Variant of form. Any reference to an Internal Revenue
Service form includes a variant of the form. For example, a reference
to Form 1120 includes Forms 1120-A, 1120-S, and other variants of
Form 1120. A reference to an Internal Revenue Service form also includes
any subsequent form with a different number or designation that substantially
provides the same information as the original form.
(2) Amount reportable. Any reference to an amount reportable
as income on a line number on an Internal Revenue Service form is
the amount entered to the extent the amount entered complies with
federal income tax law and includes the corresponding amount entered
on a variant of the form, or a subsequent form, with a different line
number to the extent the amount entered complies with federal income
(3) Federal consolidated group. A taxable entity that
is part of a federal consolidated group or is a disregarded entity
shall compute its total revenue as if it had filed a separate return
for federal income tax purposes; provided, however, that a disregarded
entity may combine its revenue, cost of goods sold, compensation and
gross revenue with its parent as provided by §3.590(d)(6) of
this title (relating to Margin: Combined Reporting). Further information
on combined entities can be found in §3.590 of this title.
(4) Passive entity. A taxable entity will include its
share of net distributive income from a passive entity, but only to
the extent the net income of the passive entity was not generated
by any other taxable entity.
(5) Exclusions from total revenue.
(A) Any expense excluded from total revenue (e.g. flow-through
funds or the cost of uncompensated care allowed under subsection (e)
of this section) may not be included in the determination of cost
of goods sold (see §3.588 of this title) or the determination
of compensation (see §3.589 of this title).
(B) Net distributive income that is subtracted from
total revenue may not be included in the determination of compensation.
(6) Contract services. Except as provided by subsection
(e)(2) of this section, a payment received under an ordinary contract
for the provision of services in the ordinary course of business may
not be excluded from the calculation of total revenue.
(7) Payment to affiliated group members. If the taxable
entity belongs to an affiliated group, the taxable entity may not
exclude from the calculation of total revenue any payments described
by subsection (e)(1) - (6) of this section that are made to entities
that are members of the affiliated group.
(8) Tiered partnership provision. This provision is
not mandatory. Subject to the following subparagraphs, a lower tier
entity in a tiered partnership arrangement may exclude from total
revenue the amount of total revenue reported to an upper tier entity.
If a lower tier entity chooses to file under the tiered partnership
provision, the lower tier entity may report total revenue to any or
all of its upper tier entities. The total revenue reported to an upper
tier entity must equal the upper tier entity's ownership percentage
of the lower tier entity's entire total revenue.
(A) Reporting requirements. The lower tier entity must
submit a report to the comptroller showing the amount of total revenue
that each upper tier entity must include with the upper tier entity's
own total revenue. Each upper tier entity must submit a report to
the comptroller showing the amount of the lower tier entity's total
revenue that was passed to the upper tier entity and is included in
the total revenue of the upper tier entity.