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TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER VFRANCHISE TAX
RULE §3.595Margin: Transition

(a) Effective date. The provisions of this section apply as provided in this section.

(b) Types of entities previously subject to franchise tax. If an entity is a type of entity that would have been subject to the franchise tax immediately before the passage of House Bill 3, 79th Legislature, 3rd Called Session, 2006, then the margin calculation, as opposed to the taxable capital and earned surplus calculations, should be used for reports originally due on or after January 1, 2008. If an entity is part of a combined group, then the entity will be included in a combined report due in 2008, even if the entity becomes no longer subject to the franchise tax in 2007.

  (1) Unless the entity is part of a combined group, if an initial report is due in 2008 or later and the entity becomes no longer subject to the franchise tax on or before November 1, 2007, then the initial report based on margin will be based on the beginning date through the date the entity became no longer subject to the franchise tax and no final report will be due.

  (2) If an entity was required to file a report based on earned surplus, then the first report due based on margin should be based on a period beginning on the day after the last date used to calculate earned surplus.

  (3) If an entity filed a report based on taxable capital, but was not subject to the earned surplus component, then the first report due based on margin should be based on a period beginning on the day after the last date used to calculate taxable capital.

  (4) Except as provided in paragraph (1) of this subsection, if the entity becomes no longer subject to the earned surplus component of the tax on or before November 1, 2007, then the entity will owe a final report based on taxable earned surplus, unless the entity is part of a combined group.

(c) Types of entities becoming subject to the franchise tax under House Bill 3, 79th Legislature, 3rd Called Session, 2006.

  (1) Margin or gross receipts occurring before June 1, 2006, may not be considered for purposes of determining taxable margin or for apportionment purposes.

  (2) Extensions for 2008 annual reports will not be granted based on 100% of the tax reported as due in the previous calendar year, including combined reports which include at least one entity becoming subject to the franchise tax under House Bill 3, 79th Legislature, 3rd Called Session, 2006.

  (3) If the entity becomes no longer subject to the franchise tax before July 1, 2007, then it will not owe franchise tax and the entity will not be included in a combined report. The entity may become "no longer subject to the franchise tax" by terminating its existence. A dissolution, merger out of existence or liquidation is considered a termination. A conversion is not considered a termination. A partnership is considered terminated only if no part of any business, financial operation, or venture of the partnership continues to be carried on by any of its partners in a partnership. For a merger or consolidation of two or more partnerships, the resulting partnership is considered the continuation of any merging or consolidating partnership whose members own an interest of more than 50% in the capital and profits of the resulting partnership. For a division of a partnership into two or more partnerships, the resulting partnerships, other than any resulting partnership the members of which had an interest of 50% or less in the capital and profits of the prior partnership, are considered a continuation of the prior partnership.

  (4) An entity doing business in this state at any time after June 30, 2007, and before January 1, 2008, but not on January 1, 2008, shall file a final report based on margin as provided in subsection (b)(2) of this section, of Section 35 of House Bill 3928, 80th Legislature, 2007. The final report is due on the 60th day after the date the entity becomes no longer subject to the franchise tax. The entity will not be included in a combined report.

  (5) An entity subject to the franchise tax on January 1, 2008, for which January 1, 2008, is not the beginning date, shall file an annual report due May 15, 2008, based on the period or periods:

    (A) if the entity has an accounting period that ends on or after January 1, 2007, and before June 1, 2007:

      (i) beginning the later of:

        (I) June 1, 2006; or

        (II) the date the entity was organized in this state or, if a foreign entity, the date it began doing business in this state; and

      (ii) ending on the date that accounting period ends in 2007;

    (B) if the entity has an accounting period that ends on or after June 1, 2007, and before December 31, 2007:

      (i) beginning on the date that accounting period begins; and

      (ii) ending on the date that accounting period ends in 2007; and

    (C) if the entity has an accounting period that ends on December 31, 2007, or if the entity does not have an accounting period that ends in 2007:

      (i) beginning the later of:

        (I) January 1, 2007; or

        (II) the date the entity was organized in this state or, if a foreign entity, the date it began doing business in this state; and

      (ii) ending on December 31, 2007.


Source Note: The provisions of this §3.595 adopted to be effective January 1, 2008, 32 TexReg 10053

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