The rules also allow for a few small exceptions to the Texas general COGS. First, if an entity qualifies as a credit institution, it may elect to use an amount equal to its interest expense as a COGS (TX Tax Code § 171.1012(k)). Some homeowners are also eligible for the Texas COGS deduction: car rental or leasing companies that pay gross income tax under Texas Tax Code § 152.026; rental or leasing of heavy construction machinery; or railway vehicle leasing companies (TX Tax Code §171.1012(k-1)). The cost of goods sold for Texas franchise tax purposes is not the same as the cost of goods sold for federal tax purposes. The auditor has repeatedly stated that the federal COGS will never match the Texas COGS (although this is not entirely true). A taxpayer using the COGS deduction should be aware of approximately 40 Texas-specific rules that describe the composition of the deduction (TX Tax Code § 171.1012). These rules are divided into categories of direct costs, other costs, indirect costs and prohibited costs. For Texas purposes, COGS includes the cost of acquiring or manufacturing goods. In addition, in the ordinary course of business, the taxable person must sell movable real or tangible property and not intangible property.
The Services are expressly excluded by COGS. A business must generally own the property to use the COGS deduction. “Production” includes construction, installation, manufacture, development, mining, extraction, improvement, creation, cultivation and growth (TX Tax Code §171.1012(a)(2)). 11. In December 2007, the Texas Office of the Auditor adopted 15 agency rules for the recalculation of margin (34 TX Admin. Code §§3.581–3.595). These rules (and the new tax) came into effect on January 1, 2008. Some regulations use the legal language of H.B. 3 and H.B. 3928, while others differ considerably from the legal language.
Texas Comptroller Suggests Changing Franchise Tax Rule for Retail or Wholesale Trade Was Saved In addition, taxable businesses include not only corporations and LLCs, but generally any business with limited liability protection. The idea of a unified repository was also first introduced in Texas, something very foreign to Texans. The only things that have not changed are the tax due date, May 15 of each year, and the rules for the tax accounting period. The revised franchise tax has come a long way in the two years since H.B. 3 was passed. However, it seems that the developments so far are just the tip of the iceberg. In the immediate term, more decisions and strategic decisions should be made by the auditor. The validity of the tax may also be subject to constitutional challenge because the Texas Constitution (art. VIII, § 24 (a)) does not allow income tax, which is probably the case with margin tax. Taxable businesses in Texas should expect more tax changes in the coming years. There is a discrepancy between the legal definition and the auditor`s regulation of affiliated groups.
The legal definition refers to “co-owner or co-owner” (TX Tax Code § 171.0001 (1)), while the auditor rule refers only to “a co-owner” (34 TX Admin. Code § 3.590 (b) (1)). The most agitated part of the passive entity test is the active income test. An active business or business is carried on when the activities include one or more active operations that are part of the revenue or profit generation process, and the business performs active management and operating functions (TX Tax Code §171.0004 (a)). A potential problem arises for holding companies whose active activity is the preservation of passive sources of income. Without a clear explanation from the auditor, there is a tax risk for this type of business. The forms for reporting the new tax were published on March 31, 2008. Due to the late publication of the forms and the complexity of the tax, the Court of Auditors has extended the due date of the franchise fee for primary and annual filers from 15 May to 16 June. The tax is still technically due on May 15, but the penalty is waived for this one-month period.
