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Rent-A-Center is a leading provider of furniture and electronics to consumers through rent-to-own agreements in which customers become the owners of property if they do not terminate or breach the agreement during the lease term. Federal income tax law required Rent-A-Center to capitalize the costs it in incurred to purchase furniture and electronics that it leased to customers. Rent-A-Center claimed depreciation on its federal income tax return on the items while they were being leased.…
Texas Franchise Tax Update: Texas Comptroller Adopts Comprehensive Changes to Apportionment Rule The Texas Comptroller has adopted broad amendments to his Rule 3.591 governing franchise tax apportionment. In doing so, the agency rewrote numerous detailed rules for sourcing dozens of different types of receipts. Notably, for receipts from services that don’t fall under one of the specific rules, the Comptroller’s rule codifies the “end-product act” test which first appeared in a 1980 Comptroller Hearing (Decision…
Local governments, like cities and counties, collect local taxes to finance their governmental operations. Generally, local governments receive local sales taxes based upon orders that local businesses receive within their boundaries. Local governments may also receive local use taxes when goods are delivered to customers within their boundaries. A seller collects local use taxes only when the local sales tax where the item is sold is less than the maximum rate (2%) and the local…
Texas Franchise Tax Update: Congressman Fires Back with Proposed Bill After Texas Comptroller Threatens to Tax PPP Loan Forgiveness A Texas lawmaker has introduced a bill in the current legislative session reversing the Comptroller’s policy of treating federal Paycheck Protection Program (PPP) loan forgiveness as revenue for Texas franchise tax. The proposed bill also allows taxpayers to include the corresponding costs when calculating their compensation or cost of goods sold subtraction. During the 2021 Texas…
Local governments, like cities and counties, collect local taxes to finance their governmental operations. Generally, local governments receive local sales taxes based upon orders that local businesses receive within their boundaries. Local governments may also receive local use taxes when goods are delivered to customers within their boundaries. A seller collects local use taxes only when the local sales tax where the item is sold is less than the maximum rate (2%) and the local…
In May of 2020, the Texas Supreme Court held in EBS Solutions, Inc. v. Hegar that a taxpayer may gain access to the Texas courts without first paying the tax assessment against it in full, if the taxpayer satisfies the appropriate jurisdictional requirements.[1] EBS Solutions was audited for Texas franchise tax and received an assessment of tax, penalties, and interest for four year of almost $300,000.[2] EBS disagreed with the Comptroller’s assessment and…
Introduction In Sunstate Equipment Co. v. Hegar, the Court denied the cost of goods sold (COGS) subtraction for the heavy equipment rental company’s costs to deliver and pick-up equipment. In Hegar v. American Multi-Cinema, Inc., the Court denied the COGS subtraction for AMC’s film exhibition costs. While AMC ultimately lost, as we explain below, the Court’s rejection of an argument that the Legislature can “clarify” prior law and thereby give it retroactive effect may undermine…
Introduction This paper discusses the relief provided by Texas in response to the COVID-19 crisis, including taxpayers’ responsibilities for Texas sales tax and Texas franchise tax reporting. The Comptroller has provided a blanket, automatic extension for Report Year 2020 Texas franchise tax reporting and payments to July 15, 2020. The Comptroller has not extended the sales tax reporting deadlines but has offered potential relief to taxpayers depending on their circumstances. Many local appraisal districts have…
On April 3, 2020, the Texas Supreme Court issued its opinion in Hegar v. Gulf Copper & Manufacturing Corporation in which it found the oil rig repair company could reduce its revenue by the payments it made to hourly subcontractors but limited its COGS subtraction to the costs incurred as a producer of goods.1 The Supreme Court determined that Gulf Copper did not qualify as a “deemed” owner of goods and remanded the case to…
On September 27, 2019, the Texas Comptroller proposed amendments to his Texas franchise tax nexus rules that would make out-of-state entities with no physical presence in Texas subject to Texas franchise tax. The preamble to the proposed amendments explains that the amendments are “in response to the United States Supreme Court decision in South Dakota v. Wayfair, Inc.” 138 S. Ct. 2080 (2018); 44 Tex. Reg. 5605 (2019) (to be codified as an amendment to…