Instructions For Completing Texas Franchise Tax Transition Final Report

ADVERTISEMENT

Form 05-171 (Back)(Rev.12-07/3)
INSTRUCTIONS FOR COMPLETING
TEXAS FRANCHISE TAX TRANSITION FINAL REPORT
WHO MUST FILE THIS REPORT: Corporations and limited liability companies
costs. Cost of goods sold also includes cost related to production related
(LLC) that ended their existence or ceased doing business in Texas after
equipment and facilities; depreciation; rental; and repair and maintenance.
November 1, 2007 and before January 1, 2008. Entities becoming subject to
Research, insurance, utilities, quality control and licensing costs directly related
the Texas franchise tax under House Bill 3 who ended their existence in Texas
to the production of goods are also included. A taxable entity may deduct up to
after June 30, 2007 and before January 1, 2008. These entities include
4% of overhead costs allocable to the production of goods. Lending institutions
general partnerships (not wholly owned by natural persons), limited
that make loans to the public may deduct interest as a cost of goods sold. Cost
partnerships, limited liability partnerships, professional associations, trusts,
of goods sold does not include renting or leasing costs that are not production
business trusts, and joint ventures.
related; selling costs; distribution costs including outbound transportation costs;
ITEM d. Due Date - The transition final report and payment of any tax is due
advertising cost; interest; income or franchise taxes; and officer compensation.
within 60 days of the date that the entity ended its existence or ceased doing
Payments for undocumented workers are not deductible. Any amounts excluded
business in Texas.
from Item 5 may not be included in the determination of cost of good sold.
ITEM j. Enter the entity’s 4-digit standard industrial classification (SIC) code.
Texas Tax Code 171.1012.
Codes can be determined online at
ITEM 7a. Wages and Cash Compensation - Wages and cash compensation
ITEM k. Enter the entity’s 6-digit North American industry classification
include amounts reported for Medicare wages and tips on Form W2; net
system (NAICS) code. Codes can be determined online at
distributive income from partnerships, limited liability companies and trusts
treated as a partnership for federal income tax purposes; and stock awards
ITEM 1. Combined Reporting - Taxable entities that are part of an affiliated
and stock options deducted for federal income tax purposes. The amount
group engaged in a unitary business shall file a combined group report in lieu
includes wages and cash compensation paid to officers, directors, owners,
of individual reports, without regard to the $300,000 limitation on revenue. An
partners and employees. The deduction for wages and cash compensation is
affiliated group is a group of one or more entities in which a controlling interest
limited to $300,000 per person. A taxable entity that is a staff leasing services
(more than 50%) is owned by a common owner, either corporate or
company should include only payment for the entity’s own employees that are
noncorporate, or by one or more of the member entities. A unitary business is
not assigned employees. A client company that contracts with a staff leasing
defined as a single economic enterprise that is made up of separate parts of a
services company may include wages for assigned employees but may not
single entity or of a commonly controlled group of entities that are sufficiently
include an administrative fee or payroll taxes. Payments for undocumented
interdependent, integrated, and interrelated through their activities so as to
workers are not deductible. Any amounts excluded from Item 5 may not be
provide a synergy and mutual benefit that produces a sharing or exchange of
included in the determination of compensation. Texas Tax Code 171.1013.
value among them and a significant flow of value to the separate parts. Texas
ITEM 7b. Employee Benefits - Benefits, to the extent deductible for federal
Tax Code 171.0001.
income tax purposes, provided to officers, directors, owners, partners and
ITEM 3. Temporary Credit - Corporations and limited liability companies that were
employees, including workers’ compensation, health care and retirement
doing business in Texas on 05/01/06, are eligible to take a credit based on
benefits. Texas Tax Code 171.1013.
business loss carryforwards that were not exhausted on a report originally due
ITEM 10. Gross Receipts in Texas - Gross receipts in Texas include sales
before 01/01/08. These entities must preserve their right to take this credit on a
of real property located in Texas including royalties from oil, gas, or other
form prescribed by the Comptroller on or before the due date of its 2008 report, and
mineral interests, sales of tangible personal property when the property is
may elect to take the credit on any report originally due on or after 01/01/08.
delivered or shipped to a purchaser within Texas, services performed within
ITEM 4a. Begin Date - For a corporation or LLC, the day after the accounting
Texas, rentals of property situated in Texas, receipts from the use of
period ending date for the earned surplus component on the previous franchise
trademarks, franchises or licenses within Texas and all other business
tax report. Newly taxable entities enter the later of 01/01/2007 or the date the
revenue within Texas including dividends and interest from Texas payors.
entity began doing business in Texas. For a Texas entity, the date it began
Any amounts excluded from Item 5 may not be included in the determination
doing business in Texas is its date of organization or formation.
of Texas Gross Receipts. Texas Tax Code 171.103.
ITEM 4b. End Date - For a corporation or LLC, the effective date of a Texas
ITEM 11. Gross Receipts Everywhere - Gross receipts everywhere include
entity’s dissolution or the date a non-Texas entity ceased doing business in
all sales of tangible personal property, all services, all rentals, all royalties and
Texas. NOTE: If this entity answered ‘NO’ in Item 2, enter the day before the
all other business revenue including dividends and interest. If a taxable entity
date that will be used by the combined group on its 2008 report. Newly taxable
sells an investment or capital asset, the entity’s gross receipts from its entire
entities enter the effective date a Texas entity ended its existence or the date
business for taxable margin include only the net gains from the sale. Any
a non-Texas entity ceased doing business in Texas.
amounts excluded from Item 5 may not be included in the determination of
ITEM 5. Total Revenue - Total revenue is determined based on federal income
Everywhere Gross Receipts. Texas Tax Code 171.105.
tax reporting. Total revenue for a taxable entity filing as a corporation for federal
ITEM 14. Tax Rate - The tax rate is 1 percent for most taxable entities. To
tax purposes includes amounts entered on line 1c of its federal tax return Form
qualify for the 0.5 percent tax rate, the entity must be primarily engaged in
1120 plus the amounts entered on lines 4 through 10, Form 1120. A taxable entity
retail or wholesale trades as defined in Divisions F and G of the 1987
filing as a partnership for federal tax purposes includes in total revenue the
Standard Industrial Classification Manual. A taxable entity is primarily engaged
amounts entered on lines 1c, 4, 6 and 7, Form 1065; the amounts entered on
in retail or wholesale trade only if: (1) the total revenue from its activities in
lines 3a and 5 through 11, Form 1065, Schedule K; line 17, Form 8825 and line
retail and wholesale trade is greater than the total revenue from its activities in
11 plus line 2 or line 45, Form 1040, Schedule F. From these amounts a taxable
trades other than the retail and wholesale trade; (2) less than 50% of the total
entity may subtract, to the extent included in revenue, bad debt expense, foreign
revenue from activities in retail or wholesale trade comes from the sale of
royalties and dividends under Section 78 and Section 951-964, Internal Revenue
products it produces or products produced by an entity that is part of an
Code, Schedule C dividends and income from a related entity. Specific exclusions
affiliated group to which the taxable entity also belongs, except for those
from revenue include flow-through funds mandated by law, fiduciary duty or
businesses under Major Group 58 (eating and drinking establishments); and
contract, such as sales tax, sales commissions to nonemployees, the tax basis of
the taxable entity does not provide retail or wholesale utilities, including
securities underwritten and a contractor’s flow through payments to construction
telecommunications services, electricity or gas. Texas Tax Code 171.002.
subcontractors. A lending institution may exclude the principal repayment of
ITEM 16. Credits - The business loss credit calculation for report year:
loans. An entity that provides legal services may exclude the following flow-
(Item 3b) x 2.25% x 4.5%
through funds: damages due the claimant; funds subject to a lien or other
ITEM 17. E-Z Computation - A taxable entity with total revenue of $10 million
contractual obligation arising out of the representation, other than fees owed to
or less may elect to pay the franchise tax by multiplying Total Revenue (Item 5)
the attorney; and fees paid to another attorney. An entity providing legal services
times Apportionment Factor (Item 12) times 0.575% (.00575).
may also deduct from revenue $500 per pro bono case handled. Dividends and
ITEM 19. Discount - A taxable entity is entitled to a discount of the tax
interest from federal obligations are excluded. A staff leasing services company
imposed as follows:
shall exclude payments received from a client company for wages, payroll taxes
- If Total Revenue in Item 5 is greater than $300,000 and less than $400,000,
and employee benefits for the assigned employees. A health care provider may
then enter an amount equal to Item 18 times 80%.
exclude 100% of revenues from Medicaid, Medicare, IHCTA, CHIP, workers’
- If Total Revenue in Item 5 is greater than or equal to $400,000 and less
compensation claims and TRICARE, and actual costs for uncompensated care
than $500,000, then enter an amount equal to Item 18 times 60%.
(healthcare institutions may only exclude 50%). Total revenue cannot be less than
- If Total Revenue in Item 5 is greater than or equal to $500,000 and less
zero. Texas Tax Code 171.1011.
than $700,000, then enter an amount equal to Item 18 times 40%.
ITEM 6a. Cost of goods sold (COGS) - “Goods” are defined as real or tangible
- If Total Revenue in Item 5 is greater than or equal to $700,000 and less
personal property sold in the ordinary course of business and includes computer
than $900,000, then enter an amount equal to Item 18 times 20%.
programs, films, sound recordings, video tapes, books, and other similar
ITEM 21. Penalty and interest -
properties. Taxable entities that provide only services are not eligible for a cost
- 1-30 days late: Enter penalty of 5% (.05) of Item 20.
of goods sold deduction. A taxable entity renting motor vehicles, heavy
- 31-60 days late: Enter penalty of 10% (.10) of Item 20.
construction equipment or railcar rolling stock may use cost of goods sold for
- Over 60 days late: Enter penalty of 10% (.10) of Item 20 plus interest.
costs related to the property rented. Cost of goods sold includes all direct costs
Calculate interest at the rate published online at ,
of acquiring or producing the goods such as labor; materials; handling costs
or call toll free at (877) 447-2834, for the applicable interest rate.
including processing, assembling, and inbound transportation; and storage

ADVERTISEMENT

00 votes

Related Articles

Related forms

Related Categories

Parent category: Financial
Go