Texas Franchise Tax: Policy Revised for Treatment of Net Losses From Sale of Investments and Capital Assets for Apportionment Purposes

The Texas Comptroller of Public Accounts has revised its policy regarding the franchise tax treatment of net losses from the sale of investments and capital assets in calculating gross receipts for apportionment purposes. The comptroller will apply the decision of the Texas Supreme Court in Hallmark Mktg. Co., v. Hegar, 2016 Tex. LEXIS 314 (Tex. 2016), to the calculation of gross receipts everywhere and Texas receipts. A net loss from the sale of all investments and capital assets should not be included in gross receipts everywhere and a net loss from the sale of all Texas investments and Texas capital assets should not be included in Texas receipts. To calculate gross receipts everywhere, all gains and losses from all sales of investments and capital assets within the accounting period should be added together to determine the net gain or net loss. If the combination results in a net loss, the entity’s gross receipts everywhere are zero. If the combination results in a net gain, the net gain is the entity’s gross receipts everywhere. If the entity has Texas and out-of-state sales of investments and capital assets, a separate calculation should be made to determine Texas receipts by adding together Texas gains and losses. If the combination of Texas gains and losses results in a net loss, the entity’s Texas receipts are zero. If the combination of Texas gains and losses results in a net gain, the Texas net gain is reported as Texas receipts. In no instance, however, is an overall apportionment factor of greater than one allowed. For a combined group, all gains and losses from the sale of investments and capital assets for all members of the combined group should be added together to determine the net gain or net loss.

Letter No. 201707002L, Texas Comptroller of Public Accounts, July 7, 2017, ¶404-276

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