Tax Treatment of Sale of Texas Subsidiary

In calculating its Texas franchise tax liability, an out-of-state holding company was required to include its net gain from the sale of stock of a Texas subsidiary in the denominator of the apportionment factor. The denominator is the amount of the combined group’s gross receipts everywhere. Here, the subsidiary sold was a member of the holding company’s combined group.

However, the holding company did not have nexus with Texas because it did not:

  • maintain a place of business in Texas; and
  • did not manage, direct, or perform services in Texas for any of the members of the combined group.

Because it did not have nexus with Texas, it was not required to include the net gain in the numerator of the apportionment factor. The numerator is the combined group’s gross receipts from business done in Texas.

Letter No. 201709010L, Texas Comptroller of Public Accounts, September 12, 2017, ¶404-297

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