Texas Sources Receipts From Sale of SMLLC to Location of Payor

The sale of a single-member limited liability company (SMLLC) by its sole member is a sale of an intangible asset for Texas franchise tax purposes. Thus, the member must source its receipts from the sale to the location of the payor.

Member Owns Interest in SMLLC, Not Assets

An SMLLC is a taxable entity for Texas franchise tax purposes, even if it is a disregarded entity for federal tax purposes. As a result, a single member of an SMLLC owns an interest in the SMLLC, and does not own the SMLLC’s assets directly. When a member sells its interest in an SMLLC, it receives revenue from the sale of an intangible asset, rather than a sale of the SMLLC’s assets.

Comptroller Will Update Rule

The Comptroller will amend Rule 3.591 to memorialize this guidance.

Letter No. 201810001L, Texas Comptroller of Public Accounts, October 9, 2018, ¶404-389

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