Texas Comptroller Proposes Rule Amendment That Would Allow Taxpayers to Retroactively Elect to Take Cost of Goods Sold Deduction or Compensation Deduction on Texas Franchise Tax Returns
AUSTIN, Texas, June 29, 2012 /PRNewswire/ -- Texas Comptroller of Public Accounts Susan Combs recently announced that she will allow taxpayers to change their election to deduct from total revenue 30%, the cost of goods sold, or certain compensation paid to employees. The Texas franchise tax or "Margins Tax" allows taxpayers, depending on their business, to elect to pay tax based on the lesser of income—less cost of goods sold, income less compensation, or income less 30%. When the tax was originally adopted in 2006, the law allowed a taxpayer to change its election by filing an amended return (if the taxpayer qualified to take the deduction).
During the 2007 Legislative Session, the provision was changed as part of "technical corrections" legislation to prohibit the choice of deduction from being changed. For example, if a taxpayer elected to take the cost of goods sold deduction (which is limited to retailers, manufacturers, and contractors) but did not qualify, the taxpayer could not amend its franchise tax return to elect to deduct compensation. Instead, the taxpayer's only option was to take a deduction equal to 30% of income. During a recent House Ways and Means Committee meeting, taxpayers expressed concerns about the impact of the irrevocable election to the committee.
Comptroller Combs's draft regulation (Rule 3.584) would allow taxpayers to file amended reports to change or correct their Margins Tax deductions from cost of goods sold to compensation or vice versa.
Ryan is an award-winning global tax services firm, with the largest indirect tax practice in North America and the seventh largest corporate tax practice in the United States. Headquartered in Dallas, Texas, the Firm provides a comprehensive range of state, local, federal, and international tax advisory and consulting services on a multi-jurisdictional basis, including audit defense, tax recovery, credits and incentives, tax process improvement and automation, tax appeals, tax compliance, and strategic planning. Ryan is a two-time recipient of the International Service Excellence Award from the Customer Service Institute of America (CSIA) for its commitment to world-class client service. Empowered by the dynamic myRyan work environment, which is widely recognized as the most innovative in the tax services industry, Ryan's multi-disciplinary team of more than 925 professionals and associates serves over 6,500 clients in 40 countries, including many of the world's most prominent Global 5000 companies. More information about Ryan can be found at www.ryan.com.
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