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Texas Franchise Tax Law Change Proposed by Comptroller

It can be refreshing when the people speak and the government listens. That is what happened recently in Texas. As we reported in an earlier post, there were a number of business owners who expressed frustration with the way in which Texas franchise taxes were calculated and the types of deductions that were allowed.

Apparently, the Texas Comptroller listened. She has proposed a tax law change that will impact those who pay franchise taxes. Even better -- the change is retroactive.

Texas franchise tax law allows a business to calculate the amount owed based on three methods of calculating income:

  • Income minus the cost of goods sold
  • Income minus compensation
  • Income minus 30 percent

In 2006 the law was changed so that if a business figured out one method, and later it turned out that another income method would have resulted in fewer taxes, the business could file an amended return.

In 2007 the tax law was changed again. This time it forced the business to select the income minus 30 percent as the default position if the business wanted to change the calculating method.

This was one of many franchise tax items that businesses were complaining about at a recent meeting. In an earlier blog we reported on the meeting of the Texas Ways and Means Committee meeting and business owners on issues related to the franchise tax.

A few days ago, the Texas Comptroller announced a Texas tax law change. She is allowing businesses to select the method of calculating their income from among the three methods. The draft regulation (Rule 3.584) would allow taxpayers to file amended reports to change or correct their deductions from cost of goods sold to compensation or vice versa.

Source: Yahoo! Finance, "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," June 29, 2012

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