onecle - legal research

Court Opinions

State Laws

US Code

US Constitution

Texas Tax Code Section 171.1011 - Determination Of Total Revenue From Entire Business

Legal Research Home > Texas Laws > Tax Code > Texas Tax Code Section 171.1011 - Determination Of Total Revenue From Entire Business




§ 171.1011. DETERMINATION OF TOTAL REVENUE FROM ENTIRE 

BUSINESS.          

Text of section effective January 1, 2008
(a) In this section, a reference to an Internal Revenue Service form includes a variant of the form. For example, a reference to Form 1120 includes Forms 1120-A, 1120-S, and other variants of Form 1120. A reference to an Internal Revenue Service form also includes any subsequent form with a different number or designation that substantially provides the same information as the original form. (b) In this section, a reference to an amount entered on a line number on an Internal Revenue Service form includes the corresponding amount entered on a variant of the form, or a subsequent form, with a different line number. The comptroller shall adopt rules as necessary to accomplish the legislative intent prescribed by this subsection and Subsection (a). (c) Except as provided by this section, and subject to Section 171.1014, for the purpose of computing its taxable margin under Section 171.101, the total revenue of a taxable entity is: (1) for a taxable entity treated for federal income tax purposes as a corporation, an amount computed by: (A) adding: (i) the amount entered on line 1c, Internal Revenue Service Form 1120; and (ii) the amounts entered on lines 4 through 10, Internal Revenue Service Form 1120; and (B) subtracting: (i) bad debt expensed for federal income tax purposes that corresponds to items of gross receipts included in Subsection (c)(1)(A) for the current reporting period or a past reporting period; (ii) to the extent included in Subsection (c)(1)(A), foreign royalties and foreign dividends, including amounts determined under Section 78 or Sections 951-964, Internal Revenue Code; (iii) to the extent included in Subsection (c)(1)(A), net distributive income from partnerships and from trusts and limited liability companies treated as partnerships for federal income tax purposes and net distributive income from limited liability companies and corporations treated as S corporations for federal income tax purposes; (iv) allowable deductions from Internal Revenue Service Form 1120, Schedule C, to the extent the relating dividend income is included in total revenue; (v) to the extent included in Subsection (c)(1)(A), items of income attributable to an entity that is a disregarded entity for federal income tax purposes; and (vi) to the extent included in Subsection (c)(1)(A), other amounts authorized by this section; (2) for a taxable entity treated for federal income tax purposes as a partnership, an amount computed by: (A) adding: (i) the amount entered on line 1c, Internal Revenue Service Form 1065; (ii) the amounts entered on lines 4 through 7, Internal Revenue Service Form 1065; and (iii) the amounts entered on lines 2 through 11, Internal Revenue Service Form 1065, Schedule K; and (B) subtracting: (i) bad debt expensed for federal income tax purposes that corresponds to items of gross receipts included in Subsection (c)(2)(A) for the current reporting period or a past reporting period; (ii) to the extent included in Subsection (c)(2)(A), foreign royalties and foreign dividends, including amounts determined under Section 78 or Sections 951-964, Internal Revenue Code; (iii) to the extent included in Subsection (c)(2)(A), net distributive income from partnerships and from trusts and limited liability companies treated as partnerships for federal income tax purposes and net distributive income from limited liability companies and corporations treated as S corporations for federal income tax purposes; (iv) to the extent included in Subsection (c)(2)(A), items of income attributable to an entity that is a disregarded entity for federal income tax purposes; and (v) to the extent included in Subsection (c)(2)(A), other amounts authorized by this section; or (3) for a taxable entity other than a taxable entity treated for federal income tax purposes as a corporation or partnership, an amount determined in a manner substantially equivalent to the amount for Subdivision (1) or (2) determined by rules that the comptroller shall adopt. (d) Subject to Section 171.1014, a corporation that is part of a federal consolidated group shall compute its total revenue under Subsection (c) as if it had filed a separate return for federal income tax purposes. (e) A taxable entity that owns an interest in a passive entity that is not included in a group report under Section 171.1014 shall include in the taxable entity's total revenue the taxable entity's share of the net income of the passive entity, but only to the extent the net income of the passive entity was not generated by the margin of any other taxable entity. (f) A taxable entity shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), flow-through funds that are mandated by law or fiduciary duty to be distributed to other entities, including taxes collected from a third party by the taxable entity and remitted by the taxable entity to a taxing authority. (g) A taxable entity shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), only the following flow-through funds that are mandated by contract to be distributed to other entities: (1) sales commissions to nonemployees, including split-fee real estate commissions; (2) the tax basis as determined under the Internal Revenue Code of securities underwritten; and (3) subcontracting payments handled by the taxable entity to provide services, labor, or materials in connection with the actual or proposed design, construction, remodeling, or repair of improvements on real property or the location of the boundaries of real property. (g-1) A taxable entity that is a lending institution shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), proceeds from the principal repayment of loans. (g-2) A taxable entity shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), the tax basis as determined under the Internal Revenue Code of securities and loans sold. (g-3) A taxable entity that provides legal services shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3): (1) the following flow-through funds that are mandated by law, contract, or fiduciary duty to be distributed to the claimant by the claimant's attorney or to other entities on behalf of a claimant by the claimant's attorney: (A) damages due the claimant; (B) funds subject to a lien or other contractual obligation arising out of the representation, other than fees owed to the attorney; (C) funds subject to a subrogation interest or other third-party contractual claim; and (D) fees paid an attorney in the matter who is not a member, partner, shareholder, or employee of the taxable entity; (2) reimbursement of the taxable entity's expenses incurred in prosecuting a claimant's matter that are specific to the matter and that are not general operating expenses; and (3) the actual out-of-pocket expenses of the attorney, not to exceed $500 per case, of providing pro bono legal services to a person, but only if the attorney maintains records of the pro bono services for auditing purposes in accordance with the manner in which those services are reported to the State Bar of Texas. (h) If the taxable entity belongs to an affiliated group, the taxable entity may not exclude payments described by Subsection (f), (g), (g-1), (g-2), or (g-3) that are made to entities that are members of the affiliated group. (i) Except as provided by Subsection (g), a payment made under an ordinary contract for the provision of services in the regular course of business may not be excluded. (j) Any amount excluded under this section may not be included in the determination of cost of goods sold under Section 171.1012 or the determination of compensation under Section 171.1013. (k) A taxable entity that is a staff leasing services company shall exclude from its total revenue payments received from a client company for wages, payroll taxes on those wages, employee benefits, and workers' compensation benefits for the assigned employees of the client company. (l) For purposes of Subsection (g)(1): (1) "Sales commission" means: (A) any form of compensation paid to a person for engaging in an act for which a license is required by Chapter 1101, Occupations Code; and (B) compensation paid to a sales representative by a principal in an amount that is based on the amount or level of certain orders for or sales of the principal's product and that the principal is required to report on Internal Revenue Service Form 1099-MISC. (2) "Principal" means a person who: (A) manufactures, produces, imports, distributes, or acts as an independent agent for the distribution of a product for sale; (B) uses a sales representative to solicit orders for the product; and (C) compensates the sales representative wholly or partly by sales commission. (m) A taxable entity shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), dividends and interest received from federal obligations. (m-1) A taxable entity that is a management company shall exclude from its total revenue reimbursements of specified costs incurred in its conduct of the active trade or business of a managed entity, including "wages and cash compensation" as determined under Sections 171.1013(a) and (b). (n) Except as provided by Subsection (o), a taxable entity that is a health care provider shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3): (1) the total amount of payments the health care provider received: (A) under the Medicaid program, Medicare program, Indigent Health Care and Treatment Act (Chapter 61, Health and Safety Code), and Children's Health Insurance Program (CHIP); (B) for professional services provided in relation to a workers' compensation claim under Title 5, Labor Code; and (C) for professional services provided to a beneficiary rendered under the TRICARE military health system; and (2) the actual cost to the health care provider for any uncompensated care provided, but only if the provider maintains records of the uncompensated care for auditing purposes and, if the provider later receives payment for all or part of that care, the provider adjusts the amount excluded for the tax year in which the payment is received. (n-1) The comptroller shall adopt rules governing: (1) the computation of the actual cost to a health care provider of any uncompensated care provided under Subsection (n)(2); and (2) the audit requirements related to the computation of those costs. (o) A health care provider that is a health care institution shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), 50 percent of the amounts described by Subsection (n). (p) In this section: (1) "Federal obligations" means: (A) stocks and other direct obligations of, and obligations unconditionally guaranteed by, the United States government and United States government agencies; and (B) direct obligations of a United States government-sponsored agency. (2) "Health care institution" means: (A) an ambulatory surgical center; (B) an assisted living facility licensed under Chapter 247, Health and Safety Code; (C) an emergency medical services provider; (D) a home and community support services agency; (E) a hospice; (F) a hospital; (G) a hospital system; (H) an intermediate care facility for the mentally retarded or a home and community-based services waiver program for persons with mental retardation adopted in accordance with Section 1915(c) of the federal Social Security Act (42 U.S.C. Section 1396n); (I) a birthing center; (J) a nursing home; (K) an end stage renal disease facility licensed under Section 251.011, Health and Safety Code; or (L) a pharmacy. (3) "Health care provider" means a taxable entity that participates in the Medicaid program, Medicare program, Children's Health Insurance Program (CHIP), state workers' compensation program, or TRICARE military health system as a provider of health care services. (4) "Obligation" means any bond, debenture, security, mortgage-backed security, pass-through certificate, or other evidence of indebtedness of the issuing entity. The term does not include a deposit, a repurchase agreement, a loan, a lease, a participation in a loan or pool of loans, a loan collateralized by an obligation of a United States government agency, or a loan guaranteed by a United States government agency. (4-a) "Pro bono services" means the direct provision of legal services to the poor, without an expectation of compensation. (4-b) "Out-of-pocket expenses" means, for purposes of Subsection (g-3)(3), expenses incurred by the attorney in relation to a case, including: (A) postage expenses; (B) telephone calls; (C) faxes; and (D) paper and other office supplies. (5) "United States government" means any department or ministry of the federal government, including a federal reserve bank. The term does not include a state or local government, a commercial enterprise owned wholly or partly by the United States government, or a local governmental entity or commercial enterprise whose obligations are guaranteed by the United States government. (6) "United States government agency" means an instrumentality of the United States government whose obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the United States government. The term includes the Government National Mortgage Association, the Department of Veterans Affairs, the Federal Housing Administration, the Farmers Home Administration, the Export-Import Bank, the Overseas Private Investment Corporation, the Commodity Credit Corporation, the Small Business Administration, and any successor agency. (7) "United States government-sponsored agency" means an agency originally established or chartered by the United States government to serve public purposes specified by the United States Congress but whose obligations are not explicitly guaranteed by the full faith and credit of the United States government. The term includes the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Farm Credit System, the Federal Home Loan Bank System, the Student Loan Marketing Association, and any successor agency. (q) A taxable entity shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), all revenue received that is directly derived from the operation of a facility that is: (1) located on property owned or leased by the federal government; and (2) managed or operated primarily to house members of the armed forces of the United States. (r) A taxable entity shall exclude, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), total revenue received from oil or gas produced, during the dates certified by the comptroller pursuant to Subsection (s), from: (1) an oil well designated by the Railroad Commission of Texas or similar authority of another state whose production averages less than 10 barrels a day over a 90-day period; and (2) a gas well designated by the Railroad Commission of Texas or similar authority of another state whose production averages less than 250 mcf a day over a 90-day period. (s) The comptroller shall certify dates during which the monthly average closing price of West Texas Intermediate crude oil is below $40 per barrel and the average closing price of gas is below $5 per MMBtu, as recorded on the New York Mercantile Exchange (NYMEX). Added by Acts 2006, 79th Leg., 3rd C.S., ch. 1, § 5, eff. Jan. 1, 2008.

Last modified: March 7, 2007