Texas Comptroller of Public Accounts    STAR System


9503R1335D14



STAR SUPERSEDED WITHOUT SUMMARY 

Accession No.(s): 9503883R

Document superseded on: 08/15/2013 



STATE OF TEXAS
COMPTROLLER OF PUBLIC ACCOUNTS
FRANCHISE TAX


Section 3.547. Taxable Capital: Accounting Methods. (Tax Code sec. 171.109 et 
seq.).

(a) Effective date. The provisions of this section apply to franchise tax 
reports originally due on or after January 1, 1988.

(b) Taxable capital application. The provisions of this section apply to the 
determination of gross receipts and surplus for taxable capital.

(c) General rules. The provisions of this subsection apply to both the 
generally accepted accounting principles (GAAP) and federal income tax methods.

(1) A corporation is required to use the same accounting method in computing 
gross receipts as it uses in computing surplus. Accounting method is the method 
of allocating the cost, benefit, or expense of an asset or liability to 
accounting periods.

(2) Regardless of any requirements or allowances under GAAP or the Internal 
Revenue Code, the calculation of franchise tax shall be performed in accordance 
with all applicable provisions of the Tax Code, Chapter 171, and related rules 
of this title.

(3) The financial condition as of the date required by the Tax Code, sec. 
171.153, must be determined by GAAP or other methods required by the Tax Code, 
Chapter 171, and related rules of this title, for all transactions through such 
date.

(4) A corporation's eligibility to report under the federal income tax method 
will determine whether it can change from the GAAP method to the federal income 
tax method, or vice versa, in a subsequent reporting period. Unless otherwise 
specified in this paragraph, a corporation cannot change accounting methods 
more often than once every four years without the written consent of the 
comptroller.

(A) A corporation that is eligible to report under the federal income tax 
method may change from the GAAP method to the federal income tax method once 
every four years. The corporation shall revert to the GAAP method within the 
next four years only if it loses its eligibility to use the federal income tax 
method.

(B) A corporation eligible to report under the federal income tax method may 
change from the federal income tax method to the GAAP method once every four 
years. The corporation cannot change back to the federal income tax method 
during the next four years.

(C) A corporation that loses its eligibility to report under the federal income 
tax method and has to report under the GAAP method may revert to the federal 
income tax method in a subsequent reporting period if it regains its 
eligibility to use that method.

(5) A corporation may not amend its franchise tax report after the due date of 
that report except as indicated in this paragraph. These provisions apply to 
those returns not barred by the statute of limitations. 

(A) An amended report may be filed to correct an accounting error. An 
accounting error results from a mathematical mistake, a mistake in the 
application of accounting principles in effect on the date on which the tax is 
based, or an oversight or unintentional misuse of facts that existed on the 
date on which the tax is based. Subsequent events (i.e., events or transactions 
occurring after the date on which the report is based) will not be considered, 
even if the subsequent event provides additional evidence with respect to 
conditions that existed on the date upon which the tax is based.

(B) If the courts invalidate a statutory provision, rule, or agency policy, or 
if the comptroller invalidates a rule or agency policy, a corporation may amend 
reports in accordance with the court or administrative decision. Amendments 
filed under this subparagraph would not be restricted by any other provisions 
of this section.

(6) The cost method of accounting must be used for investments in other 
corporations. Cost is the original valuation of the investment under GAAP, 
without reduction for amortization of goodwill or any other write-downs. 
Beginning May 1, 1989, of any tax period, the investor's share of the 
pre-acquisition retained earnings of a subsidiary or investee may not be 
excluded from the investment cost of that subsidiary or investee. Retained 
earnings represent the accumulated gains and losses of a corporation to date, 
reduced by any dividend distributed to shareholders and any amounts transferred 
to either capital stock or paid-in capital. The cost of an investee may be 
reduced by legally declared dividends of the investee to the extent that such 
dividends exceed the investee's post-acquisition earnings as determined under 
GAAP.

(7) Transfers of assets must be reported at the transferor's basis, as 
determined under the reporting method used for franchise tax, if allowed by 
GAAP. The transferor's basis may not, however, be reduced by unrealized, 
estimated, or contingent losses for the purposes of this subsection.

(d) Generally accepted accounting principles method.

(1) For purposes of this title, unless the context clearly requires otherwise, 
GAAP means those broad rules of accounting formally accepted by the American 
Institute of Certified Public Accountants (AICPA) or its designees through 
publication of a statement, interpretation, opinion, or research bulletin. If 
no such pronouncement has been published and is effective, such formal 
acceptance may be in the form of a written interpretation of a committee of the 
AICPA or its designee. In cases where no such interpretation has been published 
and is effective, formal acceptance may be through accepted industry accounting 
practices, publications of the Securities and Exchange Commission, publications 
of regulatory agencies, or any other means which may be shown by the taxpayer 
to indicate formal acceptance.

(2) A corporation may report its franchise tax using any allowable method 
without regard to accounting methods used for the general ledger, financial 
statements, or any other financial reports. However, factual assertions made 
for published financial statements will be presumed to be accurate unless the 
corporation or the comptroller can show the assertions are incorrect.

(3) The following guidelines are applicable to push-down accounting.

(A) For reports due on or after January 1, 1994, the push-down method of 
accounting cannot be used in computing a corporation's surplus.

(B) For reports due prior to January 1, 1994, a corporation may use either the 
push-down method of accounting or historical cost in computing its surplus. A 
corporation cannot write down its assets pursuant to Tax Code, sec. 171.109(a). 
Thus, negative push-down is not allowed.

(e) Federal income tax method.

(1) If a corporation is found to be ineligible to use the federal income tax 
method (e.g., as a result of an audit by the comptroller or the Internal 
Revenue Service), the corporation will be required to report its franchise tax 
using the GAAP method.

(2) In determining if taxable capital is less than $1 million for purposes of 
the Tax Code, sec. 171.109(c) and sec. 171.112(c), or if a corporation 
qualifies to report under the Tax Code, sec. 171.113, and elects to report 
using the federal income tax method, the corporation must apply the methods 
used in the last federal income tax return originally due on or before the 
franchise tax report is originally due, unless another method is required under 
a specific provision of this title or the Tax Code, Chapter 171.

(3) Income exempt for federal income tax purposes must be included in surplus 
and receipts based on the same method used for similar items on the federal 
income tax return. Expenses which are nondeductible for federal income tax 
purposes may be excluded from surplus, if they are allowable for franchise tax 
purposes, based on the same method used for similar items on the federal income 
tax return.

(f) Temporary credit claim. If a corporation claims a credit under the Tax 
Code, sec. 171.111, it must use the same GAAP method in computing taxable 
capital that is used in computing the credit. If the credit is claimed, the 
corporation may not use the federal income tax method in whole or in part in 
computing taxable capital.


Effective Date: March 7, 1995
Filed with Secretary of State: February 14, 1995


 
Comptroller of Public Accounts




ACCESSION NUMBER: 9503883R   
SUPERSEDED: Y
DOCUMENT TYPE: R
DATE: 03/07/1995
TAX TYPE: FRANCHISE