Texas Comptroller of Public Accounts    STAR System


9503R1335G13



STAR SUPERSEDED WITHOUT SUMMARY 

Accession No.(s): 9503887R

Document superseded on: 08/15/2013 



STATE OF TEXAS
COMPTROLLER OF PUBLIC ACCOUNTS
FRANCHISE TAX


Section 3.548. Taxable Capital: Close and S Corporations. (Tax Code, sec. 
171.113).

(a) The provisions of this section apply to franchise tax reports originally 
due on or after January 1, 1990.

(b) The provisions of the Texas Close Corporation Law (or the close corporation 
law of the state of incorporation of a foreign corporation) will determine if a 
corporation with no more than 35 shareholders is eligible to file under the Tax 
Code, sec. 171.113, as a close corporation. Shares held by an association, 
estate, trust, partnership, corporation, or any other legal entity will be 
treated as being held by one shareholder unless it is determined that the 
entity was organized for the primary purpose of holding stock in the close 
corporation.

(c) The provisions of the Internal Revenue Code (26 United States Code, sec. 
1361 et seq.) will determine if a corporation is eligible to file under the Tax 
Code, sec. 171.113, as an S corporation. An S corporation must otherwise 
calculate the taxable capital component of its franchise tax in the same manner 
as any other corporation. For example, accumulated and other adjustment 
accounts are included in surplus, as are previously taxed income, accumulated 
earnings and profits, and all other amounts included in surplus under the Tax 
Code, sec. 171.109.

(d) A corporation will be eligible to file an annual report under the Tax Code, 
sec. 171.113, if it is a close corporation or has elected to be an S 
corporation prior to January 1 of the reporting year. A corporation will be 
eligible to file an initial report under the Tax Code, sec. 171.113, if it is a 
close corporation or has elected to be an S corporation prior to the original 
due date (without extensions) of the initial report.

(e) A subsidiary corporation cannot report its franchise tax under the Tax 
Code, sec. 171.113, if its parent corporation is not eligible to report under 
the Tax Code, sec. 171.113. For purposes of the Tax Code, sec. 171.113, a 
corporation is considered a parent corporation if it ultimately controls the 
subsidiary even though the control may arise through any series or group of 
other subsidiaries or entities.

(1) Control is presumed if a corporation directly or indirectly owns, controls, 
or holds a majority of the outstanding voting stock of the subsidiary.

(A) No presumption, either of control or of absence of control, arises if such 
ownership, control, or holding of voting stock is less than a majority but more 
than 20%.

(B) Absence of control is presumed if such ownership, control, or holding of 
voting stock is 20% or less.

(2) In determining if a corporation is a parent, the comptroller will take into 
account ownership through a related corporation, corporate group, or other 
noncorporate entity. If the corporation has control, as defined in paragraph 
(1) of this subsection, of a related corporation, corporate group, or other 
noncorporate entity that owns a close corporation, the entire stock of the 
close corporation owned by the related corporation, corporate group, or other 
noncorporate entity will be considered controlled by the corporation owning the 
related corporation, corporate group, or other noncorporate entity. Examples 
are as follows.

(A) Corporation A owns 10% of a close corporation and 60% of Corporation B, 
which owns 41% of the same close corporation. Corporation A would be considered 
a parent of the close corporation with 51% stock ownership because it has 
control of the stock owned by Corporation B.

(B) Corporation A owns 10% of a close corporation and 15% of Corporation B, 
which owns 90% of the same close corporation. Corporation A would not be 
considered a parent of the close corporation because it does not have control 
of the stock owned by Corporation B.

(C) Corporation A owns 100% of 10 corporations, each of which owns 10% of the 
stock of a close corporation. Corporation A would be considered a parent of the 
close corporation because it has control of all of the stock of the 
corporations owning the close corporation.

(D) Corporation A holds a 70% interest in a partnership that owns 60% of a 
close corporation. Corporation A owns the remaining 40% of the same close 
corporation. Corporation A would be considered a parent of the close 
corporation because it controls 100% of the stock of the close corporation.

(f) Effective with reports originally due between January 1, 1992, and December 
31, 1993, an eligible corporation under the Tax Code, sec. 171.113, must 
provide written notice to the comptroller of its election to use the federal 
income tax method of reporting the taxable capital component of its franchise 
tax.

(1) Notification must be postmarked on or before the original due date (not the 
extended due date) of the report in which the election applies.

(2) The election may be made on the extension request form provided by the 
comptroller or on the franchise tax report if an extension is not requested.

(g) Effective with reports originally due on or after January 1, 1994, an 
eligible corporation under the Tax Code, sec. 171.113, must provide written 
notice to the comptroller of its election to use the federal income tax method 
of reporting the taxable capital component of its franchise tax.

(1) Notification must be postmarked on or before the extended due date of the 
report in which the election applies.

(2) The election must be made on the corporation's franchise tax report.

(h) For more information on the federal income tax method of reporting the 
taxable capital component of the franchise tax, see sec. 3.547 of this title 
(relating to Taxable Capital: Accounting Methods).


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







ACCESSION NUMBER: 9503887R   
SUPERSEDED: Y
DOCUMENT TYPE: R
DATE: 03/07/1995
TAX TYPE: FRANCHISE