200609763L




AWM 06250808

September 8, 2006

To: **************

Dear **************:

Thank you for your email regarding the Texas franchise tax and the recently 
adopted provisions of House Bill (HB) 3 with the margin calculation.

You stated in your message that you and your husband own a small, 2 person 
business selling reprinted newspapers to museums.  You operate as a sole 
proprietorship.  You asked if your business will be included in the recently 
passed HB 3 business tax.

Section 171.001 of HB 3 imposes a franchise tax on "each taxable entity that 
does business in this state or that is chartered or organized in this state."  
The term “taxable entity” includes corporations, limited liability companies 
and general partnerships in addition to other entities.  However, the term 
“taxable entity” does not include sole proprietorships and general partnerships 
directly owned entirely by natural persons.  Please keep in mind that a single 
member limited liability company (LLC) owned by a natural person is often 
treated as a sole proprietorship for federal income tax reporting purposes.  
This single member LLC is a taxable entity under current law and will be 
considered a taxable entity under HB 3.

Our agency has defined the term “natural person” as “a human being as 
distinguished from a purely legal entity given recognition as the possessor of 
rights, privileges, and responsibilities, such as a corporation, limited 
liability company, partnership, or trust.”

If your small business is legally a sole proprietorship or a general 
partnership owned solely by you and your husband, it will not be subject to the 
franchise tax under HB 3.  It is possible that you will receive additional 
correspondence from our agency as we go through the process of implementing HB 
3.  You may be asked to complete a form that must be returned to reflect your 
status as a non-taxable entity under HB 3.

Information about the Texas franchise tax as it exists today as well as 
information about HB 3 can be found on our website 
http://window.state.tx.us/taxinfo/franchise/.  You will find a link on this 
site to this agency's publication, The Revised Franchise Tax Overview (98-806) 
which includes an overview of the new margin tax base; a calculator that may be 
used to estimate a taxable entity's potential tax liability; and a link to the 
text of HB 3. 

This response is based on current law, HB 3 as enrolled and the facts and 
information presented.  If there are different or additional facts, the 
response may change.  

Our goal is to provide you with prompt, professional service.  Please take a 
moment to complete our on-line survey at 
http://aixtcp.cpa.state.tx.us/surveys/tpsurv2/index.html.

If you have any questions about this or any other franchise tax matter, please 
call me at 1-800-531-5441, extension 34612. My direct number is (512) 463-4612. 
You may write me at Tax Policy Division, Comptroller of Public Accounts, 
Austin, Texas 78774.

Sincerely,


Janet Spies 
Tax Policy Division




From: ************** 
Sent: Wednesday, September 06, 2006 5:40 PM
To: Margin Tax
Subject: HOUSE BILL 3

My husband and I own a small, 2 person, business selling reprinted newspapers 
to museums. We are a sole proprietorship. As I read the TAX INFORMATION 
BULLETIN it would seem that we are not covered by the revised franchise tax. Is 
that correct?


**************




ACCESSION NUMBER: 200609763L
SUPERSEDED: N 
DOCUMENT TYPE: L
DATE: 09/08/2006
TAX TYPE: FRANCHISE