200609766L




September 12, 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.  I 
apologize for the delay in responding to you.

You state that you used the margin calculator that figured the tax on $90,000 
(revenue minus wages).  You thought that you were limited to no more than 70% 
of revenue as a reduction which would mean a tax base of $177,000.  You ask if 
this is not correct, what does the 70% pertain to.  The amounts you provided 
are gross revenue $590,000; cost of Goods $480,000; and wages & Benefits 
$500,000.

The revised tax base provided for under HB3 is a taxable entity’s margin.  
Margin equals the lesser of three calculations: total revenue minus cost of 
goods sold; total revenue minus compensation; or total revenue times 70 
percent.  Using the numbers you provided the three calculations for margin 
would be:
Total Revenue less cost of goods sold = $590,000 - $480,000 = $110,000
Total Revenue minus compensation = $590,000 - $500,000 = $90,000
70% of total revenue = $590,000 * .70 = $413,000

Taking the lesser of these three calculations, the taxable margin for this 
entity would be $90,000.  The 70% of total revenue is not a deduction 
limitation but rather a cap on the amount of total revenue that is included in 
a taxable entity’s taxable margin.

Publication 98-806, The Revised Franchise Tax Overview, provides a summary of 
HB 3 and is available on our franchise tax page at 
http://window.state.tx.us/taxinfo/franchise/index.html.  On this page you will 
also find a calculator that may be used to estimate a taxable entity's 
potential tax liability and a link to the text of the bill.

This response is based on current law, HB3 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 questions about this, my email address is 
teresa.bostick@cpa.state.tx.us, or you may call toll-free at 1-800-531-5441, 
extension 59952.

Sincerely, 


Teresa Bostick
Tax Policy Division

________________________________________________________

From: *************** 
Sent: Wednesday, July 19, 2006 1:30 PM
To: Margin Tax
Subject: New Franchise Tax


I just used the margin tax calculator and am confused.
 
The amounts I used are:
   Gross Revenue              $590,000
   Cost of Goods                 480,000
   Wages & benefits            500,000
 
The calculator figured the tax on $90,000 (revenue minus wages)
 
I thought you were limited to no more than 70% of revenue as a reduction.
In this case $590,000 less 70% 413,000 would have a tax base of $177,000.
 
Am I wrong?  If so what does the 70% pertain to?



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ACCESSION NUMBER: 200609766L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 09/12/2006
TAX TYPE: FRANCHISE