Texas Comptroller of Public Accounts    STAR System


200612855R



STAR SUPERSEDED WITHOUT SUMMARY 

Accession No.(s): 200612855R

Document superseded on: 08/15/2013 



STATE OF TEXAS
COMPTROLLER OF PUBLIC ACCOUNTS
FRANCHISE TAX

Section 3.549  Taxable Capital:  Apportionment

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

(b) Definitions. The following words and terms, when used in this section, 
shall have the following meanings, unless the context clearly indicates 
otherwise. 

(1) Capital asset--Any asset, other than an investment, which is held for use 
in the production of income, and is subject to depreciation, depletion, or 
amortization. 

(2) Commercial domicile--The principal place from which the trade or business 
of the entity is directed. 

(3) Investment--Any non-cash asset not a capital asset and not held as 
inventory or proceeds from the sale of inventory. 

(4) Generally accepted accounting principles (GAAP) method of accounting--That 
method of accounting defined under sec. 3.547 of this title (relating to 
Taxable Capital: Accounting Methods). 

(5) Gross receipts--All revenues that would be recognized annually under a 
generally accepted accounting principles method of accounting, without 
deduction for the cost of property sold, materials used, labor performed, or 
other costs incurred, unless otherwise specifically provided for in this 
section or Tax Code, Chapter 171. 

(6) Legal domicile--The legal domicile of a corporation is its state of 
incorporation. The legal domicile of a partnership or trust is the principal 
place of business of the partnership or trust. The principal place of business 
of a partnership or trust is the location of its day-to-day operations. If the 
day-to-day operations of the partnership or trust are conducted equally or 
fairly evenly in more than one state, then the principal place of business is 
the commercial domicile. 

(7) Location of payor--The legal domicile of the payor. 

(8) Revenue--Except as otherwise specifically provided for in this section or 
Tax Code, Chapter 171, revenue means the value of inflows of economic resources 
from separate legal entities for delivering or producing goods, rendering 
services, or carrying out other activities that constitute the entity's 
operations. 

(9) Employee retirement plan--A plan or other arrangement that is qualified 
under Internal Revenue Code, sec. 401(a), that satisfies the requirements of 
Internal Revenue Code, sec. 403, or that is a government plan described in 
Internal Revenue Code, sec. 414(d). 

(c) Apportionment formula. Unless otherwise required under the Tax Code, this 
section, or rules that apply under Tax Code, Chapter 171, a corporation's 
taxable capital is apportioned to this state to determine the amount of 
franchise tax due by multiplying the corporation's taxable capital by a 
fraction, the numerator of which is the corporation's gross receipts from 
business done in this state and the denominator of which is the corporation's 
gross receipts from its entire business. For reports that are originally due on 
or after January 1, 1992, corporations whose taxable capital is derived, 
directly or indirectly, from the sale of services to or on behalf of a 
regulated investment company as defined by Internal Revenue Code, sec. 851(a), 
should refer to Tax Code, sec. 171.106(c), relating to the apportionment of 
gross receipts from services for regulated investment companies. For reports 
that are originally due on or after January 1, 1999, corporations whose taxable 
capital is derived, directly or indirectly, from the sale of management, 
administration, or investment services to an employee retirement plan, as 
defined in subsection (b)(9) of this section should refer to Tax Code, sec. 
171.106(d), relating to the apportionment of gross receipts from services for 
employee retirement plans. 

(d) General rules for reporting gross receipts. 

(1) A corporation filing an annual report must report 12 months of gross 
receipts based on the business done by the corporation during its last 
accounting period that ends in the year before the year in which the tax is due 
or, if there is no such accounting period then, for the accounting period 
ending December 31 of the previous calendar year. 

(2) When a corporation changes its accounting period ending date, gross 
receipts for the 12-month period ending with the new accounting period end must 
be used in calculating the percentage of business done in this state. 

(3) A corporation filing an initial report must report gross receipts based on 
its activities beginning on the day the corporation files its Texas charter or 
is granted a certificate of authority to do business in Texas or the date that 
a foreign corporation begins doing business in Texas, whichever is earlier, and 
ending on the last accounting period ending date that is at least six months 
after the beginning date and at least 60 days before the original due date of 
the initial report; or if there is no such date, then ending on the last day of 
a calendar month that is nearest to the corporation's first year of business in 
Texas. 

(4) A corporation must report gross receipts based solely on its own financial 
condition. Consolidated reporting is prohibited. 

(5) A corporation whose taxable capital is less than $1 million may report its 
gross receipts according to the method used in the corporation's most recent 
federal income tax return originally due on or before the date the franchise 
tax report is originally due. To determine if taxable capital is less than $1 
million, the corporation must apply the accounting methods used in computing 
that federal income tax return unless another method is required under a 
specific provision of this title or Tax Code, Chapter 171. See sec. 3.547 of 
this title (relating to Taxable Capital: Accounting Methods) for information on 
accounting methods or changes in accounting methods. 

(6) Close and S corporations should see sec. 3.548 of this title (relating to 
Taxable Capital: Close and S Corporations) for information on using the 
accounting methods used on the corporation's federal income tax return. 

(7) A corporation may not change its accounting methods used to calculate gross 
receipts more often than once every four years without express written consent 
of the comptroller, unless the provisions of Tax Code, sec. 171.111, apply due 
to an election under that section. 

(8) Survivors of mergers occurring between the day on which the tax is based 
and January 1 of the year the report is due should refer to sec. 3.565 of this 
title (relating to Survivors of Mergers) for information on reporting gross 
receipts for survivors of mergers. 

(9) Revenues coming into the hands of a receiver of a corporation in 
receivership are gross receipts of the corporation. 

(10) Except as otherwise provided under Tax Code, sec. 171.112, a corporation 
is required to use the same accounting methods in computing gross receipts as 
it uses in computing surplus. Accounting methods are those methods of 
allocating the cost, benefit, or expense of an asset or liability to accounting 
periods. 

(e) Treatment of specific items in computing gross receipts. 

(1) Agency reimbursements. Reimbursements from a principal to a corporation 
that acts as the principal's agent for charges that agent incurs on behalf of 
the principal, are not gross receipts. Amounts identified as reimbursements 
that exceed actual expenses paid to a third party are gross receipts. 

(2) Bad debt recoveries. Bad debt recoveries are not gross receipts. 

(3) Capital assets and investments. Net gains and losses from sales of 
investments and capital assets must be added together to determine the total 
receipts from such transactions. 

(A) If the combination of net gains and losses results in a net loss, the 
corporation must report zero gross receipts from such transactions. 

(B) If the combination of net gains and losses results in a net gain and both 
Texas and out-of-state sales have occurred, a separate calculation of net gains 
and losses on Texas sales must be made. If the Texas net gain is greater than 
the total net gain, the Texas net gain to report equals the total net gain. Net 
gain on sale of intangibles held as capital assets or investments is 
apportioned to the location of the payor. Examples of intangibles include, but 
are not limited to, stocks, bonds, commodities, futures contracts, patents, 
copyrights, licenses, trademarks, franchises, goodwill, and general receivable 
rights. 

(4) Cash or trade discounts. Cash or trade discounts are not gross receipts. 

(5) Membership or enrollment fees paid for access to benefits. Membership or 
enrollment fees paid for access to benefits are receipts from the sale of an 
intangible asset and are apportioned to the legal domicile of the payor. 

(6) Commissions of stockbrokers. Commissions of a stockbroker for services 
performed in buying and selling on the stock exchanges are apportioned on the 
basis of the percentage of such services performed in Texas and the percentage 
performed in other states. 

(7) Computer services and programs. Receipts from the sale of computer software 
services are apportioned to the location of where the services are performed. 
Receipts from the sale of a computer program (as the term "computer program" is 
defined in sec. 3.308 of this title (relating to Computers--Hardware, Software, 
Services and Sales) are receipts from the sale of an intangible asset and are 
apportioned to the legal domicile of the payor. 

(8) Condemnation proceeds. Condemnation proceeds resulting from the taking of 
property, except to the extent the proceeds exceed the net book value of the 
property, are not gross receipts. Amounts exceeding the net book value of the 
property are gross receipts apportioned based on the location of the property 
condemned. 

(9) Debt forgiveness. Revenues realized by the debtor when the creditor 
releases the debtor from indebtedness is a gross receipt apportioned to the 
legal domicile of the creditor. 

(10) Debt retirement. Gains on the retirement of a corporation's own 
indebtedness, such as the purchase by a corporation of its own bonds at a 
discount, are gross receipts and are apportioned to the corporation's state of 
incorporation. 

(11) Demurrage charges. Demurrage charges for the detention or storage of 
equipment used in the transportation of goods and merchandise in interstate 
commerce are Texas receipts to the extent that the detention or storage occurs 
within Texas. 

(12) DISC/FSC. A DISC (Domestic International Sales Corporation) or a FSC 
(Foreign Sales Corporation) is treated the same as any other corporation doing 
business in Texas, except that a commission DISC or FSC may elect to use the 
percentage of Texas business of its parent which does business in Texas. 
Receipts from the sale of tangible personal property by a corporation to a DISC 
or FSC located in Texas are not Texas receipts if the tangible personal 
property flows uninterrupted from the selling corporation to a foreign 
purchaser outside of Texas. If a DISC or FSC assembles, packages, repackages, 
modifies, stores, or otherwise takes physical delivery of tangible personal 
property in Texas, the receipts from the sale of the tangible personal property 
are Texas receipts to the selling corporation. 

(13) Dividends and interest. 

(A) Dividends and/or interest received from a corporation are apportioned to 
the state of incorporation of the payor. 

(B) Dividends and/or interest that are received from a national bank are 
apportioned to Texas if the bank's principal place of business is in Texas. For 
reports that are originally due before January 1, 2000, dividends and/or 
interest that a banking corporation or savings and loan association receives 
are apportioned to the commercial domicile of the banking corporation or 
savings and loan association. For reports that are originally due on or after 
January 1, 2000, dividends and/or interest that a banking corporation or 
savings and loan association receives are apportioned to the legal domicile of 
the payor. 

(C) Dividends and/or interest received from the United States Treasury on 
United States government debt instruments are not Texas receipts, but are 
receipts everywhere. 

(D) Dividends and/or interest received from Government National Mortgage 
Association (GNMA), Federal National Mortgage Association (FNMA), and Federal 
Home Loan Mortgage Corporation (FHLMC) mortgage-backed securities or 
certificates are apportioned based on the location of the payor. When the payor 
cannot be determined, 15.78% of the interest or dividend will be considered a 
Texas receipt. 

(E) Dividends and/or interest from any other source are apportioned to the 
legal domicile of the payor. 

(F) Dividends in excess of the payor's accumulated earnings since acquisition 
or origination (liquidating dividends) are considered a return of capital and 
are not gross receipts to the receiving corporation. 

(14) Equity earnings. Equity earnings of a subsidiary or investee corporation 
are not gross receipts to the receiving corporation. 

(15) Exchanges of property. Exchange agreements for the exchange of real or 
personal property held for sale in the ordinary course of business for similar 
property to be held for the same purpose do not constitute gross receipts. 

(16) Purchase discounts and allowances. Returns, discounts, and allowances 
granted to a purchaser are not gross receipts to the purchaser even if refunds 
are given in cash.

(17) Federal enclave. All receipts from a corporation's sales, services, 
leases, or other business activities transacted on a federal enclave located in 
Texas are Texas receipts unless otherwise excepted. 

(18) Foreign dividend gross-ups. Foreign dividend gross-ups permitted under the 
Internal Revenue Code are not gross receipts. 

(19) Freight charges. Reimbursements to the seller from the customer for 
freight charges paid to a third party for goods and merchandise shipped to a 
customer are not gross receipts when the charges are entered as a separate item 
on the sales invoice, if the reimbursement does not exceed actual expenses paid 
to a third party. 

(20) Health care supplies and food. Deductions from Texas receipts for sales of 
health care supplies and food exempted from sales and use tax by Tax Code, sec. 
151.313 or sec. 151.314(a), will be allowed only for the initial sale of items 
shipped from a location outside Texas directly to a purchaser in Texas. The 
deduction does not apply when the manufacturer ships the items from outside 
Texas to an outlet or storage facility in Texas and later sells them. 

(21) Insurance proceeds. 

(A) Business interruption insurance proceeds are gross receipts when the 
proceeds are intended to replace lost net profits. Such receipts are 
apportioned to the legal domicile of the payor of the proceeds. 

(B) Fire and casualty insurance proceeds in excess of the net book value of the 
damaged or destroyed property are gross receipts and are apportioned to the 
location of the damaged or destroyed property. 

(C) Any gain that results from life insurance proceeds that are paid on the 
death of a corporate officer or other key personnel is a gross receipt and is 
apportioned to the legal domicile of the payor of the proceeds. 

(22) Intercorporate expense allocations. A corporation's expense allocations 
among one or more related corporations (other than allocations of income taxes 
for consolidated return purposes), whether labeled as management fees, 
administrative overhead, interest, or accounting and legal services, are gross 
receipts to the corporation that performs the services or engages in other 
activity giving rise to the allocation regardless of whether cash is actually 
received from the subsidiaries or related corporations, unless an agency 
relationship exists. 

(23) Intercorporate receipts. Receipts from intercorporate sales, leases, and 
charges for services rendered between a parent and subsidiary, or between 
related corporations are gross receipts to the corporation which makes the 
sale, lease, or renders the service. 

(24) Intercorporate tax allocations. Allocations by a parent or holding company 
among its subsidiaries of income tax liability for the purposes of filing a 
consolidated return are not gross receipts to the parent or holding company. 

(25) Leases and subleases. 

(A) Receipts from the lease or sublease of real property are apportioned to the 
location of the property. 

(B) Receipts from the lease or sublease of tangible personal property are 
apportioned to the location of the property. If the property is in Texas only 
part of the year, lease payments are apportioned based on the number of days 
spent at the respective locations. If the amount of receipts due under the 
lease is based on mileage, then the apportionment is based on the number of 
miles in Texas divided by the number of miles everywhere. 

(C) When a lump sum is charged for property leased or subleased but only a 
portion of which is in Texas, the apportionment of receipts is based on the 
rental value of each item of property. If the rental value of each item cannot 
be determined, the apportionment is based on the cost of each item to the 
lessor (or sublessor). 

(D) Receipts from the lease or sublease of a vessel engaging in commerce are 
apportioned to Texas based on the number of days engaged in commerce in Texas 
waters divided by the number of days engaged in commerce everywhere. 

(E) If a lease, sublease, or rental of real or tangible personal property is 
treated as a sale under GAAP, the receipts from the transaction are apportioned 
in the same manner as a sale. Any portion of the payments designated as 
interest by the contracting parties is interest receipts. 

(26) Litigation awards. Revenue realized from litigation awards is a gross 
receipt except that compensatory damages for fire or other casualty losses on 
property are gross receipts only to the extent that the compensatory damages 
exceed the net book value of the property. Litigation awards are apportioned to 
the legal domicile of the payor of the proceeds; however, if the litigation 
award is intended to replace receipts for which another apportionment rule is 
provided in this section, then the apportionment must be made in accordance 
with that rule. For example, if a vendor sues to recover on a sale of goods in 
Texas to a Delaware corporation, then a judgment for the amount of a sale would 
not convert the receipts from Texas receipts to Delaware receipts. Subsection 
(f)(2) and (7) of this section are controlling for judgments, compromises, or 
settlements that relate to natural gas production. 

(27) Loan principal. The principal of a loan that is received or repaid is not 
a gross receipt. 

(28) Newspapers and magazines.  All advertising revenues of a newspaper or 
magazine, including revenues derived from out-of-state advertisements, are 
apportioned to Texas based on the number of newspapers or magazines distributed 
in Texas. All other receipts must be apportioned in accordance with the 
apportionment rules otherwise set out in the section. For example, sales of 
newspapers or magazines are subject to the provisions of paragraph (41) of this 
subsection. 

(29) Partnerships and joint ventures. 

(A) Receipts reflecting the corporation's share of the net profit from a 
partnership or joint venture, for partnership or joint venture periods ending 
during the 12 months ending on the date upon which the tax is based, are 
apportioned to the principal place of business of the partnership or joint 
venture. A partnership's principal place of business is the location of its 
day-to-day operations. Effective for reports originally due on or after January 
1, 1992, where a partnership's day-to-day operations are conducted equally or 
fairly evenly in more than one state, then its principal place of business is 
its commercial domicile. If the corporation's share is a loss, there are zero 
receipts from the partnership or joint venture. 

(B) The corporation's share of the gross receipts of a partnership or joint 
venture may be used as gross receipts if allowed as revenue under GAAP. The 
receipts must be apportioned based on normal apportionment rules (e.g., 
location of payor for dividends and interest, place where service is performed, 
etc.) as though the partnership did not exist and the receipts passed through 
it directly to the corporation. This method is not allowed for corporations 
using the federal income tax method. 

(30) Patents, copyrights, and other intangibles. 

(A) Receipts from the use of intangibles. 

(i) Revenue from a patent is included in Texas receipts to the extent that the 
patent is used in production, fabrication, manufacturing, or other processing 
in Texas. 

(ii) Revenue from a copyright is included in Texas receipts to the extent the 
copyright is used in printing or other publication in Texas. 

(iii) For reports that are originally due prior to January 1, 1998, revenue 
that the owner of a trademark, franchise, or license receives is apportioned to 
the location of payor. For reports that are originally due on or after January 
1, 1998, revenue that the owner of a trademark, franchise, or license receives 
is included in Texas receipts to the extent the trademark, franchise, or 
license is used in Texas. Paragraph (7) of this subsection controls the 
treatment of receipts from the sale/licensing of computer programs. 

(B) Receipts from the sales of intangibles. Sales of intangibles are 
apportioned to the location of payor. 

(31) Radio/television. All advertising revenues of a radio or television 
station that broadcasts or transmits from a location in Texas constitutes Texas 
receipts, even though some of the listening or viewing audiences are outside 
Texas. All other receipts must be apportioned in accordance with the 
apportionment rules otherwise set out in this section. 

(32) Real property. Receipts from the sale, lease, or sublease of real property 
are apportioned to the location of the property. 

(33) Regulatory agency. Temporary or bonded rate increases of a public utility 
corporation are gross receipts. 

(34) Sales and services. When a transaction involves elements of both a sale of 
tangible personal property and a service, but there is no documentation showing 
separate charges for the sale and service elements, the comptroller may 
determine the amounts allocable to each based on fair values or on the basis of 
any available evidence. 

(35) Sales returns and allowances. Sales returns and allowances allowed by a 
seller are not gross receipts. They are allowed as a reduction of gross 
receipts. 

(36) Sales taxes. State or local sales taxes collected by a seller are not 
gross receipts when the tax is imposed on the customer. However, discounts on 
sales taxes allowed a seller do constitute gross receipts to the seller. 

(37) Service procurement. Receipts for the procurement of services are 
apportioned to the place where the service procurement is performed. 

(38) Services. Service receipts are apportioned to the location where the 
service is performed. If services are performed both inside and outside Texas, 
then such receipts are Texas receipts on the basis of the fair value of the 
services that are rendered in Texas. For reports that are originally due on or 
after January 1, 1992, corporations that have taxable capital that is derived, 
directly or indirectly, from the sale of services to or on behalf of a 
regulated investment company should refer to Tax Code, sec. 171.106(c), for 
information on apportionment of such taxable capital. For reports that are 
originally due on or after January 1, 1999, corporations that have taxable 
capital that is derived, directly or indirectly, from the sale of management, 
administration, or investment services to an employee retirement plan as 
described in subsection (b)(9) of this section, should refer to Tax Code, sec. 
171.106(d), for information on apportionment of such taxable capital. Receipts 
from services that a defense readjustment project performs in a defense 
economic readjustment zone are not Texas receipts.  For reports due on or after 
April 21, 2006, receipts from the servicing of loans secured by real property 
are apportioned to the location of the real property that secures the loan 
being serviced.

(39) Stocks. Receipts from the sale of securities are apportioned based on the 
location of payor. When securities are sold over a stock exchange and the buyer 
cannot be determined, 6.5% of the net gain (or gross sales price, if the 
securities were inventory) is a Texas receipt. Receipts from the issuance by a 
corporation of its capital stock, are not gross receipts. 

(40) Subsidies or grants. Proceeds of subsidies or grants that a corporation 
receives from a governmental agency are gross receipts, except when the funds 
are required to be expended dollar-for-dollar (i.e., passed through) to third 
parties on behalf of the agency. Receipts from a governmental subsidy or grant 
are apportioned in the same manner as the item to which the subsidy or grant 
was attributed. For example, if a corporation qualifies for a grant to conduct 
research for the government, the receipts from the grant are receipts from a 
service and would be apportioned to the location where the research is 
performed. 

(41) Tangible personal property. Examples of transactions involving the sale of 
tangible personal property and which result in Texas receipts include, but are 
not limited to, the following: 

(A) the sale of tangible personal property which is delivered in Texas to a 
purchaser. Delivery is complete upon transfer of possession or control of the 
property to the purchaser, an employee of the purchaser, or to transportation 
vehicles leased or owned by the purchaser. F.O.B. point, location of title 
passage, or other conditions of the sale are not relevant to the determination 
of Texas gross receipts; 

(B) the sale of tangible personal property delivered in Texas to an employee or 
transportation agent of an out-of-state purchaser. A carrier is an employee or 
agent of the purchaser if the carrier is under the supervision and control of 
the purchaser with respect to the manner in which goods are transported; 

(C) the sale and delivery in Texas of tangible personal property which is 
loaded into a barge, truck, airplane, vessel, tanker, or any other means of 
conveyance leased and controlled or owned by the purchaser of the property. The 
sale of tangible personal property which is delivered in Texas to an 
independent contract carrier, common carrier, or freight forwarder hired by a 
purchaser of the property results only in gross receipts everywhere if the 
carrier transports or forwards the property to the purchaser outside this 
state; 

(D) the sale of tangible personal property with delivery to a common carrier 
outside Texas and shipment by that common carrier to a purchaser in Texas; 

(E) the sale of oil or gas to an interstate pipeline company, with delivery in 
Texas; 

(F) the sale of tangible personal property which is delivered in Texas to a 
warehouse or other storage facility owned or leased by the purchaser;

(G) the sale of tangible personal property which is delivered to and stored in 
a warehouse or other storage facility in Texas at the purchaser's request, as 
opposed to a necessary delay in transit, even though the property is 
subsequently shipped outside Texas; 

(H) the drop shipment of tangible personal property in Texas. A drop shipment 
is a shipment of tangible personal property from a seller directly to a 
purchaser's customer, at the request of the purchaser, without passing through 
the hands of the purchaser. This results in Texas gross receipts for the seller 
and the purchaser; 

(I) sales to which the throwback rule applies. For reports due on or after 
October 2, 1984, each sale of tangible personal property shipped from this 
state to a purchaser in another state in which the seller is not subject to 
taxation is thrown back to Texas as a Texas receipt (i.e., the throwback rule). 
This subparagraph will control if it conflicts with any other provision of this 
rule. Another state means a state of the United States, the District of 
Columbia, Puerto Rico, or any territory or possession of the United States. 
Subject to taxation means constitutional nexus. The seller need not pay tax to 
the other state; it only has to have enough contact with the other state that 
the other state could tax the seller. If the seller is doing business in, or is 
incorporated in the other state, the seller is subject to taxation in that 
state. Voluntarily collecting or paying tax to another state, by itself, is not 
enough contact to make sales to the other state non-Texas receipts. A 
corporation which performs any of the activities listed in sec. 3.546(c) of 
this title (relating to Taxable Capital: Nexus) for taxation of taxable capital 
in the other state will be considered subject to taxation in the other state. 
The selling corporation must have nexus in the other state during the 
accounting year upon which the tax is based. The corporation has the burden of 
proving it is subject to taxation in the other state. 

(42) Tax refunds. Tax refunds are not gross receipts. However, interest awarded 
on tax refunds are gross receipts. 

(43) Telephone company receipts. All receipts for calls of a telephone company 
in Texas are Texas receipts, except for receipts from interstate calls. 

(44) Transactions in Texas waters. Receipts from transactions occurring in 
Texas waters are Texas receipts. The dividing line between Texas waters and 
international waters is established at 10.359 statute miles or nine nautical 
miles from the Texas coastline. 

(45) Transportation companies. Transportation companies must report Texas 
receipts from transportation services by: 

(A) including receipts derived from the transportation of goods or passengers 
in intrastate commerce; or 

(B) multiplying total transportation receipts by total mileage in transporting 
goods and passengers picked up and delivered within Texas (in intrastate 
commerce) divided by total mileage everywhere. 

(46) Unrealized gains and losses. Unrealized gains and losses recorded on 
foreign currency transactions or translations, marketable security investments 
or reclassification of marketable security investments, are not gross receipts. 

(47) Trusts. Distributions to a corporation that is the beneficiary of a trust 
are apportioned to the legal domicile of the trust. See subsection (b)(6) of 
this section regarding the legal domicile of a trust. 

(f) Natural gas production. 

(1) Revenues realized by a producer of gas that relate to the price of gas 
produced and taken by the purchaser pursuant to the terms of a contract for the 
sale of gas are gross receipts and are apportioned to Texas if the gas is 
delivered in Texas. 

(2) Revenues realized by a producer of gas in connection with any judgment, 
compromise, or settlement agreement relating to the recovery of the contract 
price of gas produced are gross receipts and are apportioned to Texas to the 
extent the contract specified delivery in Texas. 

(3) Revenues realized by a producer of gas from payments by a purchaser under a 
contract for the sale or purchase of gas to be produced, if the gas is never 
produced and delivered to the purchaser pursuant to that contract, are gross 
receipts and are apportioned to the legal domicile of the payor. 

(4) Revenues realized by a producer of gas from breach of contract litigation 
awards, reimbursements for litigation-related expenses (e.g., documented 
attorney's fees or court costs), or interest (agreed upon by the parties, 
determined by or from the records of the producer, or an amount ordered by a 
court) are gross receipts and are apportioned to the legal domicile of the 
payor. 

(5) Revenues realized by a producer of gas for payments made by a purchaser to 
terminate a gas purchase contract are gross receipts and are apportioned to the 
legal domicile of the payor. 

(6) Revenues realized by a producer of gas for payments made by a purchaser to 
amend any provision in the gas purchase contract are gross receipts and are 
apportioned to the legal domicile of the payor. Any revenues realized by a 
producer as a result of an amended provision affecting the price of the gas 
sold will be recognized as receipts from the sales of gas and apportioned to 
Texas if delivery is in Texas. 

(7) Those revenues realized by a producer of gas from a judgment, compromise, 
or settlement among several claims, where there was a pricing dispute and any 
other issue associated with a gas sales/purchase contract, that is less than 
the full amount sought by the producer shall be prorated based upon the 
documented amounts due under the contract for each issue according to the 
records of the producer. 

(A) Those revenues attributed to pricing disputes or otherwise attributed to 
sales of gas shall be apportioned in accordance with paragraphs (1) and (2) of 
this subsection. For example, a settlement of $100,000 for a pricing dispute of 
$25,000 and an amount of $225,000 for failure to pay for gas not taken, would 
result in receipts of $10,000 from gas sales (100,000 x 25,000/250,000) and 
receipts from other business of $90,000 (100,000 x 225,000/250,000). 

(B) For purposes of this subsection, records of the producer shall include, but 
are not limited to: 

(i) the contracts and settlement agreements; 

(ii) accounting entries, including entries reflecting receivables and payables; 

(iii) court pleadings; and 

(iv) worksheets, including calculations reflecting settlement amounts. Whenever 
it is necessary to determine receipts from sales of gas under this subsection, 
the greatest weight shall be given to the records in the order they are listed 
in this subparagraph.

Effective Date:  December 28, 2006.
Filed with Secretary of State:  December 8, 2006.




ACCESSION NUMBER: 200612855R
SUPERSEDED: Y
DOCUMENT TYPE: R
DATE: 12/08/2006
TAX TYPE: FRANCHISE