200806202L




AWM 08057483

June 1, 2008

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

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

Thank you for your February 23, 2008 email regarding the revised Texas 
franchise tax with the margin calculation. I apologize for the delay in 
responding to your inquiry.

You stated in your message that the purpose of your message is request guidance 
in connection with apportioning income to the state of Texas where the seller 
and purchaser agree to make a 338(h)(10) election.

Your client (hereinafter referred to as “Seller”) is a federal and California 
subchapter S Corporation that provides billing and direct mail services.  The 
seller conducts business in California and Texas. Purchaser is a Colorado C 
Corporation. Together, Seller and Purchaser agree to make a 338(h)(10) election 
to treat the sale of stock as a deemed asset sale. For purposes of this 
discussion, the adjusted tax basis of the Seller’s assets immediately before 
sale (which equates to fair market value) is $************** consisting of 
Property, Plant and Equipment. The parties agree to a sales price of 
$**************, which equates to a gain of $************** all of which will 
is goodwill.

I have restated your specific questions along with my responses below.  Your 
questions are focused on the 338(h)(10) election in accordance with the revised 
Texas franchise tax calculation for franchise tax reports filed on or after 
January 1, 2008.  The steps and line references that you lay out in your 
questions appear to be from our online franchise tax calculator.  

1. Please confirm whether the gain of $************** from the deemed asset 
sale would be included in Step 1 (Margin), Line 1a, 2a, and 3a of the new 
Franchise tax calculation.

Response:  The $************** gain from the deemed asset sale will be included 
in the computation of total revenue to the extent that the $************** is 
reported for federal income tax purposes.

2. Please confirm whether the gross sales price of $************** would be 
included in Step 2 (Apportionment), Line 5 – Texas Gross Receipts.

Response:  The determination of Texas gross receipts on the deemed sale of 
assets is based on the type of assets that were deemed to have been sold.  The 
gross sales price on this transaction would not typically be part of Texas 
gross receipts.  The gain on the deemed sale of the assets will be included in 
Texas gross receipts if the gain can be sourced to Texas.  For example, if an 
operating asset was deemed sold under the 338(h)(10) election, the gain 
reported on that sale would be considered a Texas gross receipt if the asset is 
in Texas.  See franchise tax rule 3.591, Margin: Apportionment.  Subsections 
(e)(2) and (e)(7) will provide the most guidance.

3. Please confirm whether the gross sales price of $************** would be 
included in Step 2 (Apportionment), Line 6 – Everywhere Gross Receipts

Response:  To the extent that the gain on the deemed sale of assets under IRC 
Section 338(h)(10) is included in the computation of total revenue, it will be 
included in gross receipts everywhere.

4. Besides the new Franchise tax calculation, are there any other income tax 
filings (in addition to the Public Information Report) that the Seller must 
coordinate with the state of Texas?

Response:  No.

5. Is there anything else that we should be aware of in connection with 
338(h)(10) election for Texas tax purposes or any other Texas statutes that we 
should be considering?

Response:  Not at this time.

Additional information about the franchise tax calculation can be found on our 
website.  You will find links to the franchise tax statute, adopted rules, 
frequently asked questions (FAQs), tax forms and publication 98-806, Revised 
Franchise Tax Overview, on our web site at 
http://window.state.tx.us/taxinfo/franchise/.  You will also find a link on 
this site to a calculator that may be used to estimate a taxable entity's 
potential tax liability based on the margin calculation.

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

If you have any additional questions, please email us at 
tax.help@cpa.state.tx.us.

Sincerely,


Janet Spies
Franchise Tax Policy
Texas Comptroller of Public Accounts




ACCESSION NUMBER: 200806202L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 06/01/2008
TAX TYPE: FRANCHISE