200806203L




AWM 08065506

June 3, 2008

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

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

Thank you for your March 4, 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 you have a client that is Texas limited 
liability partnership (LLP).  The LLP was not subject to franchise tax last 
year.  It was formed in November 2006 and only had investment income for 2007.  
You ask how the LLP will be taxed under the revised franchise tax.

As you are aware, a LLP is a taxable entity under the revised franchise tax.  
Section 22 of House Bill 3 
(http://www.capitol.state.tx.us/tlodocs/793/billtext/html/HB00003F.htm) 
requires that a LLP file an annual franchise tax report in 2008.  That report 
was due on May 15, 2008, however the Comptroller has provided additional time 
for taxable entities to file until June 16, 2008 without being subject to the 
5% late filing penalty.  The period upon which the LLPs tax will be based will 
be on its federal income tax accounting period ending in 2007.

It is possible that the partnership could qualify as a passive entity if its 
federal gross income during the period upon which margin is based consists of 
at least 90% of the following income:

*  dividends, interest, foreign currency exchange gain, periodic and 
nonperiodic payments with respect to notational principal contracts, option 
premiums, cash settlement or termination payments with respect to a financial 
instrument, and income from a limited liability company; 

*  distributive shares of partnership income to the extent that those 
distributive shares of income are greater than zero; 

*  net capital gains from the sale of real property, net gains from the sale of 
commodities traded on a commodities exchange, and net gains from the sale of 
securities; and 

*  royalties from mineral properties, bonuses from mineral properties, delay 
rental income from mineral properties and income from other non-operating 
mineral interests. TTC 171.0003(a)(2). 

Rent is not considered passive income for the Texas franchise tax. TTC 
171.0003(b).

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: 200806203L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 06/03/2008
TAX TYPE: FRANCHISE