200809204L




08065697

September 30, 2008

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

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

Thank you for your e-mail regarding the Texas franchise tax with margin 
calculation.  I apologize for the delay in responding to you.

In your message you ask several questions.  I have restated your questions 
below followed by my responses.

1) If a medical partnership keeps records on accrual basis, but files cash 
basis for tax purposes and all records for information about Medicaid / 
Medicare/ CHIPS, etc. are accrual, when converting to cash basis is it ok to 
apply a ratio of the accrual based revenue from these sources to calculate the 
amounts of cash basis revenue?

A taxable entity may exclude only those payments that are included in total 
revenue for the period.  Therefore, the use of a ratio to calculate the amount 
of cash basis revenue received from the Medicaid, Medicare and other programs 
specified in Texas Tax Code Section 171.1011(n)(1) is not allowed.  

2) Will 100% of last year’s franchise tax assure a valid extension?  I ask 
specifically for an entity that had zero due last year, but was subject to the 
franchise tax and filed the appropriate reports and would like to confirm that 
it is possible to request an extension for the 2008 return with zero payment.

For an entity that files a separate report, payment of 100% of last year’s 
franchise tax will assure a valid extension even if the entity had zero tax due 
in the previous year, as long as the entity was subject to the franchise tax 
the previous year. 

For the 2008 report, combined groups that include newly taxable entities or 
no-nexus entities are not eligible for the 100% extension option.  For reports 
after 2008, a combined group may only use the 100% option if the combined group 
has lost a member or if the members of the combined group are the same as they 
were on the last day of the period on which the report due in the previous 
calendar year was based. 

3) What happens if an entity (or combined group) that is not eligible to pay 
100% of prior year tax with their extension request underestimates and does not 
meet the minimum of 90% due with their extension request?  How does this effect 
the options, such as EZ Computation, cost of goods sold deduction or 
compensation deduction, for calculating franchise tax?

If an entity does not meet the minimum of 90% due with their extension request, 
the entity does not have a valid extension and will be assessed penalty and 
interest on the difference between 90% of the tax finally determined to be due 
and what was paid.   November 15 is the due date for 10% of the tax finally 
determined to be due.  The election to deduct cost of goods sold or 
compensation must be made by the due date, extended due date or at the time the 
report is filed, whichever is latest.  Therefore, even if an extension is not 
valid, the option to elect cost of goods sold or compensation is available 
until the report is filed.  After the due date or extended due date of the 
report, a taxable entity may not amend its report to change its election to 
cost of goods sold or compensation.  The option to use or amend to 70% of 
revenue or, if eligible, the E-Z Computation is always available.  Tax Rule 
3.584 is being amended to reflect this policy.

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 questions, my e-mail address is 
jennifer.specchio@cpa.state.tx.us or you may call me toll-free at (800) 
531-5441, ext. 6-7987. 

Sincerely,


Jennifer A. Specchio
Tax Policy Division




ACCESSION NUMBER: 200809204L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 09/30/2008
TAX TYPE: FRANCHISE