200809217L



08262630

September 23, 2008

**************
**************
**************

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

Thank you for your e-mail regarding the Texas franchise tax with margin 
calculation.

In your message you ask if the language in Texas Tax Code Section 
171.1011(g)(3) regarding exclusions from revenue for flow-through funds that 
are subcontracting payments would apply to architects that contract out various 
aspects of the design of improvements on real property.

An architect is allowed to exclude subcontracting payments from total revenue, 
subject to the following:

* Per Tax Code Section 171.1011(g), the subcontracting payments must be 
mandated by contract to be distributed to other entities.  Therefore, the 
contract that an architect has with a client must state that the architect will 
be contracting with other companies to provide service and will be collecting 
from the client on the subcontractors’ behalf; and

* Per Tax Code Section 171.1011(g)(3), the subcontracting payments handled by 
the architect must be for services, labor, or materials in connection with the 
actual or proposed design, construction, remodeling, or repair of improvements 
on real property or the location of the boundaries of real property.

If both of the above items apply to the subcontracting payments received by an 
architect, then the architect may exclude the subcontracting payments from 
total revenue as flow-through funds.

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: 200809217L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 09/23/2008
TAX TYPE: FRANCHISE