200810200L



08051874

October 17, 2008

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

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

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

Your questions relate to the treatment of the Section 179 deduction under the 
revised franchise tax.  I have restated your questions below followed by a 
response.

Question 1.
In prior years, when a larger Section 179 deduction was allowed for federal 
purposes than for Texas, depreciation for the difference was calculated in the 
following years for the Texas franchise tax calculation.  To the extent that it 
relates to assets whose depreciation is an appropriate Cost of Goods Sold 
expense, is this additional expense from prior year’s asset acquisitions over 
the current year's federal expenses allowable in the margin calculation?

Response
The amount of depreciation included in cost of goods sold is limited to the 
depreciation reported on the federal income tax return on which the franchise 
tax report is based, to the extent associated with and necessary for the 
production of goods.  See Comptroller’s Rule 3.588(d)(6).   The additional 
expense from prior year’s asset acquisitions over the current year’s federal 
expense is not allowed in the calculation of cost of goods sold.

Question 2.
If a taxpayer elects the maximum Section 179 deduction for 2007 of $125,000 for 
federal purposes, but the amount actually deducted on the federal return for 
that year is less due to the net income limitation, would the Texas current 
maximum of $112,000 be allowed as a Cost of Goods Sold expense, or would only 
the limited amount allowable for federal purposes be considered in the margin 
calculation for the current year?

Response
The amount of Section 179 expense included in cost of goods sold is limited to 
the amount of Section 179 expense deducted for federal tax purposes; with a 
maximum of $112,000 for the 2008 franchise tax report.

We have posted frequently asked questions and answers that might be helpful to 
you on our web site at 
http://window.state.tx.us/taxinfo/franchise/ft_revised.html. We regularly 
update this site. You will also find links to the franchise tax statute, 
adopted rules, publication 98-806, Revised Franchise Tax Overview and 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 questions, my e-mail address is teresa.bostick@cpa.state.tx.us 
or you may call me toll-free at (800) 531-5441, ext. 5-9952. 

Sincerely,


Teresa Bostick
Tax Policy Division




ACCESSION NUMBER: 200810200L
SUPERSEDED: N
DOCUMENT TYPE: L
DATE: 10/17/2008
TAX TYPE: FRANCHISE