201011971H



STAR SUPERSEDED INFORMATION
Accession No. - 201011971H
Supersede type - complete
Document superseded on - 08/01/2012 
Issue(s) that caused the document to be superseded - Election date for Cost of Goods
Sold or Compensation Deduction
Reason(s):  Subsequent policy reversal; See STAR 201206444L for current policy. 


SOAH DOCKET NO. 304-10-5541.13
CPA HEARING NO. 103,807

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: Refund Claims/Overpayment Verification **************
AUDIT PERIOD: January 1, 2009 THROUGH December 31, 2009

Franchise Tax/RFD

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

SUSAN COMBS
Texas Comptroller of Public Accounts

SARAH PAI
Representing Tax Division

**************
Representing Claimant


COMPTROLLER’S DECISION

************** (Claimant) filed a refund request for franchise tax it contends 
was paid erroneously.  The Texas Comptroller of Public Accounts (Comptroller) 
denied the claim whereupon Claimant sought a refund hearing.  In his Proposal 
for Decision (PFD), the Administrative Law Judge (ALJ) recommends the refund 
denial be affirmed because the amended return it is based upon was properly 
rejected and Claimant failed to demonstrate that tax was paid erroneously.

I. PROCEDURAL HISTORY, NOTICE & JURISDICTION

On July 30, 2010, Comptroller Staff (Staff) referred the above-referenced 
matter to the State Office of Administrative Hearings (SOAH) and issued a 
Notice of Hearing by Written Submission that contained a statement of the 
nature of the hearing; a statement of the legal authority and jurisdiction 
under which the hearing was to be held; a reference to the particular sections 
of the statutes and rules involved; and a short, plain statement of the matters 
asserted, as required by the Administrative Procedure Act.  See TEX. GOV’T CODE 
Section 2001.052.  The Comptroller has jurisdiction over this matter pursuant 
to TEX. TAX CODE ch. 111, and SOAH has jurisdiction over the hearing, including 
the authority to issue a PFD, pursuant to TEX. GOV’T CODE ch. 2003.

Claimant was represented by **************.  Staff was represented by Assistant 
General Counsel Sarah Pai.  The contested case record closed on October 13, 
2010.

II. CONTESTED CASE

A. Evidence Submitted

Staff submitted the pleadings the parties exchanged prior to submitting the 
matter to SOAH.  The contested case record also includes Claimant’s 2009 Texas 
Franchise Tax Report, Claimant’s Amended 2009 Texas Franchise Tax Report, the 
refund request, and the Comptroller’s letter rejecting the amended report and 
denying the refund request.  Each of the listed documents is admitted to the 
contested case record.

B. Staff Agreed Adjustments

Staff did not agree that any refunds were warranted in this case.

C. Facts Established by the Evidence & Issues Presented

On September 1, 2009, Claimant, a corporation headquartered in CITY A, Georgia, 
filed its 2009 Texas Franchise Tax Report.  The report was due on May 15, 2009. 
On October 2, 2009, Claimant filed an amended Texas Franchise Tax Report for 
report year 2009 in which it recalculated its taxable margin using the 
compensation deduction rather than the 70% of revenue limitation it used to 
calculate tax in its original 2009 report.  Claimant then sought a refund for 
franchise tax it contends was paid erroneously.  The Comptroller rejected the 
amended report and denied the claim whereupon Claimant sought a refund hearing.

D. ALJ’s Analysis & Recommendation

The taxable margin of a taxable entity is determined by calculating 70% of 
total revenue from the entity’s total business or by subtracting, at the 
election of the taxpayer, either the cost of goods sold (COGS) or compensation. 
See TEX. TAX CODE Section 171.101(a)(1), 171.1011, 171.1012, and 171.1013.  If 
a taxable entity elects to use the COGS or compensation deduction, then it is 
also entitled to subtract compensation paid to, and costs of training a 
replacement for, an individual serving on active duty as a member of the armed 
forces of the United States if the individual is a Texas resident at the time 
he or she is ordered to active duty.  See TEX. TAX CODE Section 
171.101(a)(1)(B)(iii).  An election to utilize the COGS or compensation 
deduction is made on the taxable entity’s annual franchise tax report and can 
be made no later than the report due date.  See TEX. TAX CODE Section 
171.101(d).  It is clear therefore that Claimant may not amend its report to 
change the method of computing margin to a COGS deduction or to a compensation 
deduction because any such amendment would allow Claimant to elect the COGS or 
compensation deduction after the report due date.

A taxable entity may file an amended report for the purpose of correcting a 
mathematical or other error in a report, for the purpose of supporting a claim 
for refund, or to change its method of computing margin to 70% of total revenue 
or, if qualified, the E-Z computation.  See 34 TEX. ADMIN. CODE Section 
3.584(d)(1) and 3.584(f)(1).  Amending a franchise tax report in this manner is 
permissible because the 70% of total revenue method of computing margin is not 
described as an election; it is a baseline or default methodology.  See 
COMPTROLLER’S DECISION NO. 103,083 (2010).

Therefore, Claimant’s amended 2009 franchise tax return was properly rejected 
and the refund denial should be affirmed.

III. FINDINGS OF FACT

1. On September 1, 2009, ************** (Claimant), a corporation headquartered 
in CITY A, Georgia, filed its 2009 Texas Franchise Tax Report.

2. Claimant’s 2009 Texas Franchise Tax Report was due on May 15, 2009.

3. On October 2, 2009, Claimant filed an amended Texas Franchise Tax Report for 
report year 2009, in which it recalculated its taxable margin using the 
compensation deduction rather than the 70% of revenue limitation it used to 
calculate tax in its original 2009 report.

4. Claimant sought a refund for franchise tax purportedly paid erroneously.

5. On October 16, 2009, the Comptroller’s Revenue Accounting Division issued a 
letter rejecting Claimant’s amended return and denying Claimant’s refund claim.

6. Claimant timely requested a refund hearing contesting the denial.

7. On July 30, 2010, Comptroller Staff (Staff) referred the matter to the State 
Office of Administrative Hearings.

8. Staff provided a Notice of Hearing by Written Submission to Claimant.  The 
notice contained a statement of the nature of the hearing; a statement of the 
legal authority and jurisdiction under which the hearing was to be held; a 
reference to the particular sections of the statutes and rules involved; and a 
short, plain statement of the matters asserted. 

IV. CONCLUSIONS OF LAW

1. The Comptroller has jurisdiction over this matter pursuant to TEX. TAX CODE 
ANN ch. 111.

2. The State Office of Administrative Hearings has jurisdiction over matters 
related to the hearing in this matter, including the authority to issue a 
proposal for decision with findings of fact and conclusions of law pursuant to 
TEX. GOV’T CODE ANN. ch. 2003.

3. The Comptroller provided proper and timely notice of the hearing pursuant to 
TEX. GOV’T CODE ch. 2001 and TEX. TAX CODE ANN Section 111.009.

4. The taxable margin of a taxable entity is determined by calculating 70% of 
total revenue from the entity’s total business or by subtracting, at the 
election of the taxpayer, either the cost of goods sold (COGS) or compensation. 
See TEX. TAX CODE Section 171.101(a)(1), 171.1011, 171.1012, and 171.1013.

5. An election to utilize the COGS or compensation deduction is made on the 
taxable entities’ annual franchise tax report, and can be made no later than 
the report due date.  See TEX. TAX CODE Section 171.101(d).

6. Based on the foregoing Findings of Fact and Conclusions of Law, Staff’s 
rejection of Claimant’s amended 2009 return was proper and the refund denial 
should be affirmed.


Hearing No. 103,807

ORDER OF THE COMPTROLLER

On October 14, 2010, the State Office of Administrative Hearings’ (SOAH) 
Administrative Law Judge, Victor John Simonds, issued a Proposal for Decision 
in the above referenced matter.  The parties were given fifteen days from the 
date of the Decision to file exceptions with SOAH.  No exceptions were filed, 
and the Comptroller has determined that the Administrative Law Judge’s Proposal 
for Decision, except for minor changes to correct typographical or clerical 
errors, should be adopted as written.

The above Decision is approved and adopted in all respects.  This Decision 
becomes final twenty days after the date Claimant receives notice of this 
Decision.  If either party desires a rehearing, that party must file a motion 
for rehearing, which must state the grounds for rehearing, no later than twenty 
days after the date Claimant receives notice of this Decision.  Notice of this 
Decision is presumed to occur on the third day after the date of this Decision.

Signed on this 12th day of November 2010.


SUSAN COMBS
Texas Comptroller of Public Accounts

by: Martin A. Hubert
Deputy Comptroller




ACCESSION NUMBER: 201011971H
SUPERSEDED: S
DOCUMENT TYPE: H
DATE: 11/12/2010
TAX TYPE: FRANCHISE