Texas Margin Tax Proposed Revenue Sourcing Changes

Thoughtware Alert Nov 18, 2020
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The Texas Comptroller of Public Accounts (Comptroller) proposed several changes to revenue sourcing rules affecting the inclusions and exclusions from the apportionment factor as well as the sourcing of service revenue. The proposed changes were published in the Texas Register on November 13, 2020.

The proposed amendments to Texas Admin Code 3.591 replace the term “Revenue” with “Gross Receipts” and include new and revised provisions that affect the sourcing of gross receipts from a variety of services. The gross receipts sourcing changes affect general services as well as telecommunications, advertising, internet hosting, digital property, capital assets and investments, financial derivatives, and the sale of single-member LLC interests. The changes in gross receipts sourcing seem to indicate that Texas is moving more toward market sourcing.

Proposed regulation amendments are subject to a 30-day period for public commentary. Once the 30 days pass, the proposed amendments are adopted unless the Comptroller modifies the amendments during the public commentary period. If there are no modifications, the amendments could be adopted as early as December 13, 2020.

Out-of-state taxpayers may be significantly affected by the proposed amendments that source more gross receipts to Texas, while in-state taxpayers could benefit with more gross receipts being sourced outside the state. In addition, most of the proposed amendments do not have an effective date, which could allow the Comptroller to apply the changes retroactively to the January 1, 2008, effective date of the current rules.

Please contact your BKD Trusted Advisor™ or submit the Contact Us form below with any questions regarding the proposed changes to Texas Admin Code 3.591.

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