Tax News

CCH (cch.taxgroup.com) reports:

The Texas Comptroller has announced that the 2005 decision Home Interiors & Gifts, Inc. v. Strayhorn , 175 S.W.3d 856 (Tex. App.--Austin 2005, pet. denied) that ruled that the throwback rule for the earned surplus component of the franchise tax was unconstitutional as applied to Home Interiors is now final because all appeals have been exhausted. The Texas Court of Appeals held that the throwback provision of the earned surplus component of the Texas franchise tax as applied to the home decor company lacked internal consistency and therefore, was unfairly apportioned in violation of the Commerce Clause of the U.S. Constitution.
The Comptroller has issued information that explains how potentially affected franchise taxpayers may file a refund claim based on the Home Interiors decision. A taxpayer would qualify for a refund if it:
-- sold tangible personal property that was shipped from Texas to purchasers in one or more other states;
-- was protected by P.L. 86-272 (from a tax on net income in those states); and
-- reported sales to those states as throwback sales to Texas for apportioning earned surplus.
The following criteria will be examined to evaluate claims for refunds: (1) refunds are applicable to the earned surplus component only; (2) simply holding a certificate of authority in another state is not sufficient evidence of nexus in another state; (3) proof of payment of taxes paid to another state is not sufficient evidence of nexus in another state because tax may be voluntarily paid without having nexus there; (4) if solicitation under P.L. 86-272 guidelines occurred in other states, supporting documentation must exist and be presented to substantiate solicitation in another state (specifically, actual documentation for expenses and receipts are required, not just the reimbursement of said expenses); (5) the supporting documentation of the selling corporation or limited liability company must have occurred during the accounting year upon which the report year tax is based; and (6) if no nexus exists in other states, sales will continue to be reported as Texas receipts (thrown back to Texas) using the same criteria as used for taxable capital.
Taxpayers are required to include a written statement of grounds with any amended report and note that the refund claim is based on the Home Interiors decision. More information on filing for a refund is available on the Comptroller's Web site at http://window.state.tx.us/taxinfo/refunds/refunds_franchise.html.
Tax Policy News , Vol. XVII, Issue 109, Texas Comptroller of Public Accounts, October 2007.