Petition for Writ of Mandamus - Filed - Supreme Court of Texas

No. __________ 

In The 

Supreme Court of Texas 

IN RE NESTLE USA, INC. 

Original Proceeding 

RELATOR’S PETITION 

Peter A. Nolan 

SBN 15062600 

pnolan@winstead.com 

Jennifer Patterson Rabb 

SBN 00795469 

jrabb@winstead.com 

WINSTEAD PC 

401 Congress Avenue, Suite 2100 

Austin, Texas 78701 

[Tel.] (512) 370-2800 

[Fax] (512) 370-2850 

ATTORNEYS FOR RELATOR 

NESTLE USA, INC.

IDENTITY OF PARTIES AND COUNSEL 

Relator 

Nestle USA, Inc. 

Counsel for Relator 


State Bar No. 15062600 


State Bar No. 00795469 

WINSTEAD PC 



[Tel.] 512-370-2800 

[Fax] 512-370-2850 


Respondents 

Susan Combs 

Texas Comptroller of Public Accounts 

P.O. Box 13528, Capitol Station 

Austin, Texas 78711-3528 

Greg Abbott 

Texas Attorney General 

P.O. Box 12548 


ii

TABLE OF CONTENTS 

IDENTITY OF PARTIES AND COUNSEL...................................................................ii 

INDEX OF AUTHORITIES............................................................................................iv 

STATEMENT OF THE CASE......................................................................................viii 

STATEMENT OF JURISDICTION...............................................................................ix 

ISSUES PRESENTED.......................................................................................................x 

STATEMENT OF FACTS................................................................................................1 

I. The Margin Tax .....................................................................................................1 

II. 

The Relator.............................................................................................................4 

ARGUMENT......................................................................................................................5 

I. The Margin Tax Violates the Equal and Uniform Clause of the Texas 

Constitution. ...........................................................................................................5 

A. The Equal and Uniform Clause requires classifications among 

taxpayers within a franchise tax to be reasonably related to the 

value being taxed. ........................................................................................5 

B. Classifications within the Margin Tax calculation do not 

reasonably relate to the value of the Privilege. .........................................7 

II. 

III. 

IV. 

The Margin Tax Violates the Equal Protection Clause of the United 

States Constitution...............................................................................................10 

The Margin Tax Violates the Due Process Clause of the United States 

Constitution. .........................................................................................................13 

The Margin Tax Violates the Commerce Clause of the United States 

Constitution. .........................................................................................................14 

PRAYER...........................................................................................................................15 

CERTIFICATION...........................................................................................................16 

CERTIFICATE OF SERVICE ......................................................................................17 

APPENDIX.......................................................................................................................18 

iii

INDEX OF AUTHORITIES 

Cases 

Page(s) 

Allied Stores of Ohio v. Bowers, 

358 U.S. 522 (1959) .....................................................................................................10 

Allied-Signal, Inc. v. Director, Div. of Taxation, 

504 U.S. 768 (1992) .....................................................................................................13 

Bullock v. Nat’l Bancshares Corp., 

584 S.W.2d 268 (Tex. 1979)................................................................................1, 6, 10 

Bullock v. Sage Energy Co., 

728 S.W.2d 465 (Tex. App.—Austin 1987, writ ref’d n.r.e.)....................................7, 9 

Complete Auto Transit, Inc. v. Brady, 

430 U.S. 274 (1977) .....................................................................................................14 

Enron Corp. v. Spring Indep. Sch. Dist., 

922 S.W.2d 931 (Tex. 1996)..........................................................................................6 

Gen. Dynamics Corp. v. Bullock, 

547 S.W.2d 255 (Tex. 1976)....................................................................................6, 10 

Hurt v. Cooper, 

110 S.W.2d 896 (Tex. 1937)..........................................................................................6 

In re Allcat Claims Service, L.P., 

356 S.W.3d 455 (Tex. 2011).........................................................................................ix 

In re Nestle USA, Inc. et al., 

359 S.W.3d 207 (Tex. 2012).........................................................................................ix 

Nordlinger v. Hahn, 

505 U.S. 1 (1992) .........................................................................................................10 

Norfolk & W. Ry. v. Mo. State Tax Comm’n, 

390 U.S. 317 (1968) .....................................................................................................13 

Quill Corp. v. North Dakota, 

504 U.S. 298 (1992) ...............................................................................................13, 14 

Rylander v. 3 Beall Bros. 3, Inc., 

2 S.W.3d 562 (Tex. App.—Austin 1999, pet. denied).................................................15 

iv

Rylander v. Fisher Controls Int’l, 

45 S.W.3d 291 (Tex. App.—Austin 2001, no pet.) .....................................................10 

Tex. Co. v. Stephens, 

103 S.W. 481 (Tex. 1907)..............................................................................................6 

Tyler Pipe Indus. v. Wash. State Dep’t of Revenue, 

483 U.S. 232 (1987) .....................................................................................................14 

Wisconsin v. J.C. Penney Co., 

311 U.S. 435 (1940) .....................................................................................................13 

STATUTES 

TEX. TAX CODE ANN. § 112.001 ........................................................................................ix 

TEX. TAX CODE ANN. § 112.052 ........................................................................................ix 

TEX. TAX CODE ANN. § 112.052(a) (West 2008 & Supp. 2011) .......................................ix 

TEX. TAX CODE ANN. § 171.0002 .......................................................................................6 

TEX. TAX CODE ANN. § 171.001(a) (West 2008)............................................................1, 6 

TEX. TAX CODE ANN. § 171.002 .........................................................................................9 

TEX. TAX CODE ANN. § 171.002(a) (West 2002)............................................................1, 4 

TEX. TAX CODE ANN. § 171.002(a), (b) (West 2008 & Supp. 2010)............................1, 12 

TEX. TAX CODE ANN. § 171.002(b)(c) ................................................................................4 

TEX. TAX CODE ANN. § 171.006 ...................................................................................3, 12 

TEX. TAX CODE ANN. § 171.101 .........................................................................................2 

TEX. TAX CODE ANN. § 171.101(a).................................................................................4, 7 

TEX. TAX CODE ANN. § 171.101(a)(2) ................................................................................4 

TEX. TAX CODE ANN. § 171.101(c).....................................................................................2 

TEX. TAX CODE ANN. § 171.106(a).....................................................................................4 

TEX. TAX CODE ANN. § 171.1011 .......................................................................................7 

TEX. TAX CODE ANN. § 171.1011(g-l), (q) .....................................................................2, 7 

v

TEX. TAX CODE ANN. § 171.1012 .............................................................................2, 8, 11 

TEX. TAX CODE ANN. § 171.1012(c), (d), (f) ......................................................................2 

TEX. TAX CODE ANN. § 171.1012 (e)..................................................................................2 

TEX. TAX CODE ANN. § 171.1012 (k), (k-l) ..................................................................8, 11 

TEX. TAX CODE ANN. § 171.1013 ................................................................................... 3, 8, 12 

TEX. TAX CODE ANN. § 171.1013(a) (West 2008) .............................................................3 

TEX. TAX CODE ANN. § 171.1013(b), (c) ............................................................................3 

TEX. TAX CODE ANN. § 171.1013 (c)............................................................................3, 12 

TEX. TAX CODE ANN. § 171.1013(d) – (f).................................................................................3 

TEX. TAX. CODE ANN. § 171.1014(a)..............................................................................3, 4 

TEX. TAX CODE ANN. § 171.1014(b)...................................................................................4 

TEX. TAX. CODE ANN. § 171.1014(c) (e)-(f)...................................................................3, 4 

TEX. TAX CODE ANN. § 171.1014(d).....................................................................3, 4, 9, 12 

TEX. TAX. CODE ANN. § 171.1014(i) ..................................................................................5 

TEX. TAX. CODE ANN. § 171.251 - .2515............................................................................6 

TEX. TAX. CODE ANN. § 171.301 - .3015............................................................................6 

OTHER AUTHORITIES 

CODIFICATION OF ACCOUNTING STANDARDS AND PROCEDURES 

330-10-30-1 (Am. Inst. of Certified Pub. Accountants 1972). ......................................2 

H.B. 3, 79th Leg., 3rd C.S. (Tex. 2006) .........................................................................ix, 1 

H.B. 3928, 80th Leg., Reg. Sess. (Tex. 2007).....................................................................1 

TEX. CONST. art. VIII, § 1(a) ...............................................................................................5 

Treas. Reg. § 1.61-3(a) ........................................................................................................2 

U.S. CONST. amend. XIV, § 1 .....................................................................................10, 13 

vi

U.S. CONST. art. 1, § 8.......................................................................................................14 

vii

STATEMENT OF THE CASE 

This is an original proceeding to recover franchise tax paid by Relator under 

protest based on Relator’s challenges to the constitutionality of the Texas franchise tax, 

Chapter 171 of the Texas Tax Code. Relator seeks mandamus relief to compel the Texas 

Comptroller of Public Accounts (the “Comptroller”) to refund the franchise tax paid by 

Relator under protest; declaratory relief holding that the Texas franchise tax violates the 

Texas Constitution and the United States Constitution; and injunctive relief enjoining the 

Comptroller from enforcing, collecting, and assessing the Texas franchise tax against 

Relator. 

viii

STATEMENT OF JURISDICTION 

Section 112.052 of the Texas Tax Code grants a taxpayer the right to bring suit 

against the State to recover a franchise tax required to be paid to the State if the person 

has first paid the tax under protest. TEX. TAX CODE ANN. § 112.052(a) (West 2008 & 

Supp. 2011). Typically, the district courts of Travis County have exclusive and original 

jurisdiction over a taxpayer suit brought pursuant to Section 112.052. Id. § 112.001. 

However, in 2006, the Texas Legislature provided “a specific, limited exception” to the 

district courts’ jurisdiction and granted the Texas Supreme Court exclusive and original 

jurisdiction over a challenge to the constitutionality of the Texas franchise tax, Texas Tax 

Code, Chapter 171. H.B. 3, 79th Leg., 3rd C.S., §§ 24 and 27 (Tex. 2006); In re Nestle 

USA, Inc. et al., 359 S.W.3d 207, 210 (Tex. 2012) (quoting In re Allcat Claims Service, 

L.P., 356 S.W.3d 455, 462 (Tex. 2011)). 

This Court recently held that the Legislature’s grant of jurisdiction in 2006 

authorized the Texas Supreme Court to consider the constitutionality of the Texas 

franchise tax in order to determine whether mandamus should issue directing the 

Comptroller to refund franchise tax paid under protest. In re Allcat Claims Service, L.P., 

356 S.W.3d 455, 463 (Tex. 2011). When this Court has jurisdiction to issue a writ of 

mandamus, it also has the correlative authority to provide declaratory and injunctive 

relief. Id. at 462. 

ix

ISSUES PRESENTED 

(1) Whether the Texas franchise tax violates the Equal and Uniform Clause of the 

Texas Constitution. 

(2) Whether the Texas franchise tax violates the Equal Protection Clause of the 

United States Constitution. 

(3) Whether the Texas franchise tax violates the Due Process Clause of the United 

States Constitution. 

(4) Whether the Texas franchise tax violates the Commerce Clause of the United 

States Constitution. 

x

STATEMENT OF FACTS 

I. The Margin Tax 

The Texas franchise tax is imposed on the privilege of doing business in Texas on 

each taxable entity that does business in Texas or is chartered or organized in Texas. 

TEX. TAX CODE ANN. § 171.001(a) (West 2008); see Bullock v. Nat’l Bancshares Corp., 

584 S.W.2d 268, 270 (Tex. 1979). In 2006 and 2007, the Legislature enacted legislation 

to reform the Texas franchise tax as part of a comprehensive tax and public school 

finance package. See H.B. 3, 79th Leg., 3rd C.S. (Tex. 2006); H.B. 3928, 80th Leg., Reg. 

Sess. (Tex. 2007). The reformed franchise tax replaced entirely the former franchise tax, 

which was imposed on taxable capital or earned surplus, with a new “Margin Tax” 

imposed on a new tax base called “taxable margin.” 

See TEX. TAX CODE ANN. 

§ 171.002(a) (West 2002), amended by TEX. TAX CODE ANN. § 171.002(a), (b) (West 

2008 & Supp. 2010); id. § 171.002(a), (b). 

The calculation of taxable margin begins with the gross income of the taxpayer, 

but then employs a combination of exclusions and deductions applicable to some 

taxpayers and not others. The Margin Tax calculation is illustrated below: 

Minus 

Equals 

Total Revenue $ 

Cost of Goods Sold 

or Compensation 

or 30% of Total Revenue $ 

Margin 

Times Apportionment Factor X 

Equals Taxable Margin $ 

Times Tax Rate X 

Equals Margin Tax $ 

1

See TEX. TAX CODE ANN. § 171.101. 

Total Revenue. The Margin Tax calculation begins with the made-up concept of 

“Total Revenue,” which is equal to the income reported on a taxpayer’s federal income 

tax return, less certain ad hoc exclusions available to only some taxpayers. 

Id. 

§ 171.101(c). Narrow exclusions are allowed for lending institutions, legal services 

providers, pharmacy cooperatives, live event promotion companies, destination 

management companies, courier and logistics companies, staff leasing companies, 

management companies, health care providers, health care institutions, and operators of 

facilities for the federal government. Id. § 171.1011 (g-1)-(q). 

Cost of Goods Sold. 

The Margin Tax statute defines Cost of Goods Sold 

(“COGS”) differently from federal income tax law and Generally Accepted Accounting 

Principles. See id. § 171.1012; Treas. Reg. § 1.61-3(a); CODIFICATION OF ACCOUNTING 

STANDARDS AND PROCEDURES 330-10-30-1 (Am. Inst. of Certified Pub. Accountants 

1972). Texas COGS includes “all direct costs of acquiring or producing goods,” some 

indirect costs, and up to 4% of overhead and administrative costs. TEX. TAX CODE ANN. 

§ 171.1012(c), (d), (f). The statute excludes certain listed items from COGS, such as 

distribution, advertising, and interest expenses. Id. § 171.1012(e). A COGS deduction is 

allowed only to taxpayers that sell real or tangible personal property, with two 

exceptions: (1) lending institutions that “offer loans to the public” and (2) lessors of 

motor vehicles, heavy construction equipment, and rolling stock. Id. § 171.1012. 

Compensation. Compensation is defined as selected cash compensation, plus the 

cost of health, retirement, and workers’ compensation benefits paid to employees of a 

2

taxable entity and to owners of certain taxable entities. Id. § 171.1013(b). The 

Compensation deduction does not include amounts paid to independent contractors 1 or to 

an employee or owner in excess of $330,000 in 2012. 2 

See id. § 171.1013(b), (c). The 

Compensation deduction with respect to partners, S corporation shareholders, or LLC 

members includes only cash distributions to the partner, shareholder, or member, and 

does not include the owner’s entire distributive share of income, even if less than 

$330,000. See id. § 171.1013. Special deductions are allowed for staff leasing 

companies and management companies. Id. § 171.1013(d)-(f). 

Combined Reporting. 

All taxable entities with more than 50% common 

ownership that are engaged in a unitary business file a single, combined franchise tax 

return. Id. § 171.1014(a). Total Revenue, COGS, and Compensation are calculated 

separately for each entity within a combined group, after eliminating transactions 

between members of the combined group, and then are added together to determine the 

Total Revenue, COGS, and Compensation of the combined group. Id. § 171.1014(c), (e)- 

(f). All entities within a combined group must choose the same deduction, either COGS 

or Compensation. Id. § 171.1014(d). 

Margin. If the Margin yielded by the deduction of COGS or Compensation is 

greater than 70 percent of Total Revenue, the Margin calculation is disregarded. See id. 

1 

2 

“Independent contractors” means workers who receive federal Form 1099 rather than Form W-2 from 

the taxable entity. See Tex. Tax Code Ann. §§ 171.1013(a)(West 2008). 

The $300,000 maximum stated in Section 171.1013(c) is adjusted annually according to changes in 

the Consumer Price Index. Id. §§ 171.006 and 171.1013(c). The maximum for 2012 is $330,000, as 

published by the Comptroller on page 1 of the 2012 Texas Franchise Tax Report Information and 

Instructions. App. 5. 

3

§ 171.101(a)(1). Instead, the taxpayer’s Margin is 70 percent of Total Revenue. 3 Id. 

For a combined group, the 70-percent analysis is made with reference to the Total 

Revenue and Margin of the combined group. Id. § 171.1014(d). 

Tax Rate. The standard Margin Tax rate is 1%. Id. § 171.002(a). However, the 

Margin Tax rate is 0.5% if: more than 50% of the taxable entity’s Total Revenue is from 

the “retail trade” or “wholesale trade;” less than 50% of the revenue from the retail or 

wholesale trade comes from the sale of products produced by the taxable entity or an 

affiliate; and the taxable entity does not provide retail or wholesale utilities. 4 

Id. 

§ 171.002(b), (c). The applicable tax rate is determined for a combined group as a whole, 

with the result that all entities within a combined group are taxed at the same rate. Id. 

§§ 171.002, 171.1014(b). 

II. 

The Relator 

Nestle USA, Inc., and 32 of its affiliates constitute its combined group for Texas 

franchise tax purposes (collectively, “Nestle”). App. 6. Nestle manufactures and 

distributes food and beverages in the United States and performs related services. Id. 

Nestle owns and operates 25 manufacturing facilities in the United States, all outside of 

3 

4 

Taxable Margin is calculated by multiplying Margin by the apportionment factor. Id. §§ 

171.101(a)(2) and 171.106(a). The apportionment factor is a fraction with Texas gross receipts as the 

numerator and total gross receipts as the denominator. Id. § 171.106(a). 

The Margin Tax is filed on a combined basis. Id. § 171.1014(a). All taxable entities with more than 

50% common ownership that are engaged in a “unitary” business file a single, combined return. Id. 

Total Revenue, COGS, Compensation, and Margin reported on the Margin Tax return include the 

Total Revenue, COGS, Compensation, and Margin of all entities within the combined group. See id. 

§ 171.1014(c)-(f). All entities within a combined group must choose the same deduction, either 

COGS or Compensation, and the 70% cap on Total Revenue for purposes of calculating Margin 

applies to the Total Revenue and Margin of the combined group. Id. § 171.1014(d). The applicable 

tax rate is also determined for the combined group. See id. §§ 171.002 and 171.1014(b). 

4

Texas. Id. Nestle conducts exclusively wholesale and retail activities in Texas. Id. 

Although Nestle engages only in wholesale activities in Texas, Nestle is subject to the 

higher 1.0% Margin Tax rate applicable to Texas manufacturers. Id. 

On or about May 9, 2012, Nestle filed with the Comptroller a 2012 Texas 

Franchise Report. App. 6. On May 11, 2012, Nestle hand-delivered a letter of protest to 

the Comptroller stating its reasons for recovering the payment. App. 7. On the same day, 

Nestle electronically submitted to the Comptroller $8,682,998.99 in franchise tax for 

report year 2012. App. 8. Nestle filed suit on June 15, 2012, against the Comptroller and 

the Texas Attorney General in the Travis County district courts seeking a refund of the 

franchise tax paid under protest. App. 10. 

Nestle and each member of the Nestle Combined Group are jointly and severally 

liable for the franchise tax of the entire Nestle Combined Group. TEX. TAX. CODE ANN. 

§ 171.1014(i). 

ARGUMENT 

I. The Margin Tax Violates the Equal and Uniform Clause of the Texas 

Constitution. 

The Margin Tax violates the Equal and Uniform Clause of the Texas Constitution 

because it taxes taxpayers disparately based on classifications that have no reasonable 

relationship to the value of the privilege of doing business in Texas. 

A. The Equal and Uniform Clause requires classifications among taxpayers 

within a franchise tax to be reasonably related to the value being taxed. 

Article VIII, Section 1(a) of the Texas Constitution provides that “taxation shall be 

equal and uniform.” 

Generally, the Equal and Uniform Clause requires that any 

5

classifications among taxpayers must not be unreasonable, arbitrary, or capricious. 

Enron Corp. v. Spring Indep. Sch. Dist., 922 S.W.2d 931, 936 (Tex. 1996); Hurt v. 

Cooper, 110 S.W.2d 896, 901 (Tex. 1937). With respect to an occupation tax, Texas 

courts have held that this standard merely requires that a classification be rationally 

related to a legitimate state purpose. Hurt, 110 S.W.2d at 900-01; Tex. Co. v. Stephens, 

103 S.W. 481, 484-85 (Tex. 1907). However, the standard of reasonableness for a 

franchise tax is different. 

The Texas franchise tax is a tax on the value of the privilege of doing business in 

Texas (the "Privilege") and is intended to exact a tax commensurate with the value of the 

Privilege. Bullock v. Nat'l Bancshares Corp., 584 S.W.2d 268, 270 (Tex. 1979); Gen. 

Dynamics Corp. v. Bullock, 547 S.W.2d 255, 257 (Tex. 1976). The franchise tax is 

imposed on entities that are created by state law and that enjoy the Privilege, such as 

corporations and limited partnerships, and is not imposed on entities that are not creatures 

of state law and that do not enjoy the Privilege, such as sole proprietorships and general 

partnerships. See TEX. TAX CODE ANN. §§ 171.0002 and 171.001(a). The State of Texas 

will revoke the Privilege from a state law entity that does not pay the franchise tax. Id. 

§§ 171.251-.2515 and 171.301-.3015. 

Because the franchise tax is imposed in exchange for the Privilege and is intended 

to be commensurate with the value of the Privilege, the Equal and Uniform Clause 

requires any tax classifications within the franchise tax to be reasonably related to that 

value, and not merely to any conceivable state purpose. In order for the tax to be 

commensurate with the value of the Privilege, the value must generally be ascertained by 

6

the same standard for all taxpayers. See Bullock v. Sage Energy Co., 728 S.W.2d 465, 

468 (Tex. App.—Austin 1987, writ ref’d n.r.e.) (citing Lively v. Mo., K & T Ry. Co. of 

Texas, 120 S.W. 852, 856 (Tex. 1909)). Any classifications among taxpayers must 

reasonably relate to the value of the Privilege. 

B. Classifications within the Margin Tax calculation do not reasonably 

relate to the value of the Privilege. 

The calculations of total revenue, COGS, and compensation, and the 

determination of the tax rate, contain classifications that bear no relationship to the value 

of the Privilege exercised and, accordingly, are unreasonable, arbitrary, and capricious. 

The Margin Tax calculation begins with a baseline concocted by the Legislature called 

“Total Revenue.” TEX. TAX CODE ANN. § 171.101(a). The calculation of total revenue 

begins with the gross income of all taxpayers (this is equal and uniform), but then allows 

only certain income and expense deductions to some taxpayers engaged in certain lines of 

business (this is neither equal nor uniform). Id. § 171.1011. Section 171.1011 allows 

deductions for various income or expense items of lending institutions, legal services 

providers, pharmacy cooperatives, live event promotion companies, destination 

management companies, courier and logistics companies, staff leasing companies, 

management companies, health care providers, health care institutions, and operators of 

facilities for the federal government. Id. § 171.1011 (g-1)-(q). 

These deductions plainly, randomly, and unreasonably allow certain income and 

expense deductions from total revenue only to certain taxpayers. While the resulting 

value for total revenue includes all gross income of some taxpayers, it includes only a 

7

portion of gross income for other taxpayers. 

Consequently, the calculation of total 

revenue does not actually determine the amount of gross income that all taxpayers derive 

from exercising the Privilege but, instead, departs from such a calculation in an 

unreasonable, arbitrary, and capricious manner unrelated to the value of the Privilege. 

The calculation of COGS under Section 171.1012 similarly allows certain 

deductions only to certain taxpayers. A COGS deduction generally is allowed only to 

taxpayers that sell goods, but lending institutions are uniquely allowed to deduct interest 

expense as COGS, and lessors of motor vehicles, heavy construction equipment, and 

railcar rolling stock are expressly allowed to deduct costs associated with the leased 

property as COGS. Id. § 171.1012(k), (k-1). Other taxpayers that exercise the same 

Privilege as these favored businesses, and that incur interest expense and expenses of 

leasing, are not allowed the same deductions. Consequently, the calculation of COGS 

results in an amount of COGS that is unreasonable, arbitrary, and capricious among 

taxpayers exercising the Privilege. 

Finally, the calculation of compensation under Section 171.1013 allows 

deductions for expenses associated with employees but not expenses associated with 

independent contractors and limits the amount of the compensation deduction for 

employees. However, taxpayers whose workers are employees enjoy the same Privilege 

as taxpayers whose workers are independent contractors, and the value of that Privilege is 

not changed by a worker's status as an employee or an independent contractor or the 

amount of an employee’s compensation. Consequently, the calculation of compensation 

8

esults in an arbitrary amount of compensation that is unreasonable, and capricious 

among taxpayers exercising the Privilege. 

The Margin Tax calculation creates further arbitrary classes by requiring all 

entities within a combined group to choose the same deduction, either COGS or 

Compensation. See id. § 171.0014(d). If a combined group chooses COGS, any entity 

within the group that has no COGS is allowed no deduction at all, even if it has 

Compensation expense. 

As a result of the differences in total revenue, COGS, and compensation, the 

Margin Tax calculation does not ascertain the value of the privilege of doing business in 

Texas the same way for all taxpayers—it is not uniform. A dollar of income earned from 

exercising the Privilege, regardless of the source of the income, has the same value to all 

taxpayers. A dollar of expense incurred in exercising the Privilege, regardless of the 

nature of the expense, has the same value to all taxpayers. See Bullock v. Sage Energy 

Co., 728 S.W.2d 465, 468 (Tex. App.—Austin 1987, writ ref’d n.r.e.). In calculating a 

franchise tax that is commensurate with the value of that Privilege, it is not reasonable to 

restrict some deductions for income and expense items only to some taxpayers who 

exercise that Privilege. 

To the extent the Legislature does allow exclusions and 

deductions from the franchise tax base, those exclusions and deductions must be 

available to all taxpayers in order for the franchise tax calculation to bear a reasonable 

relationship to the value of the Privilege. 

The assignment of a tax rate of 0.5% to retailers and wholesalers, and 1.0% to all 

other taxpayers, is unreasonable in the same respect. See id. § 171.002. Retailers and 

9

wholesalers exercise the same Privilege, and not one-half of the Privilege, as all other 

taxpayers. The imposition of a tax rate for certain taxpayers that is one-half the tax rate 

for other taxpayers, in exchange for the same Privilege, fails to exact a tax commensurate 

with the value of the Privilege. 

II. 

The Margin Tax Violates the Equal Protection Clause of the United 

States Constitution 

The Equal Protection Clause commands that no state shall “deny to any person 

within its jurisdiction the equal protection of the laws.” U.S. CONST. amend. XIV, § 1. It 

forbids a state from treating differently persons who are in all relevant respects alike. 

Nordlinger v. Hahn, 505 U.S. 1, 10 (1992). With regard to state taxation, the Equal 

Protection Clause forbids disparate treatment of taxpayers that has no rational basis or 

that is palpably arbitrary. Allied Stores of Ohio v. Bowers, 358 U.S. 522, 527 (1959). 

Any disparate treatment must rest upon some ground or difference having a fair and 

substantial relation to the object of the legislation. Id. The relationship of the 

classification to its goal must not be so attenuated as to render the distinction arbitrary or 

irrational. Nordlinger, 505 U.S. at 11. 

Thus, pursuant to the Equal Protection Clause, the Margin Tax may not treat 

differently persons who are in all relevant respects alike. Any classifications imposed by 

the Margin Tax must have a rational basis and must be fairly and substantially related to 

the object of the tax—to tax the value of the Privilege. See Nat’l Bancshares Corp, 584 

S.W.2d at 270; Gen. Dynamics Corp., 547 S.W.2d at 257-58; Rylander v. Fisher 

Controls Int’l, 45 S.W.3d 291, 293 (Tex. App.—Austin 2001, no pet.). 

10

As detailed above, each step of the Margin Tax calculation is fraught with 

arbitrary disparities among similarly-situated taxpayers. First, the calculation of Total 

Revenue permits certain arbitrary exclusions for taxpayers in certain industries but not for 

other taxpayer in other industries. There does not appear to be any rational basis for 

treating these taxpayers differently from one another, and the disparate treatment 

certainly does not have a fair or substantial relation to the Privilege being taxed. 

Further, the different types of deductions subtracted from Total Revenue – COGS, 

Compensation, or 30% of Total Revenue – create arbitrary distinctions among taxpayers, 

and the differences within the calculations of these deductions exacerbate the disparities 

between similarly-situated taxpayers. 

The COGS deduction allows only certain 

taxpayers to deduct certain costs of business. For example, a taxpayer that sells tangible 

personal property may deduct the direct costs of acquiring or producing the goods, some 

indirect costs, and up to 4% of overhead and administrative costs; however a taxpayer 

that leases the same tangible personal property may not deduct any such costs unless one 

of four narrow exceptions applies. See id. § 171.1012. Not only are sellers treated 

differently from lessors, but lessors are treated differently from similarly-situated lessors 

via four narrow exceptions for lending institutions, lessors of motor vehicles, lessors of 

heavy construction equipment, and lessors of rolling stock. See id. § 171.1012(k), (k-1). 

The calculation of Compensation also creates distinctions with no rational basis. 

For no apparent reason related to the value of the Privilege, the Margin Tax allows a 

company to deduct as Compensation wages paid to an employee, but does not allow a 

similarly-situated company to deduct amounts paid to an independent contractor. See id. 

11

§ 171.1013. It also arbitrarily distinguishes between employee salaries of $330,000 or 

less and employee salaries in excess of $330,000. See id. §§ 171.006, 171.1013(c). 

The Margin Tax calculation creates further arbitrary classes by requiring all 

entities within a combined group to choose the same deduction, either COGS or 

Compensation. See id. § 171.0014(d). If a combined group chooses COGS, any entity 

within the group that has no COGS is allowed no deduction at all, even if it has 

Compensation expense. 

The numerous disparities within the calculation of Margin lead to an arbitrary 

number, called Margin, which has no relation to the value of a taxpayer’s Privilege. A 

taxpayer may have a tax base that is twice that of another taxpayer that receives the same 

Privilege due to a COGS deduction or Compensation deduction that is arbitrarily 

conferred on the latter. This disparate treatment of similarly-situated taxpayers does not 

end with the calculation of Margin, but is compounded by the arbitrary application of tax 

rates. 

The Margin Tax imposes two tax rates on two classes of taxpayers – 0.5% to 

wholesalers and retailers and 1.0% to manufacturers. Id. § 171.002(a), (b). Whether or 

not a taxpayer is subject to the higher or lower tax rate depends on the taxpayers’ 

activities throughout the United States, not just in Texas. Accordingly, a taxpayer such 

as Nestle who only wholesales in Texas, but manufactures in other states is treated 

differently from other taxpayers who only wholesale in Texas. These taxpayers enjoy the 

same Privilege in Texas, but the taxpayer who manufacturers elsewhere is subject to 

12

twice the tax rate. There is no rational basis related to the value of the Privilege for 

taxing these similarly-situated taxpayers differently. 

The Margin Tax violates the Equal Protection Clause on multiple levels by 

treating differently similarly-situated taxpayers in the calculation of the tax base and in 

the application of the tax rate. These differences in treatment have no rational basis and 

are not fairly and substantially related to the taxation of the value of the privilege of 

doing business in Texas. 

III. 

The Margin Tax Violates the Due Process Clause of the United States 

Constitution. 

In the context of a state tax, the Due Process Clause of the U.S. Constitution 

“requires some definite link, some minimum connection, between a state and the person, 

property, or transaction it seeks to tax.” Quill Corp. v. North Dakota, 504 U.S. 298, 312 

(1992) (quoting Miller Bros. v. Maryland, 347 U.S. 340, 344-45 (1954)); see U.S. 

CONST. Amend XIV, § 1. In the case of a tax on an activity, there must be a connection 

to the activity itself, rather than a connection only to the entity the State seeks to tax. 

Allied-Signal, Inc. v. Director, Div. of Taxation, 504 U.S. 768 (1992). The test is whether 

the taxing power exerted by a state bears fiscal relation to protection, opportunities, and 

benefits given by the state. Wisconsin v. J.C. Penney Co., 311 U.S. 435, 444 (1940); 

Norfolk & W. Ry. v. Mo. State Tax Comm’n, 390 U.S. 317, 326 n.5 (1968). The simple 

but controlling question is whether the State has given anything for which it can ask a 

return. J.C. Penney, 311 U.S. at 444. 

13

The Margin Tax imposes a 0.5% tax on wholesalers and retailers and a 1% tax on 

manufacturers. Pursuant to the Due Process Clause, this significant difference in tax rate 

must be based on a difference in the protections, opportunities, and benefits conferred by 

Texas on the entities. In other words, manufacturers must receive greater benefits from 

Texas than wholesalers and retailers receive. This is not the case with entities, such as 

Nestle, that manufacture outside of Texas, but only wholesale and/or retail within Texas. 

Such entities do not receive any additional benefits from Texas with respect to their 

manufacturing operations. By taxing these entities based on activities for which Texas 

confers no benefit, the Margin Tax violates the Due Process Clause of the United States 

Constitution. 

IV. 

The Margin Tax Violates the Commerce Clause of the United States 

Constitution. 

The Commerce Clause prohibits discrimination against interstate commerce and 

bars state regulation that unduly burdens interstate commerce. Quill, 504 U.S. at 312; see 

U.S. CONST. art. 1, § 8. Specifically, the Commerce Clause requires that a state tax (1) 

be applied to an activity with a substantial nexus with the taxing state, (2) be fairly 

apportioned, (3) not discriminate against interstate commerce, and (4) fairly relate to the 

services provided by the state. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 

(1977). A valid tax must treat similarly situated in-state and out-of-state taxpayers 

equally. Tyler Pipe Indus. v. Wash. State Dep’t of Revenue, 483 U.S. 232, 246 (1987) 

(citing Halliburton Oil Well Cementing Co. v. Reily, 373 U.S. 64, 70 (1963)). Further, 

the measure of the tax must be reasonably related to the extent of the taxpayer’s presence 

14

or activities within the taxing state and to the taxpayer’s consequent enjoyment of the 

opportunities that the state has afforded. Rylander v. 3 Beall Bros. 3, Inc., 2 S.W.3d 562, 

571 (Tex. App.—Austin 1999, pet. denied) (citing Commonwealth Edison Co. v. 

Montana, 453 U.S. 609, 629 (1981)). 

The Margin Tax imposes a tax rate that is often dependent on a taxpayer’s 

activities outside of Texas. For example, Nestle is subject to a tax rate of 1.0% rather 

than 0.5% based solely on the fact that it manufactures in other states. The Margin Tax 

discriminates against interstate commerce by subjecting entities to a higher tax rate based 

solely on the fact that they conduct certain activities in interstate activities. The Margin 

Tax also is not fairly related to the services provided by Texas because it imposes 

different tax rates on similarly-situated wholesalers based on their operations in other 

states, which operations have no relation to the services provided by Texas. Because it 

discriminates against interstate commerce and does not fairly relate to the services 

provided by Texas, the Margin Tax violates the Commerce Clause of the United States 

Constitution. 

PRAYER 

Relator respectfully requests that, within 120 days of the filing of this Petition, this 

Court (1) mandamus the Comptroller to refund $8,682,998.99 of franchise tax paid by 

Relator under protest; (2) declare that the Margin Tax violates the Texas Constitution and 

the United States Constitution; (3) permanently enjoin the Comptroller against 

enforcement, collection, or assessment of the Margin Tax against Relator; and (4) award 

15

Relator any such other and further relief to which Relator may be justly entitled at law or 

in equity. 

Respectfully submitted, 

WINSTEAD PC 



[Tel.] (512) 370-2800 

[Fax] (512) 370-2850 

By: /s/ Peter A. Nolan 


SBN 15062600 


SBN 00795469 


Attorneys for Relator Nestle USA, Inc. 

CERTIFICATION 

I certify that I have reviewed this petition and have concluded that every factual 

statement in the petition is supported by competent evidence included in the appendix. 

/s/ Peter A. Nolan 


16

CERTIFICATE OF SERVICE 

I certify that on June 25, 2012, the foregoing document was served on the 

following via certified mail, return receipt requested: 

Susan Combs 


P.O. Box 13528, Capitol Station 


Greg Abbott 

Texas Attorney General 

P.O. Box 12548 




17

No. __________ 

In The 

Supreme Court of Texas 

IN RE NESTLE USA, INC. 

APPENDIX 

to 

RELATOR’S PETITION 

Appendix Number Document Title 

App. 1 Texas Tax Code, Chapter 171 

App. 2 United States Constitution, Amendment 14, Section 1 

App. 3 United States Constitution, Article I, Section 8 

App. 4 Texas Constitution, Article VIII, Section 1 

App. 5 

App. 6 

App. 7 

App. 8 

App. 9 

App. 10 

2012 Texas Franchise Tax Report Information and Instructions 

Affidavit of Alan Pasetsky 

Nestle’s Letter of Protest 

Receipt for Nestle’s Payment of Margin Tax 

Affidavit of Donald Deere 

Nestle’s District Court Petition 

AUSTIN_1\668069v1 

53205-1 06/25/2012 

18

Appendix 1 

Texas Tax Code, Chapter 171

TAX CODE CHAPTER 171. FRANCHISE TAX 

http://www.statutes.legis.state.tx.us/Docs/TX/htm/TX.171.htm 

Page 1 of 88 

6/25/2012 

TAX CODE 

TITLE 2. STATE TAXATION 

SUBTITLE F. FRANCHISE TAX 

CHAPTER 171. FRANCHISE TAX 

SUBCHAPTER A. DEFINITIONS; TAX IMPOSED 

Sec. 171.0001. GENERAL DEFINITIONS. In this chapter: 

(1) "Affiliated group" means a group of one or more 

entities in which a controlling interest is owned by a common owner or 

owners, either corporate or noncorporate, or by one or more of the 

member entities. 

(1-a) "Artist" means a natural person or an entity that 

contracts to perform or entertain at a live entertainment event. 

(2) "Assigned employee" has the meaning assigned by 

Section 91.001, Labor Code. 

(3) "Banking corporation" means each state, national, 

domestic, or foreign bank, whether organized under the laws of this 

state, another state, or another country, or under federal law, 

including a limited banking association organized under Subtitle A, 

Title 3, Finance Code, and each bank organized under Section 25(a), 

Federal Reserve Act (12 U.S.C. Sections 611-631) (edge corporations), 

but does not include a bank holding company as that term is defined by 

Section 2, Bank Holding Company Act of 1956 (12 U.S.C. Section 1841). 

(4) "Beginning date" means: 

(A) for a taxable entity chartered or organized in 

this state, the date on which the taxable entity's charter or 

organization takes effect; and 

(B) for any other taxable entity, the date on which 

the taxable entity begins doing business in this state. 

(5) "Charter" includes a limited liability company's 

certificate of organization, a limited partnership's certificate of 

limited partnership, and the registration of a limited liability 

partnership. 

(6) "Client company" means: 

(A) a person that contracts with a license holder




6/25/2012 

under Chapter 91, Labor Code, and is assigned 

employees by the license holder under that contract; or 

(B) a client of a temporary employment service, as 

that term is defined by Section 93.001(2), Labor Code, to whom 

individuals are assigned for a purpose described by that subdivision. 

(7) "Combined group" means taxable entities that are part 

of an affiliated group engaged in a unitary business and that are 

required to file a group report under Section 171.1014. 

(8) "Controlling interest" means: 

(A) for a corporation, either more than 50 percent, 

owned directly or indirectly, of the total combined voting power of 

all classes of stock of the corporation, or more than 50 percent, 

owned directly or indirectly, of the beneficial ownership interest in 

the voting stock of the corporation; 

(B) for a partnership, association, trust, or other 

entity other than a limited liability company, more than 50 percent, 

owned directly or indirectly, of the capital, profits, or beneficial 

interest in the partnership, association, trust, or other entity; and 

(C) for a limited liability company, either more than 

50 percent, owned directly or indirectly, of the total membership 

interest of the limited liability company or more than 50 percent, 

owned directly or indirectly, of the beneficial ownership interest in 

the membership interest of the limited liability company. 

(9) "Internal Revenue Code" means the Internal Revenue 

Code of 1986 in effect for the federal tax year beginning on January 

1, 2007, not including any changes made by federal law after that 

date, and any regulations adopted under that code applicable to that 

period. 

(10) "Lending institution" means an entity that makes 

loans and: 

(A) is regulated by the Federal Reserve Board, the 

Office of the Comptroller of the Currency, the Federal Deposit 

Insurance Corporation, the Commodity Futures Trading Commission, the 

Office of Thrift Supervision, the Texas Department of Banking, the 

Office of Consumer Credit Commissioner, the Credit Union Department, 

or any comparable regulatory body; 

(B) is licensed by, registered with, or otherwise 

regulated by the Department of Savings and Mortgage Lending;




6/25/2012 

(C) is a "broker" or "dealer" as defined by the 

Securities Exchange Act of 1934 at 15 U.S.C. Section 78c; or 

(D) provides financing to unrelated parties solely 

for agricultural production. 

(10-a) "Live entertainment event" means an event that 

occurs on a specific date to which tickets are sold in advance by a 

third-party vendor and at which: 

(A) a natural person or a group of natural persons, 

physically present at the venue, performs for the purpose of 

entertaining a ticket holder who is present at the event; 

(B) a traveling circus or animal show performs for 

the purpose of entertaining a ticket holder who is present at the 

event; or 

(C) a historical, museum-quality artifact is on 

display in an exhibition. 

(10-b) "Live event promotion services" means services 

related to the promotion, coordination, operation, or management of a 

live entertainment event. The term includes services related to: 

(A) the provision of staff for the live entertainment 

event; or 

(B) the scheduling and promotion of an artist 

performing or entertaining at the live entertainment event. 

(11) "Management company" means a corporation, limited 

liability company, or other limited liability entity that conducts all 

or part of the active trade or business of another entity 

(the "managed entity") in exchange for: 

(A) a management fee; and 

(B) reimbursement of specified costs incurred in the 

conduct of the active trade or business of the managed entity, 

including "wages and cash compensation" as determined under Sections 

171.1013(a) and (b). 

(11-a) "Natural person" means a human being or the estate 

of a human being. The term does not include a purely legal entity 

given recognition as the possessor of rights, privileges, or 

responsibilities, such as a corporation, limited liability company, 

partnership, or trust. 

(11-b) "Qualified live event promotion company" means a 

taxable entity that:




6/25/2012 

(A) receives at least 50 percent of the entity's 

annual total revenue from the provision or arrangement for the 

provision of three or more live event promotion services; 

(B) maintains a permanent nonresidential office from 

which the live event promotion services are provided or arranged; 

(C) employs 10 or more full-time employees during all 

or part of the period for which taxable margin is calculated; 

(D) does not provide services for a wedding or 

carnival; and 

(E) is not a movie theater. 

(12) "Retail trade" means: 

(A) the activities described in Division G of the 

1987 Standard Industrial Classification Manual published by the 

federal Office of Management and Budget; and 

(B) apparel rental activities classified as Industry 

5999 or 7299 of the 1987 Standard Industrial Classification Manual 

published by the federal Office of Management and Budget. 

(13) "Savings and loan association" means a savings and 

loan association or savings bank, whether organized under the laws of 

this state, another state, or another country, or under federal law. 

(13-a) "Security," for purposes of Sections 171.1011(g), 

171.1011(g-2), and 171.106(f) only, has the meaning assigned by 

Section 475(c)(2), Internal Revenue Code, and includes instruments 

described by Sections 475(e)(2)(B), (C), and (D) of that code. 

(14) "Shareholder" includes a limited liability company's 

member and a limited banking association's participant. 

(15) "Staff leasing services company" means: 

(A) a business entity that offers staff leasing 

services, as that term is defined by Section 91.001, Labor Code; or 

(B) a temporary employment service, as that term is 

defined by Section 93.001, Labor Code. 

(16) "Total revenue" means the total revenue of a taxable 

entity as determined under Section 171.1011. 

(17) "Unitary business" means a single economic enterprise 

that is made up of separate parts of a single entity or of a commonly 

controlled group of entities that are sufficiently interdependent, 

integrated, and interrelated through their activities so as to provide 

a synergy and mutual benefit that produces a sharing or exchange of




6/25/2012 

value among them and a significant flow of value to the 

separate parts. In determining whether a unitary business exists, the 

comptroller shall consider any relevant factor, including whether: 

(A) the activities of the group members are in the 

same general line, such as manufacturing, wholesaling, retailing of 

tangible personal property, insurance, transportation, or finance; 

(B) the activities of the group members are steps in 

a vertically structured enterprise or process, such as the steps 

involved in the production of natural resources, including 

exploration, mining, refining, and marketing; or 

(C) the members are functionally integrated through 

the exercise of strong centralized management, such as authority over 

purchasing, financing, product line, personnel, and marketing. 

(18) "Wholesale trade" means the activities described in 

Division F of the 1987 Standard Industrial Classification Manual 

published by the federal Office of Management and Budget. 

Amended by: 

Acts 2006, 79th Leg., 3rd C.S., Ch. 1, Sec. 2, eff. January 1, 

2008. 

Acts 2007, 80th Leg., R.S., Ch. 1282, Sec. 1, eff. January 1, 

2008. 

Acts 2011, 82nd Leg., 1st C.S., Ch. 4, Sec. 45.01, eff. January 

1, 2012. 


1, 2012. 

Sec. 171.0002. DEFINITION OF TAXABLE ENTITY. (a) Except as 

otherwise provided by this section, "taxable entity" means a 

partnership, limited liability partnership, corporation, banking 

corporation, savings and loan association, limited liability company, 

business trust, professional association, business association, joint 

venture, joint stock company, holding company, or other legal 

entity. The term includes a combined group. A joint venture does not 

include joint operating or co-ownership arrangements meeting the 

requirements of Treasury Regulation Section 1.761-2(a)(3) that elect 

out of federal partnership treatment as provided by Section 761(a), 

Internal Revenue Code.




6/25/2012 

(b) "Taxable entity" does not include: 

(1) a sole proprietorship; 

(2) a general partnership: 

(A) the direct ownership of which is entirely 

composed of natural persons; and 

(B) the liability of which is not limited under a 

statute of this state or another state, including by registration as a 

limited liability partnership; 

(3) a passive entity as defined by Section 171.0003; or 

(4) an entity that is exempt from taxation under 

Subchapter B. 

(c) "Taxable entity" does not include an entity that is: 

(1) a grantor trust as defined by Sections 671 and 7701(a) 

(30)(E), Internal Revenue Code, all of the grantors and beneficiaries 

of which are natural persons or charitable entities as described in 

Section 501(c)(3), Internal Revenue Code, excluding a trust taxable as 

a business entity pursuant to Treasury Regulation Section 301.7701-4 

(b); 

(2) an estate of a natural person as defined by Section 

7701(a)(30)(D), Internal Revenue Code, excluding an estate taxable as 

a business entity pursuant to Treasury Regulation Section 301.7701-4 

(b); 

(3) an escrow; 

(4) a real estate investment trust (REIT) as defined by 

Section 856, Internal Revenue Code, and its "qualified REIT 

subsidiary" entities as defined by Section 856(i)(2), Internal Revenue 

Code, provided that: 

(A) a REIT with any amount of its assets in direct 

holdings of real estate, other than real estate it occupies for 

business purposes, as opposed to holding interests in limited 

partnerships or other entities that directly hold the real estate, is 

a taxable entity; and 

(B) a limited partnership or other entity that 

directly holds the real estate as described in Paragraph (A) is not 

exempt under this subdivision, without regard to whether a REIT holds 

an interest in it; 

(5) a real estate mortgage investment conduit (REMIC), as 

defined by Section 860D, Internal Revenue Code;




6/25/2012 

(6) a nonprofit self-insurance trust created under Chapter 

2212, Insurance Code, or a predecessor statute; 

(7) a trust qualified under Section 401(a), Internal 

Revenue Code; 

(8) a trust or other entity that is exempt under Section 

501(c)(9), Internal Revenue Code; or 

(9) an unincorporated entity organized as a political 

committee under the Election Code or the provisions of the Federal 

Election Campaign Act of 1971 (2 U.S.C. Section 431 et seq.). 

(d) An entity that can file as a sole proprietorship for 

federal tax purposes is not a sole proprietorship for purposes of 

Subsection (b)(1) and is not exempt under that subsection if the 

entity is formed in a manner under the statutes of this state, another 

state, or a foreign country that limit the liability of the entity. 

Amended by: 


2008. 


1, 2012. 

Sec. 171.0003. DEFINITION OF PASSIVE ENTITY. (a) An entity is 

a passive entity only if: 

(1) the entity is a general or limited partnership or a 

trust, other than a business trust; 

(2) during the period on which margin is based, the 

entity's federal gross income consists of at least 90 percent of the 

following income: 

(A) dividends, interest, foreign currency exchange 

gain, periodic and nonperiodic payments with respect to notional 

principal contracts, option premiums, cash settlement or termination 

payments with respect to a financial instrument, and income from a 

limited liability company; 

(B) distributive shares of partnership income to the 

extent that those distributive shares of income are greater than zero; 

(C) capital gains from the sale of real property, 

gains from the sale of commodities traded on a commodities exchange, 

and gains from the sale of securities; and




6/25/2012 

(D) royalties, bonuses, or delay rental income from 

mineral properties and income from other nonoperating mineral 

interests; and 

(3) the entity does not receive more than 10 percent of 

its federal gross income from conducting an active trade or business. 

(a-1) In making the computation under Subsection (a)(3), income 

described by Subsection (a)(2) may not be treated as income from 

conducting an active trade or business. 

(b) The income described by Subsection (a)(2) does not include: 

(1) rent; or 

(2) income received by a nonoperator from mineral 

properties under a joint operating agreement if the nonoperator is a 

member of an affiliated group and another member of that group is the 

operator under the same joint operating agreement. 

Amended by: 


2008. 


2008. 

Sec. 171.0004. DEFINITION OF CONDUCTING ACTIVE TRADE OR 

BUSINESS. (a) The definition in this section applies only to Section 

171.0003. 

(b) An entity conducts an active trade or business if: 

(1) the activities being carried on by the entity include 

one or more active operations that form a part of the process of 

earning income or profit; and 

(2) the entity performs active management and operational 

functions. 

(c) Activities performed by the entity include activities 

performed by persons outside the entity, including independent 

contractors, to the extent the persons perform services on behalf of 

the entity and those services constitute all or part of the entity's 

trade or business. 

(d) An entity conducts an active trade or business if assets, 

including royalties, patents, trademarks, and other intangible assets, 

held by the entity are used in the active trade or business of one or




6/25/2012 

more related entities. 

(e) For purposes of this section: 

(1) the ownership of a royalty interest or a nonoperating 

working interest in mineral rights does not constitute conduct of an 

active trade or business; 

(2) payment of compensation to employees or independent 

contractors for financial or legal services reasonably necessary for 

the operation of the entity does not constitute conduct of an active 

trade or business; and 

(3) holding a seat on the board of directors of an entity 

does not by itself constitute conduct of an active trade or business. 

Amended by: 


2008. 


2008. 

Sec. 171.001. TAX IMPOSED. (a) A franchise tax is imposed 

on each taxable entity that does business in this state or that is 

chartered or organized in this state. 

(b) The tax imposed under this chapter extends to the limits 

of the United States Constitution and the federal law adopted under 

the United States Constitution. 

(c) The tax imposed under this section or Section 171.0011 is 

not imposed on an entity if, during the period on which the report is 

based, the entity qualifies as a passive entity as defined by Section 

171.0003. 

Acts 1981, 67th Leg., p. 1691, ch. 389, Sec. 1, eff. Jan. 1, 1982. 

Amended by Acts 1991, 72nd Leg., ch. 901, Sec. 53(a), eff. Aug. 26, 

1991; Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.01, eff. Jan. 1, 

1992; Acts 1993, 73rd Leg., ch. 765, Sec. 7, eff. Aug. 30, 1993; 

Acts 1995, 74th Leg., ch. 914, Sec. 12, eff. Sept. 1, 1995; Acts 

1995, 74th Leg., ch. 1002, Sec. 1, eff. Jan. 1, 1996; Acts 1997, 75th 

Leg., ch. 1185, Sec. 1, eff. Jan. 1, 1998; Acts 1999, 76th Leg., ch. 

184, Sec. 1, eff. Jan. 1, 2000; Acts 2003, 78th Leg., ch. 209, Sec. 

31, 32, eff. Oct. 1, 2003. 

Amended by:




6/25/2012 


2008. 


2008. 

Sec. 171.0011. ADDITIONAL TAX. (a) Except as provided by 

Section 171.001(c), an additional tax is imposed on a taxable entity 

that for any reason becomes no longer subject to the tax imposed under 

this chapter. 

(b) The additional tax is equal to the appropriate rate under 

Section 171.002 of the taxable entity's taxable margin computed on the 

period beginning on the day after the last day for which the tax 

imposed on taxable margin or net taxable earned surplus was computed 

and ending on the date the taxable entity is no longer subject to the 

tax imposed under this chapter. 

(c) The additional tax imposed and any report required by the 

comptroller are due on the 60th day after the date the taxable entity 

becomes no longer subject to the tax imposed under this chapter. 

(d) Except as otherwise provided by this section, the 

provisions of this chapter apply to the tax imposed under this section. 

(e) Repealed by Acts 2007, 80th Leg., R.S., Ch. 1282, Sec. 37 

(1), eff. January 1, 2008. 

Added by Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.02, eff. Jan. 

1, 1992. Amended by Acts 1993, 73rd Leg., ch. 546, Sec. 1, eff. Jan. 

1, 1994. 

Amended by: 


2008. 


2008. 

Acts 2007, 80th Leg., R.S., Ch. 1282, Sec. 37(1), eff. January 

1, 2008. 

Sec. 171.002. RATES; COMPUTATION OF TAX. (a) Subject to 

Sections 171.003 and 171.1016 and except as provided by Subsection 

(b), the rate of the franchise tax is one percent of taxable margin. 

(b) Subject to Sections 171.003 and 171.1016, the rate of the




6/25/2012 

franchise tax is 0.5 percent of taxable margin for those taxable 

entities primarily engaged in retail or wholesale trade. 

(c) A taxable entity is primarily engaged in retail or 

wholesale trade only if: 

(1) the total revenue from its activities in retail or 

wholesale trade is greater than the total revenue from its activities 

in trades other than the retail and wholesale trades; 

(2) except as provided by Subsection (c-1), less than 50 

percent of the total revenue from activities in retail or wholesale 

trade comes from the sale of products it produces or products produced 

by an entity that is part of an affiliated group to which the taxable 

entity also belongs; and 

(3) the taxable entity does not provide retail or 

wholesale utilities, including telecommunications services, 

electricity, or gas. 

(c-1) Subsection (c)(2) does not apply to total revenue from 

activities in a retail trade described by Major Group 58 of the 

Standard Industrial Classification Manual published by the federal 

Office of Management and Budget. 

Text of subsection effective until January 1, 2014, as provided by 

Acts 2011, 82nd Leg., 1st C.S., Ch. 4, Art. 37 

(d) A taxable entity is not required to pay any tax and is not 

considered to owe any tax for a period if: 

(1) the amount of tax computed for the taxable entity is 

less than $1,000; or 

(2) the amount of the taxable entity's total revenue from 

its entire business is less than or equal to $1 million or the amount 

determined under Section 171.006 per 12-month period on which margin 

is based. 

Text of subsection effective on January 1, 2014, as provided by Acts 

2011, 82nd Leg., 1st C.S., Ch. 4, Art. 37 

(d) A taxable entity is not required to pay any tax and is not 

considered to owe any tax for a period if:




6/25/2012 

(1) the amount of tax computed for the taxable entity is 

less than $1,000; or 

(2) the amount of the taxable entity's total revenue from 

its entire business is less than or equal to $600,000 or the amount 

determined under Section 171.006 per 12-month period on which margin 

is based. 


Amended by Acts 1984, 68th Leg., 2nd C.S., ch. 31, art. 3, part D, 

Sec. 1, eff. May 1, 1985; Acts 1987, 70th Leg., 2nd C.S., ch. 5, art. 

2, pt. 1, Sec. 1, eff. Jan. 1, 1988; Acts 1987, 70th Leg., 2nd C.S., 

ch. 5, art. 2, pt. 2, Sec. 1, eff. Jan. 1, 1990; Acts 1991, 72nd 

Leg., 1st C.S., ch. 5, Sec. 8.031(a), eff. Jan. 1, 1992; Acts 1997, 

75th Leg., ch. 1185, Sec. 2, eff. Jan. 1, 1998; Acts 1999, 76th Leg., 

ch. 394, Sec. 10, eff. Jan. 1, 2000. 

Amended by: 


2008. 


2008. 

Acts 2009, 81st Leg., R.S., Ch. 286, Sec. 1(a), eff. January 1, 

2010. 


2012. 

Sec. 171.0021. DISCOUNTS FROM TAX LIABILITY FOR SMALL 

BUSINESSES. 

Text of subsection effective until January 1, 2014, as provided by 

Acts 2011, 82nd Leg., 1st C.S., Ch. 4, Art. 37 

(a) A taxable entity is entitled to a discount of the tax 

imposed under this chapter that the taxable entity is required to pay 

after determining its taxable margin under Section 171.101, applying 

the appropriate rate of the tax under Section 171.002(a) or (b), and 

subtracting any other allowable credits, as follows: 

(1) for a taxable entity for which the total revenue from 

its entire business is greater than $300,000 but less than $400,000,




6/25/2012 

the taxable entity is entitled to a discount of 80 percent; 


its entire business is equal to or greater than $400,000 but less than 

$500,000, the taxable entity is entitled to a discount of 60 percent; 



$700,000, the taxable entity is entitled to a discount of 40 percent; 

and 



$900,000, the taxable entity is entitled to a discount of 20 percent. 

Text of subsection effective on January 1, 2014, as provided by Acts 

2011, 82nd Leg., 1st C.S., Ch. 4, Art. 37 

(a) A taxable entity is entitled to a discount of the tax 

imposed under this chapter that the taxable entity is required to pay 

after determining its taxable margin under Section 171.101, applying 

the appropriate rate of the tax under Section 171.002(a) or (b), and 

subtracting any other allowable credits, as follows: 


its entire business is greater than $600,000 but less than $700,000, 

the taxable entity is entitled to a discount of 40 percent; and 



$900,000, the taxable entity is entitled to a discount of 20 percent. 

(b) The amounts under Subsection (a) are subject to adjustment 

as provided by Section 171.006. 

Added by Acts 2007, 80th Leg., R.S., Ch. 1282, Sec. 8, eff. January 1, 

2008. 

Amended by: 


2012. 

Sec. 171.003. INCREASE IN RATE REQUIRES VOTER APPROVAL. (a) 

An increase in a rate provided by Section 171.002(a) or (b) takes 

effect only if approved by a majority of the registered voters voting




6/25/2012 

in a statewide referendum held on the question of increasing the 

rate. The referendum must specify the increased rate or rates. 

(b) This section does not apply to a decrease in a rate 

provided by Section 171.002(a) or (b). If a rate is decreased, this 

section applies to any subsequent increase in that rate. 

(c) This section does not apply to any change in the tax 

imposed by this chapter in relation to: 

(1) the manner in which the tax is computed, including the 

determination of margin and taxable margin and any allowable 

deductions or credits; 

(2) the manner in which the tax is administered or 

enforced; or 

(3) the applicability of the tax to certain entities. 

Amended by: 


2008. 

Sec. 171.006. ADJUSTMENT OF ELIGIBILITY FOR NO TAX DUE, 

DISCOUNTS, AND COMPENSATION DEDUCTION. (a) In this 

section, "consumer price index" means the average over a state fiscal 

biennium of the Consumer Price Index for All Urban Consumers (CPI-U), 

U.S. City Average, published monthly by the United States Bureau of 

Labor Statistics, or its successor in function. 

(b) Beginning in 2010, on January 1 of each even-numbered year, 

the amounts prescribed by Sections 171.002(d)(2), 171.0021, and 

171.1013(c) are increased or decreased by an amount equal to the 

amount prescribed by those sections on December 31 of the preceding 

year multiplied by the percentage increase or decrease during the 

preceding state fiscal biennium in the consumer price index and 

rounded to the nearest $10,000. 

(c) The amounts determined under Subsection (b) apply to a 

report originally due on or after the date the determination is made. 

(d) The comptroller shall make the determination required by 

this section and may adopt rules related to making that determination. 

(e) A determination by the comptroller under this section is 

final and may not be appealed. 

Amended by:




6/25/2012 


2008. 


2008. 


2008. 

SUBCHAPTER B. EXEMPTIONS 

Sec. 171.051. APPLICATION FOR EXEMPTION; EFFECTIVE DATE. (a) 

Except as provided by Subsection (c) of this section, a corporation 

may apply for an exemption under this subchapter by filing with the 

comptroller, as provided by the rules of the comptroller, evidence of 

the corporation's qualifications for the exemption. 

(b) If a corporation files the evidence establishing the 

corporation's qualifications for an exemption within 15 months after 

the last day of the calendar month in which the corporation's charter 

or certificate of authority is dated, the exemption is recognized, if 

it is finally established, as of the date of the charter or 

certificate. 

(c) The exemption provided by Section 171.063 of this code must 

be established as provided by that section, but a corporation may 

apply for and receive other exemptions as provided by this section. 

(d) Neither this section nor Section 171.063 of this code 

requires a corporation that was granted a franchise tax exemption 

before September 1, 1975, that was entitled to the exemption on 

September 1, 1975, and that has held the exemption since that date, to 

file an additional application, report, letter of exemption, or other 

evidence of qualification for that exemption. 


Sec. 171.052. CERTAIN CORPORATIONS. (a) Except as provided by 

Subsection (c), an insurance organization, title insurance company, or 

title insurance agent authorized to engage in insurance business in 

this state now required to pay an annual tax under Chapter 4 or 9, 

Insurance Code, measured by its gross premium receipts is exempted 

from the franchise tax. A nonadmitted insurance organization that is 

required to pay a gross premium receipts tax during a tax year is




6/25/2012 

exempted from the franchise tax for that same tax year. 

(b) Farm mutuals, local mutual aid associations, and burial 

associations are not subject to the franchise tax. 

(c) An entity is subject to the franchise tax for a tax year in 

any portion of which the entity is in violation of an order issued by 

the Texas Department of Insurance under Section 2254.003(b), Insurance 

Code, that is final after appeal or that is no longer subject to 

appeal. 


Amended by Acts 1985, 69th Leg., ch. 30, Sec. 1, eff. Aug. 26, 1985; 

Acts 1993, 73rd Leg., ch. 546, Sec. 2, eff. Jan. 1, 1994; Acts 2001, 

77th Leg., ch. 1275, Sec. 1, eff. Sept. 1, 2001; Acts 2003, 78th 

Leg., ch. 209, Sec. 33, eff. Oct. 1, 2003. 

Amended by: 


2008. 

Sec. 171.0525. EXEMPTION--CERTAIN INSURANCE COMPANIES. A 

corporation that is a farm mutual insurance company, local mutual aid 

association, or burial association is exempted from the franchise tax. 

Added by Acts 2003, 78th Leg., ch. 1274, Sec. 23, eff. April 1, 2005. 

Sec. 171.053. EXEMPTION--RAILWAY TERMINAL CORPORATION. A 

corporation organized as a railway terminal corporation and having no 

annual net income from its business is exempted from the franchise tax. 


Sec. 171.055. EXEMPTION--OPEN-END INVESTMENT COMPANY. An openend 

investment company, as defined by the Investment Company Act of 

1940 (Section 80a-1 et seq., 15 U.S.C.), that is subject to that Act 

and that is registered under The Securities Act (Article 581-1 et 

seq., Vernon's Texas Civil Statutes) is exempted from the franchise 

tax. 

Acts 1981, 67th Leg., p. 1693, ch. 389, Sec. 1, eff. Jan. 1, 1982.




6/25/2012 

Sec. 171.056. EXEMPTION--CORPORATION WITH BUSINESS INTEREST IN 

SOLAR ENERGY DEVICES. A corporation engaged solely in the business of 

manufacturing, selling, or installing solar energy devices, as defined 

by Section 171.107 of this code, is exempted from the franchise tax. 


Sec. 171.057. EXEMPTION--NONPROFIT CORPORATION ORGANIZED TO 

PROMOTE COUNTY, CITY, OR ANOTHER AREA. A nonprofit corporation 

organized solely to promote the public interest of a county, city, 

town, or another area in the state is exempted from the franchise tax. 


Sec. 171.058. EXEMPTION--NONPROFIT CORPORATION ORGANIZED FOR 

RELIGIOUS PURPOSES. A nonprofit corporation organized for the purpose 

of religious worship is exempted from the franchise tax. 



PROVIDE BURIAL PLACES. A nonprofit corporation organized to provide 

places of burial is exempted from the franchise tax. 



AGRICULTURAL PURPOSES. A nonprofit corporation organized to hold 

agricultural fairs and encourage agricultural pursuits is exempted 

from the franchise tax. 



EDUCATIONAL PURPOSES. A nonprofit corporation organized solely for 

educational purposes is exempted from the franchise tax. 


Amended by Acts 1995, 74th Leg., ch. 1002, Sec. 3, eff. Jan. 1, 1996.




6/25/2012 


PUBLIC CHARITY. A nonprofit corporation organized for purely public 

charity is exempted from the franchise tax. 


Sec. 171.063. EXEMPTION-NONPROFIT CORPORATION EXEMPT FROM 

FEDERAL INCOME TAX. (a) The following corporations are exempt from 

the franchise tax: 

(1) a nonprofit corporation exempted from the federal 

income tax under Section 501(c)(3), (4), (5), (6), (7), (8), (10), or 

(19), Internal Revenue Code which in the case of a nonprofit hospital 

means a hospital providing community benefits that include charity 

care and government-sponsored indigent health care as set forth in 

Subchapter D, Chapter 311, Health and Safety Code; 

(2) a corporation exempted under Section 501(c)(2) or 

(25), Internal Revenue Code, if the corporation or corporations for 

which it holds title to property is either exempt from or not subject 

to the franchise tax; and 

(3) a corporation exempted from federal income tax under 

Section 501(c)(16), Internal Revenue Code. 

(b) A corporation is entitled to an exemption under this 

section based on the corporation's exemption from the federal income 

tax if the corporation files with the comptroller evidence 

establishing the corporation's exemption. 

(c) A corporation's exemption under Subsection (b) of this 

section is established by furnishing the comptroller with a copy of 

the Internal Revenue Service's letter of exemption issued to the 

corporation. 

(d) If the Internal Revenue Service has not timely issued to a 

corporation a letter of exemption, evidence establishing the 

corporation's provisional exemption under this section is sufficient 

if the corporation timely files with the comptroller evidence that the 

corporation has applied in good faith for the federal tax exemption. 

The evidence must be filed not later than the 15th month after the day 

that is the last day of a calendar month and that is nearest to the 

date of the corporation's charter or certificate of authority. 

(e) An exemption established under Subsection (c) or (d) of




6/25/2012 

this section is to be recognized, after it is finally 

established, as of the date of the corporation's charter or 

certificate of authority. 

(f) If a corporation timely files evidence with the comptroller 

under Subsection (d) of this section that it has applied for a federal 

tax exemption and if the application is finally denied by the Internal 

Revenue Service, this chapter does not impose a penalty on the 

corporation from the date of its charter or certificate of authority 

to the date of the final denial. 

(g) If a corporation's federal tax exemption is withdrawn by 

the Internal Revenue Service for failure of the corporation to qualify 

or maintain its qualification for the exemption, the corporation's 

exemption under this section ends on the effective date of that 

withdrawal by the Internal Revenue Service. The effective date of the 

withdrawal is considered the corporation's beginning date for purposes 

of determining the corporation's privilege periods and for all other 

purposes of this chapter. 

(h) A requirement that a nonprofit hospital provide charity 

care and community benefits under Subsection (a)(1) may be satisfied 

by a donation of money to the Texas Healthy Kids Corporation 

established by Chapter 109, Health and Safety Code, if: 

(1) the money is donated to be used for a purpose 

described by Section 109.033(c), Health and Safety Code; and 

(2) not more than 10 percent of the charity care required 

under any provision of Section 311.045, Health and Safety Code, may be 

satisfied by the donation. 



Acts 1989, 71st Leg., ch. 239, Sec. 1, eff. June 2, 1989; Acts 1991, 

72nd Leg., 1st C.S., ch. 5, Sec. 8.04, eff. Jan. 1, 1992; Acts 1995, 

74th Leg., ch. 781, Sec. 6, eff. Sept. 1, 1995; Acts 1995, 74th Leg., 

ch. 1002, Sec. 4, eff. Jan. 1, 1996; Acts 1997, 75th Leg., ch. 550, 

Sec. 3, eff. Jan. 1, 1998; Acts 1997, 75th Leg., ch. 1185, Sec. 3, 

eff. Jan. 1, 1998; Acts 1999, 76th Leg., ch. 1467, Sec. 2.50, 2.51, 

eff. Jan. 1, 2000. 

Sec. 171.064. EXEMPTION--NONPROFIT CORPORATION ORGANIZED FOR




6/25/2012 

CONSERVATION PURPOSES. A nonprofit corporation organized solely 

to educate the public about the protection and conservation of fish, 

game, other wildlife, grasslands, or forests is exempted from the 

franchise tax. 


Amended by Acts 1995, 74th Leg., ch. 1002, Sec. 5, eff. Jan. 1, 1996. 


PROVIDE WATER SUPPLY OR SEWER SERVICES. A nonprofit water supply or 

sewer service corporation organized in behalf of a city or town under 

Chapter 67, Water Code, is exempted from the franchise tax. 


Amended by Acts 1999, 76th Leg., ch. 62, Sec. 18.47, eff. Sept. 1, 

1999. 

Sec. 171.066. EXEMPTION--NONPROFIT CORPORATION INVOLVED WITH 

CITY NATURAL GAS FACILITY. A nonprofit corporation organized to 

construct, acquire, own, lease, or operate a natural gas facility in 

behalf and for the benefit of a city or residents of a city is 

exempted from the franchise tax. 



PROVIDE CONVALESCENT HOMES FOR ELDERLY. A nonprofit corporation 

organized to provide a convalescent home or other housing for persons 

who are at least 62 years old or who are handicapped or disabled is 

exempted from the franchise tax, whether or not the corporation is 

organized for purely public charity. 



PROVIDE COOPERATIVE HOUSING. A nonprofit corporation engaged solely 

in the business of owning residential property for the purpose of 

providing cooperative housing for persons is exempted from the 

franchise tax.




6/25/2012 


Sec. 171.069. EXEMPTION--MARKETING ASSOCIATIONS. A marketing 

association incorporated under Chapter 52, Agriculture Code, is 




Sec. 171.070. EXEMPTION--LODGES. A lodge incorporated under 

Article 1399 et seq., Revised Civil Statutes of Texas, 1925, is 



Sec. 171.071. EXEMPTION--FARMERS' COOPERATIVE SOCIETY. A 

farmers' cooperative society incorporated under Chapter 51, 

Agriculture Code, is exempted from the franchise tax. 



Sec. 171.072. EXEMPTION--HOUSING FINANCE CORPORATION. A 

housing finance corporation incorporated under the Texas Housing 

Finance Corporations Act (Chapter 394, Local Government Code) is 



Amended by Acts 1987, 70th Leg., ch. 149, Sec. 44, eff. Sept. 1, 1987. 

Sec. 171.073. EXEMPTION--HOSPITAL LAUNDRY COOPERATIVE 

ASSOCIATION. A hospital laundry cooperative association incorporated 

under Subchapter A, Chapter 301, Health and Safety Code, is exempted 

from the franchise tax. 


Amended by Acts 1991, 72nd Leg., ch. 14, Sec. 284(16), eff. Sept. 1, 

1991.




6/25/2012 

Sec. 171.074. EXEMPTION--DEVELOPMENT CORPORATION. A nonprofit 

corporation organized under the Development Corporation Act (Subtitle 

C1, Title 12, Local Government Code) is exempted from the franchise 

tax. 


Amended by Acts 1983, 68th Leg., p. 1039, ch. 235, art. 7, Sec. 2(a), 

eff. Sept. 1, 1983. 

Amended by: 

Acts 2007, 80th Leg., R.S., Ch. 885, Sec. 3.72, eff. April 1, 

2009. 

Sec. 171.075. EXEMPTION--COOPERATIVE ASSOCIATION. A 

cooperative association incorporated under Subchapter B, Chapter 301, 

Health and Safety Code, or under the Cooperative Association Act 

(Article 1396--50.01, Vernon's Texas Civil Statutes) is exempted from 

the franchise tax. 


Amended by Acts 1991, 72nd Leg., ch. 14, Sec. 284(29), eff. Sept. 1, 

1991. 

Sec. 171.076. EXEMPTION--COOPERATIVE CREDIT ASSOCIATION. A 

cooperative credit association incorporated under Chapter 55, 

Agriculture Code, an organization organized under 12 U.S.C. Section 

2071, or an agricultural credit association regulated by the Farm 

Credit Administration is exempted from the franchise tax. 


Amended by Acts 1995, 74th Leg., ch. 1002, Sec. 8, eff. Jan. 1, 1996; 

Acts 2001, 77th Leg., ch. 1263, Sec. 56, eff. Sept. 1, 2001. 

Sec. 171.077. EXEMPTION--CREDIT UNION. A credit union 

incorporated under Subtitle D, Title 3, Finance Code, is exempted from 



Amended by Acts 1999, 76th Leg., ch. 62, Sec. 7.93, eff. Sept. 1, 1999.




6/25/2012 

Sec. 171.079. EXEMPTION--ELECTRIC COOPERATIVE CORPORATION. An 

electric cooperative corporation incorporated under Chapter 161, 

Utilities Code, that is not a participant in a joint powers agency is 




1995; Acts 1999, 76th Leg., ch. 62, Sec. 18.48, eff. Sept. 1, 1999. 

Sec. 171.080. EXEMPTION--TELEPHONE COOPERATIVE CORPORATIONS. A 

telephone cooperative corporation incorporated under Chapter 162, 

Utilities Code, is exempted from the franchise tax. 



1999. 

Sec. 171.081. EXEMPTION--CORPORATION EXEMPT BY ANOTHER LAW. 

Another statute that exempts a corporation from the franchise tax is 

not affected by this chapter. 


Sec. 171.082. EXEMPTION--CERTAIN HOMEOWNERS' ASSOCIATIONS. 

(a) A nonprofit corporation is exempted from the franchise tax if: 

(1) the corporation is organized and operated primarily to 

obtain, manage, construct, and maintain the property in or of a 

residential condominium or residential real estate development; and 

(2) the owners of individual lots, residences, or 

residential units control at least 51 percent of the votes of the 

corporation and that voting control, however acquired, is not held by: 

(A) a single individual or family; or 

(B) one or more developers, declarants, banks, 

investors, or other similar parties. 

(b) For purposes of this section, a condominium project is 

considered residential if the project is legally restricted for use as 

residences. A real estate development is considered residential if 

the property is legally restricted for use as residences.




6/25/2012 

Acts 1981, 67th Leg., p. 2758, ch. 752, Sec. 4, eff. May 1, 1982. 


Sec. 171.083. EXEMPTION--EMERGENCY MEDICAL SERVICE 

CORPORATION. A nonprofit corporation that is organized for the sole 

purpose of and engages exclusively in providing emergency medical 

services, including rescue and ambulance services, is exempted from 


Acts 1981, 67th Leg., p. 2785, ch. 752, Sec. 14, eff. May 1, 1982. 

Sec. 171.084. EXEMPTION--CERTAIN TRADE SHOW PARTICIPANTS. (a) 

A corporation is exempted from the franchise tax if: 

(1) the only business activity conducted by or on behalf 

of the corporation in this state is related to the solicitation of 

orders conducted by representatives of the corporation who: 

(A) solicit orders of personal property to be sent 

outside this state for approval or rejection by the corporation and, 

if approved, to be filled by shipment or delivery from a point outside 

this state; or 

(B) solicit orders in the name of or for the benefit 

of a customer or prospective customer of the corporation, if the 

orders are filled or intended to be filled by the customer or 

prospective customer of the corporation by making orders to the 

corporation described by Paragraph (A) of this subdivision; and 

(2) the solicitation of orders is conducted on an 

occasional basis at trade shows: 

(A) promoted by wholesale centers; 

(B) promoted by nonprofit trade or professional 

associations for the purpose of facilitating the solicitation of 

orders from members of the trade or profession; or 

(C) held at municipally or county-owned convention 

centers or meeting facilities. 

(b) For purposes of this section, the solicitation of orders is 

conducted on an occasional basis only if the solicitation is conducted 

during not more than five periods during the business period of the 

corporation to which a tax report applies and if no single period 

during which solicitation is conducted is longer than 120 hours.




6/25/2012 

(c) In this section, "wholesale center" means a permanent 

wholesale facility that has permanent tenants and that promotes at 

least four national or regional trade shows in a calendar year. A 

tenant leasing space at a wholesale center for a period longer than 

the period prescribed by Subsection (b) may qualify for the exemption 

provided by this section only if the tenant solicits orders on an 

occasional basis at the trade show as prescribed by Subsection (b). 

Added by Acts 1987, 70th Leg., ch. 778, Sec. 1, eff. May 1, 1988. 

Amended by Acts 2003, 78th Leg., ch. 209, Sec. 34, eff. Oct. 1, 2003. 

Sec. 171.085. EXEMPTION; RECYCLING OPERATION. A corporation 

engaged solely in the business of recycling sludge, as defined by 

Section 361.003, Solid Waste Disposal Act (Chapter 361, Health and 

Safety Code), is exempted from the franchise tax. 

Added by Acts 1989, 71st Leg., ch. 641, Sec. 3, eff. Sept. 1, 1991. 

Amended by Acts 1990, 71st Leg., 6th C.S., ch. 10, art. 2, Sec. 33, 

eff. Sept. 6, 1990. 


STUDENT LOAN FUNDS OR STUDENT SCHOLARSHIP PURPOSES. A nonprofit 

corporation organized solely to provide a student loan fund or student 

scholarships is exempted from the franchise tax. 

Added by Acts 1995, 74th Leg., ch. 1002, Sec. 10, eff. Jan. 1, 1996. 

Sec. 171.088. EXEMPTION--NONCORPORATE ENTITY ELIGIBLE FOR 

CERTAIN EXEMPTIONS. An entity that is not a corporation but that, 

because of its activities, would qualify for a specific exemption 

under this subchapter if it were a corporation, qualifies for the 

exemption and is exempt from the tax in the same manner and under the 

same conditions as a corporation. 

Added by Acts 2006, 79th Leg., 3rd C.S., Ch. 1, Sec. 4, eff. January 

1, 2008. 

SUBCHAPTER C. DETERMINATION OF TAXABLE MARGIN; ALLOCATION AND 

APPORTIONMENT




6/25/2012 

Sec. 171.101. DETERMINATION OF TAXABLE MARGIN. (a) The 

taxable margin of a taxable entity is computed by: 

(1) determining the taxable entity's margin, which is the 

lesser of: 

(A) 70 percent of the taxable entity's total revenue 

from its entire business, as determined under Section 171.1011; or 

(B) an amount computed by: 

(i) determining the taxable entity's total 

revenue from its entire business, under Section 171.1011; 

(ii) subtracting, at the election of the taxable 

entity, either: 

(a) cost of goods sold, as determined under 

Section 171.1012; or 

(b) compensation, as determined under 

Section 171.1013; and 

(iii) subtracting, in addition to any 

subtractions made under Subparagraph (ii)(a) or (b), compensation, as 

determined under Section 171.1013, paid to an individual during the 

period the individual is serving on active duty as a member of the 

armed forces of the United States if the individual is a resident of 

this state at the time the individual is ordered to active duty and 

the cost of training a replacement for the individual; 

(2) apportioning the taxable entity's margin to this state 

as provided by Section 171.106 to determine the taxable entity's 

apportioned margin; and 

(3) subtracting from the amount computed under Subdivision 

(2) any other allowable deductions to determine the taxable entity's 

taxable margin. 

(b) Notwithstanding Subsection (a)(1)(B)(ii), a staff leasing 

services company may subtract only compensation as determined under 

Section 171.1013. 

(c) In making a computation under this section, an amount that 

is zero or less is computed as a zero. 

(d) An election under Subsection (a)(1)(B)(ii) shall be made by 

the taxable entity on its annual report and is effective only for that 

annual report. A taxable entity shall notify the comptroller of its 

election not later than the due date of the annual report.




6/25/2012 


Amended by Acts 1991, 72nd Leg., ch. 901, Sec. 53(b), eff. Aug. 26, 

1991; Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.05, eff. Jan. 1, 

1992. 

Amended by: 


2008. 


2008. 

Sec. 171.1011. DETERMINATION OF TOTAL REVENUE FROM ENTIRE 

BUSINESS. (a) In this section, a reference to an Internal Revenue 

Service form includes a variant of the form. For example, a reference 

to Form 1120 includes Forms 1120-A, 1120-S, and other variants of Form 

1120. A reference to an Internal Revenue Service form also includes 

any subsequent form with a different number or designation that 

substantially provides the same information as the original form. 

(b) In this section, a reference to an amount reportable as 

income on a line number on an Internal Revenue Service form is the 

amount entered to the extent the amount entered complies with federal 

income tax law and includes the corresponding amount entered on a 

variant of the form, or a subsequent form, with a different line 

number to the extent the amount entered complies with federal income 

tax law. 

(c) Except as provided by this section, and subject to Section 

171.1014, for the purpose of computing its taxable margin under 

Section 171.101, the total revenue of a taxable entity is: 

(1) for a taxable entity treated for federal income tax 

purposes as a corporation, an amount computed by: 

(A) adding: 

(i) the amount reportable as income on line 1c, 

Internal Revenue Service Form 1120; 

(ii) the amounts reportable as income on lines 4 

through 10, Internal Revenue Service Form 1120; and 

(iii) any total revenue reported by a lower tier 

entity as includable in the taxable entity's total revenue under 

Section 171.1015(b); and 

(B) subtracting:




6/25/2012 

(i) bad debt expensed for federal income tax 

purposes that corresponds to items of gross receipts included in 

Subsection (c)(1)(A) for the current reporting period or a past 

reporting period; 

(ii) to the extent included in Subsection (c)(1) 

(A), foreign royalties and foreign dividends, including amounts 

determined under Section 78 or Sections 951-964, Internal Revenue Code; 

(iii) to the extent included in Subsection (c)(1) 

(A), net distributive income from a taxable entity treated as a 

partnership or as an S corporation for federal income tax purposes; 

(iv) allowable deductions from Internal Revenue 

Service Form 1120, Schedule C, to the extent the relating dividend 

income is included in total revenue; 

(v) to the extent included in Subsection (c)(1) 

(A), items of income attributable to an entity that is a disregarded 

entity for federal income tax purposes; and 

(vi) to the extent included in Subsection (c)(1) 

(A), other amounts authorized by this section; 

(2) for a taxable entity treated for federal income tax 

purposes as a partnership, an amount computed by: 

(A) adding: 

(i) the amount reportable as income on line 1c, 

Internal Revenue Service Form 1065; 

(ii) the amounts reportable as income on lines 

4, 6, and 7, Internal Revenue Service Form 1065; 

(iii) the amounts reportable as income on lines 

3a and 5 through 11, Internal Revenue Service Form 1065, Schedule K; 

(iv) the amounts reportable as income on line 

17, Internal Revenue Service Form 8825; 

(v) the amounts reportable as income on line 11, 

plus line 2 or line 45, Internal Revenue Service Form 1040, Schedule 

F; and 

(vi) any total revenue reported by a lower tier 

entity as includable in the taxable entity's total revenue under 

Section 171.1015(b); and 

(B) subtracting: 

(i) bad debt expensed for federal income tax 

purposes that corresponds to items of gross receipts included in




6/25/2012 

Subsection (c)(2)(A) for the current reporting 

period or a past reporting period; 

(ii) to the extent included in Subsection (c)(2) 

(A), foreign royalties and foreign dividends, including amounts 

determined under Section 78 or Sections 951-964, Internal Revenue Code; 

(iii) to the extent included in Subsection (c)(2) 

(A), net distributive income from a taxable entity treated as a 

partnership or as an S corporation for federal income tax purposes; 

(iv) to the extent included in Subsection (c)(2) 

(A), items of income attributable to an entity that is a disregarded 

entity for federal income tax purposes; and 

(v) to the extent included in Subsection (c)(2) 

(A), other amounts authorized by this section; or 

(3) for a taxable entity other than a taxable entity 

treated for federal income tax purposes as a corporation or 

partnership, an amount determined in a manner substantially equivalent 

to the amount for Subdivision (1) or (2) determined by rules that the 

comptroller shall adopt. 

(d) Subject to Section 171.1014, a taxable entity that is part 

of a federal consolidated group shall compute its total revenue under 

Subsection (c) as if it had filed a separate return for federal income 

tax purposes. 

(e) A taxable entity that owns an interest in a passive entity 

shall exclude from the taxable entity's total revenue the taxable 

entity's share of the net income of the passive entity, but only to 

the extent the net income of the passive entity was generated by the 

margin of any other taxable entity. 

(f) A taxable entity shall exclude from its total revenue, to 

the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), 

flow-through funds that are mandated by law or fiduciary duty to be 

distributed to other entities, including taxes collected from a third 

party by the taxable entity and remitted by the taxable entity to a 

taxing authority. 

(g) A taxable entity shall exclude from its total revenue, to 


only the following flow-through funds that are mandated by contract to 

be distributed to other entities: 

(1) sales commissions to nonemployees, including split-fee




6/25/2012 

real estate commissions; 

(2) the tax basis as determined under the Internal Revenue 

Code of securities underwritten; and 

(3) subcontracting payments handled by the taxable entity 

to provide 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. 

(g-1) A taxable entity that is a lending institution shall 

exclude from its total revenue, to the extent included under 

Subsection (c)(1)(A), (c)(2)(A), or (c)(3), proceeds from the 

principal repayment of loans. 

(g-2) A taxable entity shall exclude from its total revenue, to 


the tax basis as determined under the Internal Revenue Code of 

securities and loans sold. 

(g-3) A taxable entity that provides legal services shall 

exclude from its total revenue: 

(1) to the extent included under Subsection (c)(1)(A), (c) 

(2)(A), or (c)(3), the following flow-through funds that are mandated 

by law, contract, or fiduciary duty to be distributed to the claimant 

by the claimant's attorney or to other entities on behalf of a 

claimant by the claimant's attorney: 

(A) damages due the claimant; 

(B) funds subject to a lien or other contractual 

obligation arising out of the representation, other than fees owed to 

the attorney; 

(C) funds subject to a subrogation interest or other 

third-party contractual claim; and 

(D) fees paid an attorney in the matter who is not a 

member, partner, shareholder, or employee of the taxable entity; 


(2)(A), or (c)(3), reimbursement of the taxable entity's expenses 

incurred in prosecuting a claimant's matter that are specific to the 

matter and that are not general operating expenses; and 

(3) $500 per pro bono services case handled by the 

attorney, but only if the attorney maintains records of the pro bono 

services for auditing purposes in accordance with the manner in which




6/25/2012 

those services are reported to the State Bar of Texas. 

(g-4) A taxable entity that is a pharmacy cooperative shall 

exclude from its total revenue, to the extent included under 

Subsection (c)(1)(A), (c)(2)(A), or (c)(3), flow-through funds from 

rebates from pharmacy wholesalers that are distributed to the pharmacy 

cooperative's shareholders. 

(g-5) A taxable entity that is a qualified live event promotion 

company shall exclude from its total revenue, to the extent included 

under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), a payment made to an 

artist in connection with the provision of a live entertainment event 

or live event promotion services. 

(g-6) A taxable entity that is a qualified destination 

management company as defined by Section 151.0565 shall exclude from 

its total revenue, to the extent included under Subsection (c)(1)(A), 

(c)(2)(A), or (c)(3), payments made to other persons to provide 

services, labor, or materials in connection with the provision of 

destination management services as defined by Section 151.0565. 

(g-7) A taxable entity that is a qualified courier and 

logistics company shall exclude from its total revenue, to the extent 

included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), 

subcontracting payments made by the taxable entity to nonemployee 

agents for the performance of delivery services on behalf of the 

taxable entity. For purposes of this subsection, "qualified courier 

and logistics company" means a taxable entity that: 

(1) receives at least 80 percent of the taxable entity's 

annual total revenue from its entire business from a combination of at 

least two of the following courier and logistics services: 

(A) expedited same-day delivery of an envelope, 

package, parcel, roll of architectural drawings, box, or pallet; 

(B) temporary storage and delivery of the property of 

another entity, including an envelope, package, parcel, roll of 

architectural drawings, box, or pallet; and 

(C) brokerage of same-day or expedited courier and 

logistics services to be completed by a person or entity under a 

contract that includes a contractual obligation by the taxable entity 

to make payments to the person or entity for those services; 

(2) during the period on which margin is based, is 

registered as a motor carrier under Chapter 643, Transportation Code,




6/25/2012 

and if the taxable entity operates on an interstate basis, 

is registered as a motor carrier or broker under the unified carrier 

registration system, as defined by Section 643.001, Transportation 

Code, during that period; 

(3) maintains an automobile liability insurance policy 

covering individuals operating vehicles owned, hired, or otherwise 

used in the taxable entity's business, with a combined single limit 

for each occurrence of at least $1 million; 

(4) maintains at least $25,000 of cargo insurance; 

(5) maintains a permanent nonresidential office from which 

the courier and logistics services are provided or arranged; 

(6) has at least five full-time employees during the 

period on which margin is based; 

(7) is not doing business as a livery service, floral 

delivery service, motor coach service, taxicab service, building 

supply delivery service, water supply service, fuel or energy supply 

service, restaurant supply service, commercial moving and storage 

company, or overnight delivery service; and 

(8) is not delivering items that the taxable entity or an 

affiliated entity sold. 

(h) If the taxable entity belongs to an affiliated group, the 

taxable entity may not exclude payments described by Subsection (f), 

(g), (g-1), (g-2), (g-3), or (g-4) that are made to entities that are 

members of the affiliated group. 

(i) Except as provided by Subsection (g), a payment made under 

an ordinary contract for the provision of services in the regular 

course of business may not be excluded. 

(j) Any amount excluded under this section may not be included 

in the determination of cost of goods sold under Section 171.1012 or 

the determination of compensation under Section 171.1013. 

(k) A taxable entity that is a staff leasing services company 

shall exclude from its total revenue payments received from a client 

company for wages, payroll taxes on those wages, employee benefits, 

and workers' compensation benefits for the assigned employees of the 

client company. 

(l) For purposes of Subsection (g)(1): 

(1) "Sales commission" means: 

(A) any form of compensation paid to a person for




6/25/2012 

engaging in an act for which a license is required by 

Chapter 1101, Occupations Code; or 

(B) compensation paid to a sales representative by a 

principal in an amount that is based on the amount or level of certain 

orders for or sales of the principal's product and that the principal 

is required to report on Internal Revenue Service Form 1099-MISC. 

(2) "Principal" means a person who: 

(A) manufactures, produces, imports, distributes, or 

acts as an independent agent for the distribution of a product for 

sale; 

(B) uses a sales representative to solicit orders for 

the product; and 

(C) compensates the sales representative wholly or 

partly by sales commission. 

(m) A taxable entity shall exclude from its total revenue, to 


dividends and interest received from federal obligations. 

(m-1) A taxable entity that is a management company shall 

exclude from its total revenue reimbursements of specified costs 

incurred in its conduct of the active trade or business of a managed 

entity, including "wages and cash compensation" as determined under 

Sections 171.1013(a) and (b). 

(n) Except as provided by Subsection (o), a taxable entity that 

is a health care provider shall exclude from its total revenue: 


(2)(A), or (c)(3), the total amount of payments the health care 

provider received: 

(A) under the Medicaid program, Medicare program, 

Indigent Health Care and Treatment Act (Chapter 61, Health and Safety 

Code), and Children's Health Insurance Program (CHIP); 

(B) for professional services provided in relation to 

a workers' compensation claim under Title 5, Labor Code; and 

(C) for professional services provided to a 

beneficiary rendered under the TRICARE military health system; and 

(2) the actual cost to the health care provider for any 

uncompensated care provided, but only if the provider maintains 

records of the uncompensated care for auditing purposes and, if the 

provider later receives payment for all or part of that care, the




6/25/2012 

provider adjusts the amount excluded for the tax year in 

which the payment is received. 

(n-1) The comptroller shall adopt rules governing: 

(1) the computation of the actual cost to a health care 

provider of any uncompensated care provided under Subsection (n)(2); 

and 

(2) the audit requirements related to the computation of 

those costs. 

(o) A health care provider that is a health care institution 

shall exclude from its total revenue 50 percent of the amounts 

described by Subsection (n). 

(p) In this section: 

(1) "Federal obligations" means: 

(A) stocks and other direct obligations of, and 

obligations unconditionally guaranteed by, the United States 

government and United States government agencies; and 

(B) direct obligations of a United States governmentsponsored 

agency. 

(2) "Health care institution" means: 

(A) an ambulatory surgical center; 

(B) an assisted living facility licensed under 

Chapter 247, Health and Safety Code; 

(C) an emergency medical services provider; 

(D) a home and community support services agency; 

(E) a hospice; 

(F) a hospital; 

(G) a hospital system; 

(H) an intermediate care facility for the mentally 

retarded or a home and community-based services waiver program for 

persons with mental retardation adopted in accordance with Section 1915 

(c) of the federal Social Security Act (42 U.S.C. Section 1396n); 

(I) a birthing center; 

(J) a nursing home; 

(K) an end stage renal disease facility licensed 

under Section 251.011, Health and Safety Code; or 

(L) a pharmacy. 

(3) "Health care provider" means a taxable entity that 

participates in the Medicaid program, Medicare program, Children's




6/25/2012 

Health Insurance Program (CHIP), state workers' 

compensation program, or TRICARE military health system as a provider 

of health care services. 

(4) "Obligation" means any bond, debenture, security, 

mortgage-backed security, pass-through certificate, or other evidence 

of indebtedness of the issuing entity. The term does not include a 

deposit, a repurchase agreement, a loan, a lease, a participation in a 

loan or pool of loans, a loan collateralized by an obligation of a 

United States government agency, or a loan guaranteed by a United 

States government agency. 

(4-a) "Pro bono services" means the direct provision of 

legal services to the poor, without an expectation of compensation. 

(4-b) Repealed by Acts 2007, 80th Leg., R.S., Ch. 1282, 

Sec. 37(2), eff. January 1, 2008. 

(5) "United States government" means any department or 

ministry of the federal government, including a federal reserve 

bank. The term does not include a state or local government, a 

commercial enterprise owned wholly or partly by the United States 

government, or a local governmental entity or commercial enterprise 

whose obligations are guaranteed by the United States government. 

(6) "United States government agency" means an 

instrumentality of the United States government whose obligations are 

fully and explicitly guaranteed as to the timely payment of principal 

and interest by the full faith and credit of the United States 

government. The term includes the Government National Mortgage 

Association, the Department of Veterans Affairs, the Federal Housing 

Administration, the Farmers Home Administration, the Export-Import 

Bank, the Overseas Private Investment Corporation, the Commodity 

Credit Corporation, the Small Business Administration, and any 

successor agency. 

(7) "United States government-sponsored agency" means an 

agency originally established or chartered by the United States 

government to serve public purposes specified by the United States 

Congress but whose obligations are not explicitly guaranteed by the 

full faith and credit of the United States government. The term 

includes the Federal Home Loan Mortgage Corporation, the Federal 

National Mortgage Association, the Farm Credit System, the Federal 

Home Loan Bank System, the Student Loan Marketing Association, and any




6/25/2012 

successor agency. 

(q) A taxable entity shall exclude from its total revenue, to 


all revenue received that is directly derived from the operation of a 

facility that is: 

(1) located on property owned or leased by the federal 

government; and 

(2) managed or operated primarily to house members of the 

armed forces of the United States. 

(r) A taxable entity shall exclude, to the extent included 

under Subsection (c)(1)(A), (c)(2)(A), or (c)(3), total revenue 

received from oil or gas produced, during the dates certified by the 

comptroller pursuant to Subsection (s), from: 

(1) an oil well designated by the Railroad Commission of 

Texas or similar authority of another state whose production averages 

less than 10 barrels a day over a 90-day period; and 

(2) a gas well designated by the Railroad Commission of 

Texas or similar authority of another state whose production averages 

less than 250 mcf a day over a 90-day period. 

(s) The comptroller shall certify dates during which the 

monthly average closing price of West Texas Intermediate crude oil is 

below $40 per barrel and the average closing price of gas is below $5 

per MMBtu, as recorded on the New York Mercantile Exchange (NYMEX). 

(t) The comptroller shall adopt rules as necessary to 

accomplish the legislative intent prescribed by this section. 

Amended by: 


2008. 


2008. 


2008. 


1, 2008. 


2010. 


1, 2012.




6/25/2012 

Sec. 171.1012. DETERMINATION OF COST OF GOODS SOLD. (a) In 

this section: 

(1) "Goods" means real or tangible personal property sold 

in the ordinary course of business of a taxable entity. 

(2) "Production" includes construction, installation, 

manufacture, development, mining, extraction, improvement, creation, 

raising, or growth. 

(3)(A) "Tangible personal property" means: 

(i) personal property that can be seen, weighed, 

measured, felt, or touched or that is perceptible to the senses in any 

other manner; 

(ii) films, sound recordings, videotapes, live 

and prerecorded television and radio programs, books, and other 

similar property embodying words, ideas, concepts, images, or sound, 

without regard to the means or methods of distribution or the medium 

in which the property is embodied, for which, as costs are incurred in 

producing the property, it is intended or is reasonably likely that 

any medium in which the property is embodied will be mass-distributed 

by the creator or any one or more third parties in a form that is not 

substantially altered; and 

(iii) a computer program, as defined by Section 

151.0031. 

(B) "Tangible personal property" does not include: 

(i) intangible property; or 

(ii) services. 

(b) Subject to Section 171.1014, a taxable entity that elects 

to subtract cost of goods sold for the purpose of computing its 

taxable margin shall determine the amount of that cost of goods sold 

as provided by this section. 

(c) The cost of goods sold includes all direct costs of 

acquiring or producing the goods, including: 

(1) labor costs; 

(2) cost of materials that are an integral part of 

specific property produced; 

(3) cost of materials that are consumed in the ordinary 

course of performing production activities; 

(4) handling costs, including costs attributable to




6/25/2012 

processing, assembling, repackaging, and inbound 

transportation costs; 

(5) storage costs, including the costs of carrying, 

storing, or warehousing property, subject to Subsection (e); 

(6) depreciation, depletion, and amortization, reported 

on the federal income tax return on which the report under this 

chapter is based, to the extent associated with and necessary for the 

production of goods, including recovery described by Section 197, 

Internal Revenue Code; 

(7) the cost of renting or leasing equipment, facilities, 

or real property directly used for the production of the goods, 

including pollution control equipment and intangible drilling and dry 

hole costs; 

(8) the cost of repairing and maintaining equipment, 

facilities, or real property directly used for the production of the 

goods, including pollution control devices; 

(9) costs attributable to research, experimental, 

engineering, and design activities directly related to the production 

of the goods, including all research or experimental expenditures 

described by Section 174, Internal Revenue Code; 

(10) geological and geophysical costs incurred to identify 

and locate property that has the potential to produce minerals; 

(11) taxes paid in relation to acquiring or producing any 

material, or taxes paid in relation to services that are a direct cost 

of production; 

(12) the cost of producing or acquiring electricity sold; 

and 

(13) a contribution to a partnership in which the taxable 

entity owns an interest that is used to fund activities, the costs of 

which would otherwise be treated as cost of goods sold of the 

partnership, but only to the extent that those costs are related to 

goods distributed to the taxable entity as goods-in-kind in the 

ordinary course of production activities rather than being sold. 

(d) In addition to the amounts includable under Subsection (c), 

the cost of goods sold includes the following costs in relation to the 

taxable entity's goods: 

(1) deterioration of the goods; 

(2) obsolescence of the goods;




6/25/2012 

(3) spoilage and abandonment, including the costs of 

rework labor, reclamation, and scrap; 

(4) if the property is held for future production, 

preproduction direct costs allocable to the property, including costs 

of purchasing the goods and of storage and handling the goods, as 

provided by Subsections (c)(4) and (c)(5); 

(5) postproduction direct costs allocable to the property, 

including storage and handling costs, as provided by Subsections (c) 

(4) and (c)(5); 

(6) the cost of insurance on a plant or a facility, 

machinery, equipment, or materials directly used in the production of 

the goods; 

(7) the cost of insurance on the produced goods; 

(8) the cost of utilities, including electricity, gas, and 

water, directly used in the production of the goods; 

(9) the costs of quality control, including replacement of 

defective components pursuant to standard warranty policies, 

inspection directly allocable to the production of the goods, and 

repairs and maintenance of goods; and 

(10) licensing or franchise costs, including fees incurred 

in securing the contractual right to use a trademark, corporate plan, 

manufacturing procedure, special recipe, or other similar right 

directly associated with the goods produced. 

(e) The cost of goods sold does not include the following costs 

in relation to the taxable entity's goods: 

(1) the cost of renting or leasing equipment, facilities, 

or real property that is not used for the production of the goods; 

(2) selling costs, including employee expenses related to 

sales; 

(3) distribution costs, including outbound transportation 

costs; 

(4) advertising costs; 

(5) idle facility expense; 

(6) rehandling costs; 

(7) bidding costs, which are the costs incurred in the 

solicitation of contracts ultimately awarded to the taxable entity; 

(8) unsuccessful bidding costs, which are the costs 

incurred in the solicitation of contracts not awarded to the taxable




6/25/2012 

entity; 

(9) interest, including interest on debt incurred or 

continued during the production period to finance the production of 

the goods; 

(10) income taxes, including local, state, federal, and 

foreign income taxes, and franchise taxes that are assessed on the 

taxable entity based on income; 

(11) strike expenses, including costs associated with 

hiring employees to replace striking personnel, but not including the 

wages of the replacement personnel, costs of security, and legal fees 

associated with settling strikes; 

(12) officers' compensation; 

(13) costs of operation of a facility that is: 

(A) located on property owned or leased by the 

federal government; and 

(B) managed or operated primarily to house members of 

the armed forces of the United States; and 

(14) any compensation paid to an undocumented worker used 

for the production of goods. As used in this subdivision: 

(A) "undocumented worker" means a person who is not 

lawfully entitled to be present and employed in the United States; and 

(B) "goods" includes the husbandry of animals, the 

growing and harvesting of crops, and the severance of timber from 

realty. 

(f) A taxable entity may subtract as a cost of goods sold 

indirect or administrative overhead costs, including all mixed service 

costs, such as security services, legal services, data processing 

services, accounting services, personnel operations, and general 

financial planning and financial management costs, that it can 

demonstrate are allocable to the acquisition or production of goods, 

except that the amount subtracted may not exceed four percent of the 

taxable entity's total indirect or administrative overhead costs, 

including all mixed service costs. Any costs excluded under 

Subsection (e) may not be subtracted under this subsection. 

(g) A taxable entity that is allowed a subtraction by this 

section for a cost of goods sold and that is subject to Section 263A, 

460, or 471, Internal Revenue Code, may capitalize that cost in the 

same manner and to the same extent that the taxable entity capitalized




6/25/2012 

that cost on its federal income tax return or may expense those 

costs, except for costs excluded under Subsection (e), or in 

accordance with Subsections (c), (d), and (f). If the taxable entity 

elects to capitalize costs, it must capitalize each cost allowed under 

this section that it capitalized on its federal income tax return. If 

the taxable entity later elects to begin expensing a cost that may be 

allowed under this section as a cost of goods sold, the entity may not 

deduct any cost in ending inventory from a previous report. If the 

taxable entity elects to expense a cost of goods sold that may be 

allowed under this section, a cost incurred before the first day of 

the period on which the report is based may not be subtracted as a 

cost of goods sold. If the taxable entity elects to expense a cost of 

goods sold and later elects to capitalize that cost of goods sold, a 

cost expensed on a previous report may not be capitalized. 

(h) A taxable entity shall determine its cost of goods sold, 

except as otherwise provided by this section, in accordance with the 

methods used on the federal income tax return on which the report 

under this chapter is based. This subsection does not affect the type 

or category of cost of goods sold that may be subtracted under this 

section. 

(i) A taxable entity may make a subtraction under this section 

in relation to the cost of goods sold only if that entity owns the 

goods. The determination of whether a taxable entity is an owner is 

based on all of the facts and circumstances, including the various 

benefits and burdens of ownership vested with the taxable entity. A 

taxable entity furnishing labor or materials to a project for the 

construction, improvement, remodeling, repair, or industrial 

maintenance (as the term "maintenance" is defined in 34 T.A.C. Section 

3.357) of real property is considered to be an owner of that labor or 

materials and may include the costs, as allowed by this section, in 

the computation of cost of goods sold. Solely for purposes of this 

section, a taxable entity shall be treated as the owner of goods being 

manufactured or produced by the entity under a contract with the 

federal government, including any subcontracts that support a contract 

with the federal government, notwithstanding that the Federal 

Acquisition Regulation may require that title or risk of loss with 

respect to those goods be transferred to the federal government before 

the manufacture or production of those goods is complete.




6/25/2012 

(j) A taxable entity may not make a subtraction under this 

section for cost of goods sold to the extent the cost of goods sold 

was funded by partner contributions and deducted under Subsection (c) 

(13). 

(k) Notwithstanding any other provision of this section, if the 

taxable entity is a lending institution that offers loans to the 

public and elects to subtract cost of goods sold, the entity, other 

than an entity primarily engaged in an activity described by category 

5932 of the 1987 Standard Industrial Classification Manual published 

by the federal Office of Management and Budget, may subtract as a cost 

of goods sold an amount equal to interest expense. For purposes of 

this subsection, an entity engaged in lending to unrelated parties 

solely for agricultural production offers loans to the public. 

(k-1) Notwithstanding any other provision of this section, the 

following taxable entities may subtract as a cost of goods sold the 

costs otherwise allowed by this section in relation to tangible 

personal property that the entity rents or leases in the ordinary 

course of business of the entity: 

(1) a motor vehicle rental or leasing company that remits 

a tax on gross receipts imposed under Section 152.026; 

(2) a heavy construction equipment rental or leasing 

company; and 

(3) a railcar rolling stock rental or leasing company. 

(l) Notwithstanding any other provision of this section, a 

payment made by one member of an affiliated group to another member of 

that affiliated group not included in the combined group may be 

subtracted as a cost of goods sold only if it is a transaction made at 

arm's length. 

(m) In this section, "arm's length" means the standard of 

conduct under which entities that are not related parties and that 

have substantially equal bargaining power, each acting in its own 

interest, would negotiate or carry out a particular transaction. 

(n) In this section, "related party" means a person, 

corporation, or other entity, including an entity that is treated as a 

pass-through or disregarded entity for purposes of federal taxation, 

whether the person, corporation, or entity is subject to the tax under 

this chapter or not, in which one person, corporation, or entity, or 

set of related persons, corporations, or entities, directly or




6/25/2012 

indirectly owns or controls a controlling interest in another 

entity. 

(o) If a taxable entity, including a taxable entity with 

respect to which cost of goods sold is determined pursuant to Section 

171.1014(e)(1), whose principal business activity is film or 

television production or broadcasting or the distribution of tangible 

personal property described by Subsection (a)(3)(A)(ii), or any 

combination of these activities, elects to subtract cost of goods 

sold, the cost of goods sold for the taxable entity shall be the costs 

described in this section in relation to the property and include 

depreciation, amortization, and other expenses directly related to the 

acquisition, production, or use of the property, including expenses 

for the right to broadcast or use the property. 

Amended by: 


2008. 


2008. 


2008. 

Sec. 171.1013. DETERMINATION OF COMPENSATION. (a) Except as 

otherwise provided by this section, "wages and cash compensation" 

means the amount entered in the Medicare wages and tips box of 

Internal Revenue Service Form W-2 or any subsequent form with a 

different number or designation that substantially provides the same 

information. The term also includes, to the extent not included above: 

(1) net distributive income from a taxable entity treated 

as a partnership for federal income tax purposes, but only if the 

person receiving the distribution is a natural person; 

(2) net distributive income from limited liability 

companies and corporations treated as S corporations for federal 

income tax purposes, but only if the person receiving the distribution 

is a natural person; 

(3) stock awards and stock options deducted for federal 

income tax purposes; and 

(4) net distributive income from a limited liability




6/25/2012 

company treated as a sole proprietorship for federal income 

tax purposes, but only if the person receiving the distribution is a 

natural person. 

(b) Subject to Section 171.1014, a taxable entity that elects 

to subtract compensation for the purpose of computing its taxable 

margin under Section 171.101 may subtract an amount equal to: 

(1) subject to the limitation in Subsection (c), all wages 

and cash compensation paid by the taxable entity to its officers, 

directors, owners, partners, and employees; and 

(2) the cost of all benefits, to the extent deductible for 

federal income tax purposes, the taxable entity provides to its 

officers, directors, owners, partners, and employees, including 

workers' compensation benefits, health care, employer contributions 

made to employees' health savings accounts, and retirement. 

(b-1) This subsection applies to a taxable entity that is a 

small employer, as that term is defined by Section 1501.002, Insurance 

Code, and that has not provided health care benefits to any of its 

employees in the calendar year preceding the beginning date of its 

reporting period. Subject to Section 171.1014, a taxable entity to 

which this subsection applies that elects to subtract compensation for 

the purpose of computing its taxable margin under Section 171.101 may 

subtract health care benefits as provided under Subsection (b) and may 

also subtract: 

(1) for the first 12-month period on which margin is based 

and in which the taxable entity provides health care benefits to all 

of its employees, an additional amount equal to 50 percent of the cost 

of health care benefits provided to its employees for that period; and 

(2) for the second 12-month period on which margin is 

based and in which the taxable entity provides health care benefits to 

all of its employees, an additional amount equal to 25 percent of the 

cost of health care benefits provided to its employees for that period. 

(c) Notwithstanding the actual amount of wages and cash 

compensation paid by a taxable entity to its officers, directors, 

owners, partners, and employees, a taxable entity may not include more 

than $300,000, or the amount determined under Section 171.006, per 12- 

month period on which margin is based, for any person in the amount of 

wages and cash compensation it determines under this section. If a 

person is paid by more than one entity of a combined group, the




6/25/2012 

combined group may not subtract in relation to that person a 

total of more than $300,000, or the amount determined under Section 

171.006, per 12-month period on which margin is based. 

(c-1) Subject to Section 171.1014, a taxable entity that elects 

to subtract compensation for the purpose of computing its taxable 

margin under Section 171.101 may not subtract any wages or cash 

compensation paid to an undocumented worker. As used in this 

section "undocumented worker" means a person who is not lawfully 

entitled to be present and employed in the United States. 

(d) A taxable entity that is a staff leasing services company: 

(1) may not include as wages or cash compensation payments 

described by Section 171.1011(k); and 

(2) shall determine compensation as provided by this 

section only for the taxable entity's own employees that are not 

assigned employees. 

(e) Subject to the other provisions of this section, in 

determining compensation, a taxable entity that is a client company 

that contracts with a staff leasing services company for assigned 

employees: 

(1) shall include payments made to the staff leasing 

services company for wages and benefits for the assigned employees as 

if the assigned employees were actual employees of the entity; 

(2) may not include an administrative fee charged by the 

staff leasing services company for the provision of the assigned 

employees; and 

(3) may not include any other amount in relation to the 

assigned employees, including payroll taxes. 

(f) A taxable entity that is a management company: 

(1) may not include as wages or cash compensation any 

amounts reimbursed by a managed entity; and 

(2) shall determine compensation as provided by this 

section for only those wage and compensation payments that are not 

reimbursed by a managed entity. 

(g) A taxable entity that is a managed entity shall include 

reimbursements made to the management company for wages and 

compensation as if the reimbursed amounts had been paid to employees 

of the managed entity. 

(h) Subject to Section 171.1014, a taxable entity that elects




6/25/2012 

to subtract compensation for the purpose of computing its 

taxable margin under Section 171.101 may not include as wages or cash 

compensation amounts paid to an employee whose primary employment is 

directly associated with the operation of a facility that is: 

(1) located on property owned or leased by the federal 

government; and 

(2) managed or operated primarily to house members of the 

armed forces of the United States. 

Amended by: 


2008. 


2008. 

Sec. 171.1014. COMBINED REPORTING; AFFILIATED GROUP ENGAGED IN 

UNITARY BUSINESS. (a) Taxable entities that are part of an 

affiliated group engaged in a unitary business shall file a combined 

group report in lieu of individual reports based on the combined 

group's business. The combined group may not include a taxable entity 

that conducts business outside the United States if 80 percent or more 

of the taxable entity's property and payroll, as determined by 

factoring under Chapter 141, are assigned to locations outside the 

United States. In applying Chapter 141, if either the property factor 

or the payroll factor is zero, the denominator is one. The combined 

group may not include a taxable entity that conducts business outside 

the United States and has no property or payroll if 80 percent or more 

of the taxable entity's gross receipts, as determined under Sections 

171.103, 171.105, and 171.1055, are assigned to locations outside the 

United States. 

(b) The combined group is a single taxable entity for purposes 

of the application of the tax imposed under this chapter, including 

Section 171.002(d). 

(c) For purposes of Section 171.101, a combined group shall 

determine its total revenue by: 

(1) determining the total revenue of each of its members 

as provided by Section 171.1011 as if the member were an individual 

taxable entity;




6/25/2012 

(2) adding the total revenues of the members determined 

under Subdivision (1) together; and 

(3) subtracting, to the extent included under Section 

171.1011(c)(1)(A), (c)(2)(A), or (c)(3), items of total revenue 

received from a member of the combined group. 

(d) For purposes of Section 171.101, a combined group shall 

make an election to subtract either cost of goods sold or compensation 

that applies to all of its members. Regardless of the election, the 

taxable margin of the combined group may not exceed 70 percent of the 

combined group's total revenue from its entire business, as provided 

by Section 171.101(a)(1)(A). 

(d-1) A member of a combined group may claim as cost of goods 

sold those costs that qualify under Section 171.1012 if the goods for 

which the costs are incurred are owned by another member of the 

combined group. 

(e) For purposes of Section 171.101, a combined group that 

elects to subtract costs of goods sold shall determine that amount by: 

(1) determining the cost of goods sold for each of its 

members as provided by Section 171.1012 as if the member were an 

individual taxable entity; 

(2) adding the amounts of cost of goods sold determined 

under Subdivision (1) together; and 

(3) subtracting from the amount determined under 

Subdivision (2) any cost of goods sold amounts paid from one member of 

the combined group to another member of the combined group, but only 

to the extent the corresponding item of total revenue was subtracted 

under Subsection (c)(3). 

(f) For purposes of Section 171.101, a combined group that 

elects to subtract compensation shall determine that amount by: 

(1) determining the compensation for each of its members 

as provided by Section 171.1013 as if each member were an individual 

taxable entity, subject to the limitation prescribed by Section 

171.1013(c); 

(2) adding the amounts of compensation determined under 

Subdivision (1) together; and 

(3) subtracting from the amount determined under 

Subdivision (2) any compensation amounts paid from one member of the 

combined group to another member of the combined group, but only to




6/25/2012 

the extent the corresponding item of total revenue was 

subtracted under Subsection (c)(3). 

(g) Repealed by Acts 2007, 80th Leg., R.S., Ch. 1282, Sec. 37 

(3), eff. January 1, 2008. 

(h) Each taxable entity that is part of a combined group report 

shall, for purposes of determining margin and apportionment, include 

its activities for the same period used by the combined group. 

(i) Each member of the combined group shall be jointly and 

severally liable for the tax of the combined group. 

Amended by: 


2008. 


2008. 


1, 2008. 

Sec. 171.1015. REPORTING FOR CERTAIN PARTNERSHIPS IN TIERED 

PARTNERSHIP ARRANGEMENT. (a) In this section, "tiered partnership 

arrangement" means an ownership structure in which any of the 

interests in one taxable entity treated as a partnership or an S 

corporation for federal income tax purposes (a "lower tier entity") 

are owned by one or more other taxable entities (an "upper tier 

entity"). A tiered partnership arrangement may have two or more tiers. 

(b) In addition to the tax it is required to pay under this 

chapter on its own taxable margin, a taxable entity that is an upper 

tier entity may include, for purposes of calculating its own taxable 

margin, the total revenue of a lower tier entity if the lower tier 

entity submits a report to the comptroller showing the amount of total 

revenue that each upper tier entity that owns it should include within 

the upper tier entity's own taxable margin calculation, according to 

the ownership interest of the upper tier entity. 

(c) This section does not apply to that percentage of the total 

revenue attributable to an upper tier entity by a lower tier entity if 

the upper tier entity is not subject to the tax under this 

chapter. In this case, the lower tier entity is liable for the tax on 

its taxable margin.




6/25/2012 

(d) Section 171.002(d) does not apply to an upper tier entity 

if, before the attribution of any total revenue by a lower tier entity 

to an upper tier entity under this section, the lower tier entity does 

not meet the criteria of Section 171.002(d)(1) or (d)(2). 

(e) The comptroller shall adopt rules to administer this 

section. 

Amended by: 


2008. 


2008. 

Sec. 171.1016. E-Z COMPUTATION AND RATE. (a) Notwithstanding 

any other provision of this chapter, a taxable entity whose total 

revenue from its entire business is not more than $10 million may 

elect to pay the tax imposed under this chapter in the amount computed 

and at the rate provided by this section rather than in the amount 

computed and at the tax rate provided by Section 171.002. 

(b) The amount of the tax for which a taxable entity that 

elects to pay the tax as provided by this section is liable is 

computed by: 

(1) determining the taxable entity's total revenue from 

its entire business, as determined under Section 171.1011; 

(2) apportioning the amount computed under Subdivision (1) 

to this state, as provided by Section 171.106, to determine the 

taxable entity's apportioned total revenue; and 

(3) multiplying the amount computed under Subdivision (2) 

by the rate of 0.575 percent. 

(c) A taxable entity that elects to pay the tax as provided by 

this section may not take a credit, deduction, or other adjustment 

that is not specifically authorized by this section. 

(d) Section 171.0021 applies to a taxable entity that elects to 

pay the tax as provided by this section. 

(e) A reference in this chapter or other law to the rate of the 

franchise tax means, as appropriate, the rate under Section 171.002 

or, for a taxable entity that elects to pay the tax as provided by 

this section, the rate under this section.




6/25/2012 

Added by Acts 2007, 80th Leg., R.S., Ch. 1282, Sec. 19, eff. January 

1, 2008. 

Transferred from Tax Code, Section 171.1016 by Acts 2011, 82nd Leg., 

R.S., Ch. 91, Sec. 27.001(58), eff. September 1, 2011. 

Sec. 171.103. DETERMINATION OF GROSS RECEIPTS FROM BUSINESS 

DONE IN THIS STATE FOR MARGIN. (a) Subject to Section 171.1055, in 

apportioning margin, the gross receipts of a taxable entity from its 

business done in this state is the sum of the taxable entity's 

receipts from: 

(1) each sale of tangible personal property if the 

property is delivered or shipped to a buyer in this state regardless 

of the FOB point or another condition of the sale; 

(2) each service performed in this state, except that 

receipts derived from servicing loans secured by real property are in 

this state if the real property is located in this state; 

(3) each rental of property situated in this state; 

(4) the use of a patent, copyright, trademark, franchise, 

or license in this state; 

(5) each sale of real property located in this state, 

including royalties from oil, gas, or other mineral interests; and 

(6) other business done in this state. 

(b) A combined group shall include in its gross receipts 

computed under Subsection (a) the gross receipts of each taxable 

entity that is a member of the combined group and that has a nexus 

with this state for the purpose of taxation. 

(c) A taxable entity that is a combined group shall include in 

a report filed under Section 171.201 or 171.202, for each member of 

the combined group that does not have nexus with this state for the 

purpose of taxation: 

(1) the gross receipts computed under Subsection (a); and 

(2) the gross receipts computed under Subsection (a) that 

are subject to taxation in another state under a throwback law or 

regulation. 

(d) The information required by Subsection (c) may be used for 

informational purposes only. The comptroller shall adopt rules as 

necessary to enforce the reporting requirement prescribed by 

Subsection (c).




6/25/2012 


Amended by Acts 1984, 68th Leg., 2nd C.S., ch. 31, art. 15, Sec. 1, 

eff. Oct. 2, 1984; Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.06, 

eff. Jan. 1, 1992; Acts 1997, 75th Leg., ch. 1185, Sec. 5, eff. Jan. 

1, 1998. 

Amended by: 


2008. 


2008. 

Sec. 171.105. DETERMINATION OF GROSS RECEIPTS FROM ENTIRE 

BUSINESS FOR MARGIN. (a) Subject to Section 171.1055, in 

apportioning margin, the gross receipts of a taxable entity from its 

entire business is the sum of the taxable entity's receipts from: 

(1) each sale of the taxable entity's tangible personal 

property; 

(2) each service, rental, or royalty; and 

(3) other business. 

(b) If a taxable entity sells an investment or capital asset, 

the taxable entity's gross receipts from its entire business for 

taxable margin includes only the net gain from the sale. 

(c) A combined group shall include in its gross receipts 

computed under Subsection (a) the gross receipts of each taxable 

entity that is a member of the combined group, without regard to 

whether that entity has a nexus with this state for the purpose of 

taxation. 


Amended by Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.07, eff. Jan. 

1, 1992. 

Amended by: 


2008. 

Sec. 171.1055. EXCLUSION OF CERTAIN RECEIPTS FOR MARGIN 

APPORTIONMENT. (a) In apportioning margin, receipts excluded from 

total revenue by a taxable entity under Section 171.1011 may not be




6/25/2012 

included in either the receipts of the taxable entity from its 

business done in this state as determined under Section 171.103 or the 

receipts of the taxable entity from its entire business done as 

determined under Section 171.105. 

(b) In apportioning margin, receipts derived from transactions 

between individual members of a combined group that are excluded under 

Section 171.1014(c)(3) may not be included in the receipts of the 

taxable entity from its business done in this state as determined 

under Section 171.103, except that receipts ultimately derived from 

the sale of tangible personal property between individual members of a 

combined group where one member party to the transaction does not have 

nexus in this state shall be included in the receipts of the taxable 

entity from its business done in this state as determined under 

Section 171.103 to the extent that the member of the combined group 

that does not have nexus in this state resells the tangible personal 

property without substantial modification to a purchaser in this 

state. "Receipts ultimately derived from the sale" means the amount 

paid for the tangible personal property by the third party purchaser. 

(c) In apportioning margin, receipts derived from transactions 

between individual members of a combined group that are excluded under 

Section 171.1014(c)(3) may not be included in the receipts of the 

taxable entity from its entire business done as determined under 

Section 171.105. 

Amended by: 


2008. 


2008. 

Sec. 171.106. APPORTIONMENT OF MARGIN TO THIS STATE. (a) 

Except as provided by this section, a taxable entity's margin is 

apportioned to this state to determine the amount of tax imposed under 

Section 171.002 by multiplying the margin by a fraction, the numerator 

of which is the taxable entity's gross receipts from business done in 

this state, as determined under Section 171.103, and the denominator 

of which is the taxable entity's gross receipts from its entire 

business, as determined under Section 171.105.




6/25/2012 

(b) A taxable entity's margin that is derived, directly or 

indirectly, from the sale of management, distribution, or 

administration services to or on behalf of a regulated investment 

company, including a taxable entity that includes trustees or sponsors 

of employee benefit plans that have accounts in a regulated investment 

company, is apportioned to this state to determine the amount of the 

tax imposed under Section 171.002 by multiplying the taxable entity's 

total margin from the sale of services to or on behalf of a regulated 

investment company by a fraction, the numerator of which is the 

average of the sum of shares owned at the beginning of the year and 

the sum of shares owned at the end of the year by the investment 

company shareholders who are commercially domiciled in this state or, 

if the shareholders are individuals, are residents of this state, and 

the denominator of which is the average of the sum of shares owned at 

the beginning of the year and the sum of shares owned at the end of 

the year by all investment company shareholders. In this 

subsection, "regulated investment company" has the meaning assigned by 

Section 851(a), Internal Revenue Code. 

(c) A taxable entity's margin that is derived, directly or 

indirectly, from the sale of management, administration, or investment 

services to an employee retirement plan is apportioned to this state 

to determine the amount of the tax imposed under Section 171.002 by 

multiplying the taxable entity's total margin from the sale of 

services to an employee retirement plan company by a fraction, the 

numerator of which is the average of the sum of beneficiaries 

domiciled in Texas at the beginning of the year and the sum of 

beneficiaries domiciled in Texas at the end of the year, and the 

denominator of which is the average of the sum of all beneficiaries at 

the beginning of the year and the sum of all beneficiaries at the end 

of the year. In this section, "employee retirement plan" means a plan 

or other arrangement that is qualified under Section 401(a), Internal 

Revenue Code, or satisfies the requirements of Section 403, Internal 

Revenue Code, or a government plan described in Section 414(d), 

Internal Revenue Code. The term does not include an individual 

retirement account or individual retirement annuity within the meaning 

of Section 408, Internal Revenue Code. 

(d) A banking corporation shall exclude from the numerator of 

the bank's apportionment factor interest earned on federal funds and




6/25/2012 

interest earned on securities sold under an agreement to 

repurchase that are held in this state in a correspondent bank that is 

domiciled in this state. In this subsection, "correspondent" has the 

meaning assigned by 12 C.F.R. Section 206.2(c). 

(e) Receipts from services that a defense readjustment project 

performs in a defense economic readjustment zone are not receipts from 

business done in this state. 

(f) Notwithstanding Section 171.1055, if a loan or security is 

treated as inventory of the seller for federal income tax purposes, 

the gross proceeds of the sale of that loan or security are considered 

gross receipts. 

(f-1) Notwithstanding Section 171.1055, if a lending 

institution categorizes a loan or security as "Securities Available 

for Sale" or "Trading Securities" under Financial Accounting Standard 

No. 115, the gross proceeds of the sale of that loan or security are 

considered gross receipts. In this subsection, "Financial Accounting 

Standard No. 115" means the Financial Accounting Standard No. 115 in 

effect as of January 1, 2009, not including any changes made after 

that date. In this subsection, "security" means a security as defined 

in Section 171.0001(13-a). 



1, 1992; Acts 1997, 75th Leg., ch. 1185, Sec. 7, eff. Jan. 1, 1998; 

Acts 1999, 76th Leg., ch. 184, Sec. 2, eff. Jan. 1, 2000; Acts 2001, 

77th Leg., ch. 1263, Sec. 59, eff. Jan. 1, 2002; Acts 2003, 78th 

Leg., ch. 209, Sec. 37, eff. Oct. 1, 2003. 

Amended by: 


2008. 


2008. 

Acts 2009, 81st Leg., R.S., Ch. 1055, Sec. 1, eff. January 1, 

2010. 

Sec. 171.107. DEDUCTION OF COST OF SOLAR ENERGY DEVICE FROM 

MARGIN APPORTIONED TO THIS STATE. (a) In this section, "solar energy 

device" means a system or series of mechanisms designed primarily to




6/25/2012 

provide heating or cooling or to produce electrical or 

mechanical power by collecting and transferring solar-generated 

energy. The term includes a mechanical or chemical device that has 

the ability to store solar-generated energy for use in heating or 

cooling or in the production of power. 

(b) A taxable entity may deduct from its apportioned margin 10 

percent of the amortized cost of a solar energy device if: 

(1) the device is acquired by the taxable entity for 

heating or cooling or for the production of power; 

(2) the device is used in this state by the taxable 

entity; and 

(3) the cost of the device is amortized in accordance with 

Subsection (c). 

(c) The amortization of the cost of a solar energy device must: 

(1) be for a period of at least 60 months; 

(2) provide for equal monthly amounts or conform to 

federal depreciation schedules; 

(3) begin on the month in which the device is placed in 

service in this state; and 

(4) cover only a period in which the device is in use in 

this state. 

(d) A taxable entity that makes a deduction under this section 

shall file with the comptroller an amortization schedule showing the 

period in which a deduction is to be made. On the request of the 

comptroller, the taxable entity shall file with the comptroller proof 

of the cost of the solar energy device or proof of the device's 

operation in this state. 



1, 1992; Acts 1999, 76th Leg., ch. 1467, Sec. 2.59, eff. Jan. 1, 2000. 

Amended by: 


2008. 

Sec. 171.108. DEDUCTION OF COST OF CLEAN COAL PROJECT FROM 

MARGIN APPORTIONED TO THIS STATE. (a) In this section, "clean coal 

project" has the meaning assigned by Section 5.001, Water Code.




6/25/2012 

(b) A taxable entity may deduct from its apportioned margin 10 

percent of the amortized cost of equipment: 

(1) that is used in a clean coal project; 

(2) that is acquired by the taxable entity for use in 

generation of electricity, production of process steam, or industrial 

production; 

(3) that the taxable entity uses in this state; and 

(4) the cost of which is amortized in accordance with 

Subsection (c). 

(c) The amortization of the cost of capital used in a clean 

coal project must: 

(1) be for a period of at least 60 months; 

(2) provide for equal monthly amounts; 

(3) begin in the month during which the equipment is 

placed in service in this state; and 

(4) cover only a period during which the equipment is used 

in this state. 

(d) A taxable entity that makes a deduction under this section 

shall file with the comptroller an amortization schedule showing the 

period for which the deduction is to be made. On the request of the 

comptroller, the taxable entity shall file with the comptroller proof 

of the cost of the equipment or proof of the equipment's operation in 

this state. 

Added by Acts 2005, 79th Leg., Ch. 1097, Sec. 4, eff. June 18, 2005. 

Amended by: 


2008. 

For expiration of this section, see Subsection (e). 

Sec. 171.111. TEMPORARY CREDIT ON TAXABLE MARGIN. (a) On the 

first report originally due under this chapter on or after January 1, 

2008, a taxable entity must notify the comptroller in writing of its 

intent to take a credit in an amount allowed by this section on the 

tax due on taxable margin. The taxable entity may thereafter elect to 

claim the credit for the current year and future year at or before the 

original due date of any report due after January 1, 2008, until the 

taxable entity revokes the election or this section expires, whichever




6/25/2012 

is earlier. A taxable entity may claim the credit for not more 

than 20 consecutive privilege periods beginning with the first report 

originally due under this chapter on or after January 1, 2008. A 

taxable entity may make only one election under this section and the 

election may not be conveyed, assigned, or transferred to another 

entity. 

(b) The credit allowed under this section for any privilege 

period is computed by: 

(1) determining the amount of the business loss 

carryforwards of the taxable entity under Section 171.110(e), as that 

section applied to annual reports originally due before January 1, 

2008, that were not exhausted on a report originally due under this 

chapter before January 1, 2008; 

(2) multiplying the amount determined under Subdivision 

(1) by: 

(A) 2.25 percent for reports originally due on or 

after January 1, 2008, and before January 1, 2018; and 

(B) 7.75 percent for reports originally due on or 

after January 1, 2018, and before September 1, 2027; and 

(3) multiplying the amount determined under Subdivision 

(2) by 4.5 percent. 

(c) The comptroller may request that the taxable entity 

submit, with each annual report in which the taxable entity is 

eligible to take a credit, information relating to the amount 

determined under Subsection (b)(1). The taxable entity shall submit 

in the form and content the comptroller requires any information 

relating to the amount determined under Subsection (b)(1) or any other 

matter relevant to the computation of the credit for which the taxable 

entity is eligible. 

(d) A credit that a taxable entity is entitled to under this 

section may not be conveyed, assigned, or transferred. A taxable 

entity loses the right to claim the credit if the entity changes 

combined groups after June 30, 2007. 

(d-1) A taxable entity, other than a combined group, may not 

claim the credit under this section unless the taxable entity was, on 

May 1, 2006, subject to the tax imposed by this chapter as this 

chapter existed on that date. A taxable entity that is a combined 

group may claim the credit for each member entity that was, on May 1,




6/25/2012 

2006, subject to the tax imposed by this chapter as this chapter 

existed on that date and shall compute the amount of the credit for 

that member as provided by this section. 

(d-2) The amount of credit claimed, including any unused credit 

carried forward, may not exceed the amount of franchise tax due for 

the report. Unused credits may not be carried forward to reports 

originally due on or after September 1, 2027. 

(e) This section expires September 1, 2027. 


1, 1992. 

Amended by: 


2008. 


2008. 

Sec. 171.1121. GROSS RECEIPTS FOR MARGIN. (a) For purposes of 

this section, "gross receipts" means all revenues reportable by a 

taxable entity on its federal tax return, without deduction for the 

cost of property sold, materials used, labor performed, or other costs 

incurred, unless otherwise specifically provided in this chapter. 

(b) Except as otherwise provided by this section, a taxable 

entity shall use the same accounting methods to apportion margin as 

used in computing margin. 

(c) A taxable entity may not change its accounting methods used 

to calculate gross receipts more often than once every four years 

without the express written consent of the comptroller. A change in 

accounting methods is not justified solely because it results in a 

reduction of tax liability. 


1, 1992. Amended by Acts 1993, 73rd Leg., ch. 546, Sec. 8, eff. Jan. 

1, 1994; Acts 1997, 75th Leg., ch. 1185, Sec. 11, eff. Jan. 1, 1998; 

Acts 2001, 77th Leg., ch. 1263, Sec. 61, eff. Jan. 1, 2002. 

Amended by: 


2008. 

Acts 2007, 80th Leg., R.S., Ch. 1282, Sec. 24, eff. January 1,




6/25/2012 

2008. 

SUBCHAPTER D. PAYMENT OF TAX 

Sec. 171.151. PRIVILEGE PERIOD COVERED BY TAX. The franchise 

tax shall be paid for each of the following: 

(1) an initial period beginning on the taxable entity's 

beginning date and ending on the day before the first anniversary of 

the beginning date; 

(2) a second period beginning on the first anniversary of 

the beginning date and ending on December 31 following that date; and 

(3) after the initial and second periods have expired, a 

regular annual period beginning each year on January 1 and ending the 

following December 31. 



Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.11, eff. Jan. 1, 1992; 

Acts 1995, 74th Leg., ch. 1002, Sec. 14, eff. Jan. 1, 1996. 

Amended by: 


2008. 

Sec. 171.152. DATE ON WHICH PAYMENT IS DUE. (a) Payment of 

the tax covering the initial period is due within 90 days after the 

date that the initial period ends or, if applicable, within 91 days 

after the date of the merger. 

(b) Payment of the tax covering the second period is due on the 

same date as the tax covering the initial period. 

(c) Payment of the tax covering the regular annual period is 

due May 15, of each year after the beginning of the regular annual 

period. However, if the first anniversary of the taxable entity's 

beginning date is after October 3 and before January 1, the payment of 

the tax covering the first regular annual period is due on the same 

date as the tax covering the initial period. 



eff. Sept. 1, 1984; Acts 1985, 69th Leg., ch. 31, Sec. 7, eff. Aug.




6/25/2012 

26, 1985; Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.12, eff. Jan. 

1, 1992; Acts 1995, 74th Leg., ch. 1002, Sec. 15, eff. Jan. 1, 1996. 

Amended by: 


2008. 

Sec. 171.1532. BUSINESS ON WHICH TAX ON NET TAXABLE MARGIN IS 

BASED. (a) The tax covering the privilege periods included on the 

initial report is based on the business done by the taxable entity 

during the period beginning on the taxable entity's beginning date and: 

(1) ending on the last accounting period ending date that 

is at least 60 days before the original due date of the initial 

report; or 

(2) if there is no such period ending date in Subdivision 

(1), then ending on the day that is the last day of a calendar month 

and that is nearest to the end of the taxable entity's first year of 

business. 

(b) The tax covering the regular annual period, other than a 

regular annual period included on the initial report, is based on the 

business done by the taxable entity during the period beginning with 

the day after the last date upon which taxable margin or net taxable 

earned surplus on a previous report was based and ending with its last 

accounting period ending date for federal income tax purposes in the 

year before the year in which the report is originally due. 


1, 1992. Amended by Acts 1995, 74th Leg., ch. 1002, Sec. 18, eff. 

Jan. 1, 1996. 

Amended by: 


2008. 


2008. 

Sec. 171.154. PAYMENT TO COMPTROLLER. A taxable entity on 

which a tax is imposed by this chapter shall pay the tax to the 

comptroller. 





6/25/2012 

Amended by: 


2008. 

Sec. 171.158. PAYMENT BY FOREIGN TAXABLE ENTITY BEFORE 

WITHDRAWAL FROM STATE. (a) Except as provided by Subsection (b), a 

foreign taxable entity holding a registration or certificate of 

authority to do business in this state may withdraw from doing 

business in this state by filing a certificate of withdrawal with the 

secretary of state. The secretary of state shall file the certificate 

of withdrawal as provided by law. 

(b) The foreign taxable entity may not withdraw from doing 

business in this state unless it has paid, before filing the 

certificate of withdrawal, any tax or penalty imposed by this chapter 

on the taxable entity. 


Amended by: 


2008. 

SUBCHAPTER E. REPORTS AND RECORDS 

Sec. 171.201. INITIAL REPORT. (a) Except as provided by 

Section 171.2022, a taxable entity on which the franchise tax is 

imposed shall file an initial report with the comptroller containing: 

(1) financial information of the taxable entity necessary 

to compute the tax under this chapter; 

(2) the name and address of: 

(A) each officer, director, and manager of the 

taxable entity; 

(B) for a limited partnership, each general partner; 

(C) for a general partnership or limited liability 

partnership, each managing partner or, if there is not a managing 

partner, each partner; or 

(D) for a trust, each trustee; 

(3) the name and address of the agent of the taxable 

entity designated under Section 171.354; and 

(4) other information required by the comptroller.




6/25/2012 

(b) The taxable entity shall file the report on or before the 

date the payment is due under Section 171.152(a). 



Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.15, eff. Jan. 1, 1992. 

Amended by: 


2008. 


2008. 

Sec. 171.202. ANNUAL REPORT. (a) Except as provided by 

Section 171.2022, a taxable entity on which the franchise tax is 

imposed shall file an annual report with the comptroller containing: 

(1) financial information of the taxable entity necessary 

to compute the tax under this chapter; 

(2) the name and address of each officer and director of 

the taxable entity; 

(3) the name and address of the agent of the taxable 

entity designated under Section 171.354; and 

(4) other information required by the comptroller. 

(b) The taxable entity shall file the report before May 16 of 

each year after the beginning of the regular annual period. The 

report shall be filed on forms supplied by the comptroller. 

(c) The comptroller shall grant an extension of time to a 

taxable entity that is not required by rule to make its tax payments 

by electronic funds transfer for the filing of a report required by 

this section to any date on or before the next November 15, if a 

taxable entity: 

(1) requests the extension, on or before May 15, on a form 

provided by the comptroller; and 

(2) remits with the request: 

(A) not less than 90 percent of the amount of tax 

reported as due on the report filed on or before November 15; or 

(B) 100 percent of the tax reported as due for the 

previous calendar year on the report due in the previous calendar year 

and filed on or before May 14.




6/25/2012 

(d) In the case of a taxpayer whose previous return was its 

initial report, the optional payment provided under Subsection (c)(2) 

(B) or (e)(2)(B) must be equal to an amount produced by multiplying 

the taxable margin, as reported on the initial report filed on or 

before May 14, by the rate of tax in Section 171.002 that is effective 

January 1 of the year in which the report is due. 

(e) The comptroller shall grant an extension of time for the 

filing of a report required by this section by a taxable entity 

required by rule to make its tax payments by electronic funds transfer 

to any date on or before the next August 15, if the taxable entity: 

(1) requests the extension, on or before May 15, on a form 

provided by the comptroller; and 

(2) remits with the request: 

(A) not less than 90 percent of the amount of tax 

reported as due on the report filed on or before August 15; or 

(B) 100 percent of the tax reported as due for the 

previous calendar year on the report due in the previous calendar year 

and filed on or before May 14. 

(f) The comptroller shall grant an extension of time to a 

taxable entity required by rule to make its tax payments by electronic 

funds transfer for the filing of a report due on or before August 15 

to any date on or before the next November 15, if the taxable entity: 

(1) requests the extension, on or before August 15, on a 

form provided by the comptroller; and 

(2) remits with the request the difference between the 

amount remitted under Subsection (e) and 100 percent of the amount of 

tax reported as due on the report filed on or before November 15. 

(h) If the sum of the amounts paid under Subsections (e)(2) and 

(f)(2) is at least 99 percent of the amount reported as due on the 

report filed on or before November 15, penalties for underpayment with 

respect to the amount paid under Subsection (f)(2) are waived. 

(i) If a taxable entity requesting an extension under 

Subsection (c) or (e) does not file the report due in the previous 

calendar year on or before May 14, the taxable entity may not receive 

an extension under Subsection (c) or (e) unless the taxable entity 

complies with Subsection (c)(2)(A) or (e)(2)(A), as appropriate. 


Amended by Acts 1983, 68th Leg., p. 297, ch. 63, Sec. 2, eff. Aug. 29,




6/25/2012 

1983; Acts 1984, 68th Leg., 2nd C.S., ch. 10, art. 3, Sec. 3, 4, eff. 

Sept. 1, 1984; Acts 1985, 69th Leg., ch. 31, Sec. 10, eff. Aug. 26, 

1985; Acts 1985, 69th Leg., ch. 37, Sec. 6, 7, eff. Aug. 26, 1985; 

Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.16, eff. Jan. 1, 1992; 

Acts 1993, 73rd Leg., ch. 486, Sec. 2.03, eff. Sept. 1, 1994; Acts 

1995, 74th Leg., ch. 1002, Sec. 21, eff. Jan. 1, 1996; Acts 1997, 

75th Leg., ch. 1185, Sec. 12, eff. Jan. 1, 1998. 

Amended by: 


2008. 

Sec. 171.2022. EXEMPTION FROM REPORTING REQUIREMENTS. A 

taxable entity that does not owe any tax under this chapter for any 

period is not required to file a report under Section 171.201 or 

171.202. The exemption applies only to a period for which no tax is 

due. 


1, 1992. 

Amended by: 


2008. 

Sec. 171.203. PUBLIC INFORMATION REPORT. (a) A corporation or 

limited liability company on which the franchise tax is imposed, 

regardless of whether the corporation or limited liability company is 

required to pay any tax, shall file a report with the comptroller 

containing: 

(1) the name of each corporation or limited liability 

company in which the corporation or limited liability company filing 

the report owns a 10 percent or greater interest and the percentage 

owned by the corporation or limited liability company; 

(2) the name of each corporation or limited liability 

company that owns a 10 percent or greater interest in the corporation 

or limited liability company filing the report; 

(3) the name, title, and mailing address of each person 

who is an officer or director of the corporation or limited liability 

company on the date the report is filed and the expiration date of




6/25/2012 

each person's term as an officer or director, if any; 

(4) the name and address of the agent of the corporation 

or limited liability company designated under Section 171.354; and 

(5) the address of the corporation's or limited liability 

company's principal office and principal place of business. 

(b) The corporation or limited liability company shall file the 

report once a year on a form prescribed by the comptroller. 

(c) The comptroller shall forward the report to the secretary 

of state. 

(d) The corporation or limited liability company shall send a 

copy of the report to each person named in the report under Subsection 

(a)(3) who is not currently employed by the corporation or limited 

liability company or a related corporation or limited liability 

company listed in Subsection (a)(1) or (2). An officer or director of 

the corporation or limited liability company or another authorized 

person must sign the report under a certification that: 

(1) all information contained in the report is true and 

correct to the best of the person's knowledge; and 

(2) a copy of the report has been mailed to each person 

identified in this subsection on the date the return is filed. 

(e) If a person's name is included in a report under Subsection 

(a)(3) and the person is not an officer or director of the corporation 

or limited liability company on the date the report is filed, the 

person may file with the comptroller a sworn statement disclaiming the 

person's status as shown on the report. The comptroller shall 

maintain a record of statements filed under this subsection and shall 

make that information available on request using the same procedures 

the comptroller uses for other requests for public information. 

(f) A public information report that is filed electronically 

complies with the signature and certification requirements prescribed 

by Subsection (d). 


Amended by Acts 1995, 74th Leg., ch. 1002, Sec. 19, eff. Jan. 1, 

1996; Acts 1997, 75th Leg., ch. 1185, Sec. 13, eff. Jan. 1, 1998; 

Acts 1999, 76th Leg., ch. 394, Sec. 11, eff. Jan. 1, 2000; Acts 2003, 

78th Leg., ch. 209, Sec. 41, eff. Jan. 1, 2004. 

Amended by: 

Acts 2006, 79th Leg., 3rd C.S., Ch. 1, Sec. 7, eff. January 1,




6/25/2012 

2008. 


2008. 

Sec. 171.204. INFORMATION REPORT. (a) Except as provided by 

Subsection (b), to determine eligibility for the exemption provided by 

Section 171.2022, or to determine the amount of the franchise tax or 

the correctness of a franchise tax report, the comptroller may require 

a taxable entity that may be subject to the tax imposed under this 

chapter to file an information report with the comptroller stating the 

amount of the taxable entity's margin, or any other information the 

comptroller may request that is necessary to make a determination 

under this subsection. 

(b) The comptroller may require a taxable entity that does not 

owe any tax because of the application of Section 171.002(d)(2) to 

file an abbreviated information report with the comptroller stating 

the amount of the taxable entity's total revenue from its entire 

business. The comptroller may not require a taxable entity described 

by this subsection to file an information report that requires the 

taxable entity to report or compute its margin. 

(c) The comptroller may require any entity to file information 

as necessary to verify that the entity is not subject to the tax 

imposed under this chapter. 



1, 1992; Acts 1999, 76th Leg., ch. 394, Sec. 12, eff. Jan. 1, 2000. 

Amended by: 


2008. 


2008. 

Sec. 171.205. ADDITIONAL INFORMATION REQUIRED BY COMPTROLLER. 

The comptroller may require a taxable entity on which the franchise 

tax is imposed to furnish to the comptroller information from the 

taxable entity's books and records that has not been filed previously 

and that is necessary for the comptroller to determine the amount of




6/25/2012 

the tax. 


Amended by: 


2008. 

Sec. 171.206. CONFIDENTIAL INFORMATION. Except as provided by 

Section 171.207, the following information is confidential and may not 

be made open to public inspection: 

(1) information that is obtained from a record or other 

instrument that is required by this chapter to be filed with the 

comptroller; or 

(2) information, including information about the business 

affairs, operations, profits, losses, cost of goods sold, 

compensation, or expenditures of a taxable entity, obtained by an 

examination of the books and records, officers, partners, trustees, 

agents, or employees of a taxable entity on which a tax is imposed by 

this chapter. 


Amended by: 


2008. 

Sec. 171.207. INFORMATION NOT CONFIDENTIAL. The following 

information is not confidential and shall be made open to public 

inspection: 

(1) information contained in a document filed under this 

chapter with a county clerk as notice of a tax lien; and 

(2) information contained in a report required by Section 

171.203 or 171.2035. 


Amended by: 


2008. 

Sec. 171.208. PROHIBITION OF DISCLOSURE OF INFORMATION. A




6/25/2012 

person, including a state officer or employee or an owner of a 

taxable entity, who has access to a report filed under this chapter 

may not make known in a manner not permitted by law the amount or 

source of the taxable entity's income, profits, losses, expenditures, 

cost of goods sold, compensation, or other information in the report 

relating to the financial condition of the taxable entity. 


Amended by: 


2008. 

Sec. 171.209. RIGHT OF OWNER TO EXAMINE OR RECEIVE REPORTS. If 

an owner of a taxable entity on whom the franchise tax is imposed 

presents evidence of the ownership to the comptroller, the person is 

entitled to examine or receive a copy of an initial or annual report 

that is filed under Section 171.201 or 171.202 and that relates to the 

taxable entity. 


Amended by: 


2008. 

Sec. 171.210. PERMITTED USE OF CONFIDENTIAL INFORMATION. (a) 

To enforce this chapter, the comptroller or attorney general may use 

information made confidential by this chapter. 

(b) The comptroller or attorney general may authorize the use 

of the confidential information in a judicial proceeding in which the 

state is a party. The comptroller or attorney general may authorize 

examination of the confidential information by: 

(1) another state officer of this state; 

(2) a law enforcement official of this state; or 

(3) a tax official of another state or an official of the 

federal government if the other state or the federal government has a 

reciprocal arrangement with this state. 


Amended by:




6/25/2012 


2008. 

Sec. 171.211. EXAMINATION OF RECORDS. To determine the 

franchise tax liability of a taxable entity, the comptroller may 

investigate or examine the records of the taxable entity. 


Amended by Acts 1989, 71st Leg., ch. 584, Sec. 109, eff. Sept. 1, 1989. 

Amended by: 


2008. 

Sec. 171.212. REPORT OF CHANGES TO FEDERAL INCOME TAX RETURN. 

(a) A taxable entity must file an amended report under this chapter 

if: 

(1) the taxable entity's taxable margin is changed as the 

result of an audit or other adjustment by the Internal Revenue Service 

or another competent authority; or 

(2) the taxable entity files an amended federal income tax 

return or other return that changes the taxable entity's taxable 

margin. 

(b) The taxable entity shall file the amended report under 

Subsection (a)(1) not later than the 120th day after the date the 

revenue agent's report or other adjustment is final. For purposes of 

this subsection, a revenue agent's report or other adjustment is final 

on the date on which all administrative appeals with the Internal 

Revenue Service or other competent authority have been exhausted or 

waived. 

(c) The taxable entity shall file the amended report under 

Subsection (a)(2) not later than the 120th day after the date the 

taxable entity files the amended federal income tax return or other 

return. For purposes of this subsection, a taxable entity is 

considered to have filed an amended federal income tax return if the 

taxable entity is a member of an affiliated group during a period in 

which an amended consolidated federal income tax report is filed. 

(d) If a taxable entity fails to comply with this section, the 

taxable entity is liable for a penalty of 10 percent of the tax that




6/25/2012 

should have been reported under this section and that had not 

previously been reported to the comptroller. The penalty prescribed 

by this subsection is in addition to any other penalty provided by law. 

Added by Acts 1997, 75th Leg., ch. 1185, Sec. 14. 

Amended by: 


2008. 

Sec. 171.2125. CALCULATING COST OF GOODS OR COMPENSATION IN 

STAFF LEASING ARRANGEMENTS. In calculating cost of goods sold or 

compensation, a taxable entity that is a client company of a staff 

leasing services company shall rely on information provided by the 

staff leasing services company on a form promulgated by the 

comptroller or an invoice. 


1, 2008. 

For expiration of this section, see Subsection (f). 

Sec. 171.214. BUSINESS TAX ADVISORY COMMITTEE. (a) The 

Business Tax Advisory Committee is created. The committee is composed 

of: 

(1) two members of the house of representatives, appointed 

by the speaker of the house of representatives; 

(2) two members of the senate, appointed by the lieutenant 

governor; and 

(3) the following persons appointed by the comptroller: 

(A) at least five residents of this state who are 

engaged in a private business, as either an employee or an owner, that 

is subject to taxation under this chapter; and 

(B) at least two residents of this state with 

expertise in state business taxation. 

(b) The comptroller shall determine the number of residents 

appointed under Subsection (a)(3). 

(c) The comptroller is the presiding officer of the advisory 

committee. 

(d) The advisory committee shall conduct a biennial study of




6/25/2012 

the effects of the tax imposed under this chapter on businesses 

in this state. The study must take into consideration: 

(1) the relative share of the tax paid by industry and by 

size of business; 

(2) how the incidence of the tax compares with the 

economic makeup of this state's business economy; 

(3) how the tax compares in structure and in amounts paid 

to the business taxes imposed by other states; 

(4) the effect of the tax on the economic climate of this 

state, including the effect on capital investment and job creation; 

(5) any factors that result in the tax not operating as 

intended; and 

(6) any other item presented by the comptroller or by a 

majority of the committee. 

(e) The comptroller by rule shall establish procedures for the 

functions of the advisory committee, including procedures requiring 

the advisory committee to issue a report on its findings to the 

speaker of the house of representatives, the lieutenant governor, and 

the governor not later than the date each regular session of the 

legislature begins. 

(f) This section expires January 31, 2013. 


1, 2008. 

For expiration of this section, see Subsection (d). 

Sec. 171.215. STUDY OF INCENTIVES FOR RESEARCH AND DEVELOPMENT 

ACTIVITIES. (a) The Legislative Budget Board shall conduct a study 

of: 

(1) the costs and benefits to the state of reenacting the 

tax credit for research and development activities in effect under 

Subchapter O before the repeal of that subchapter by Chapter 1 (H.B. 

3), Acts of the 79th Legislature, 3rd Called Session, 2006; and 

(2) the types of research and development incentives 

available in other states. 

(b) The Legislative Budget Board may seek the assistance of 

other state agencies in conducting the study, but the study must be 

completed using existing resources available to the Legislative Budget




6/25/2012 

Board and any assisting agencies. 

(c) The Legislative Budget Board shall report the results of 

the study to the legislature not later than January 1, 2013. 

(d) This section expires September 1, 2013. 

Added by Acts 2011, 82nd Leg., R.S., Ch. 319, Sec. 1, eff. June 17, 

2011. 

SUBCHAPTER F. FORFEITURE OF CORPORATE AND BUSINESS PRIVILEGES 

Sec. 171.251. FORFEITURE OF CORPORATE PRIVILEGES. The 

comptroller shall forfeit the corporate privileges of a corporation on 

which the franchise tax is imposed if the corporation: 

(1) does not file, in accordance with this chapter and 

within 45 days after the date notice of forfeiture is mailed, a report 

required by this chapter; 

(2) does not pay, within 45 days after the date notice of 

forfeiture is mailed, a tax imposed by this chapter or does not pay, 

within those 45 days, a penalty imposed by this chapter relating to 

that tax; or 

(3) does not permit the comptroller to examine under 

Section 171.211 of this code the corporation's records. 



eff. Sept. 1, 1984; Acts 1989, 71st Leg., ch. 584, Sec. 110, eff. 

Sept. 1, 1989; Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.19, eff. 

Jan. 1, 1992; Acts 1993, 73rd Leg., ch. 546, Sec. 10, eff. Jan. 1, 

1994. 

Sec. 171.2515. FORFEITURE OF RIGHT OF TAXABLE ENTITY TO 

TRANSACT BUSINESS IN THIS STATE. (a) The comptroller may, for the 

same reasons and using the same procedures the comptroller uses in 

relation to the forfeiture of the corporate privileges of a 

corporation, forfeit the right of a taxable entity to transact 

business in this state. 

(b) The provisions of this subchapter, including Section 

171.255, that apply to the forfeiture of corporate privileges apply to 

the forfeiture of a taxable entity's right to transact business in




6/25/2012 

this state. 

Added by Acts 2006, 79th Leg., 3rd C.S., Ch. 1, Sec. 9, eff. January 

1, 2008. 

Sec. 171.252. EFFECTS OF FORFEITURE. If the corporate 

privileges of a corporation are forfeited under this subchapter: 

(1) the corporation shall be denied the right to sue or 

defend in a court of this state; and 

(2) each director or officer of the corporation is liable 

for a debt of the corporation as provided by Section 171.255 of this 

code. 


Sec. 171.253. SUIT ON CAUSE OF ACTION ARISING BEFORE 

FORFEITURE. In a suit against a corporation on a cause of action 

arising before the forfeiture of the corporate privileges of the 

corporation, affirmative relief may not be granted to the corporation 

unless its corporate privileges are revived under this chapter. 


Sec. 171.254. EXCEPTION TO FORFEITURE. The forfeiture of the 

corporate privileges of a corporation does not apply to the privilege 

to defend in a suit to forfeit the corporation's charter or 



Sec. 171.255. LIABILITY OF DIRECTOR AND OFFICERS. (a) If the 

corporate privileges of a corporation are forfeited for the failure to 

file a report or pay a tax or penalty, each director or officer of the 

corporation is liable for each debt of the corporation that is created 

or incurred in this state after the date on which the report, tax, or 

penalty is due and before the corporate privileges are revived. The 

liability includes liability for any tax or penalty imposed by this 

chapter on the corporation that becomes due and payable after the date 

of the forfeiture.




6/25/2012 

(b) The liability of a director or officer is in the same 

manner and to the same extent as if the director or officer were a 

partner and the corporation were a partnership. 

(c) A director or officer is not liable for a debt of the 

corporation if the director or officer shows that the debt was created 

or incurred: 

(1) over the director's objection; or 

(2) without the director's knowledge and that the exercise 

of reasonable diligence to become acquainted with the affairs of the 

corporation would not have revealed the intention to create the debt. 

(d) If a corporation's charter or certificate of authority and 

its corporate privileges are forfeited and revived under this chapter, 

the liability under this section of a director or officer of the 

corporation is not affected by the revival of the charter or 

certificate and the corporate privileges. 


Sec. 171.256. NOTICE OF FORFEITURE. (a) If the comptroller 

proposes to forfeit the corporate privileges of a corporation, the 

comptroller shall notify the corporation that the forfeiture will 

occur without a judicial proceeding unless the corporation: 

(1) files, within the time established by Section 171.251 

of this code, the report to which that section refers; or 

(2) pays, within the time established by Section 171.251 

of this code, the delinquent tax and penalty to which that section 

refers. 

(b) The notice shall be written or printed and shall be 

verified by the seal of the comptroller's office. 

(c) The comptroller shall mail the notice to the corporation at 

least 45 days before the forfeiture of corporate privileges. The 

notice shall be addressed to the corporation and mailed to the address 

named in the corporation's charter as its principal place of business 

or to another known place of business of the corporation. 

(d) The comptroller shall keep at the comptroller's office a 

record of the date on which the notice is mailed. For the purposes of 

this chapter, the notice and the record of the mailing date constitute 

legal and sufficient notice of the forfeiture.




6/25/2012 


Amended by Acts 1993, 73rd Leg., ch. 546, Sec. 11, eff. Jan. 1, 1994. 

Sec. 171.257. JUDICIAL PROCEEDING NOT REQUIRED FOR FORFEITURE. 

The forfeiture of the corporate privileges of a corporation is 

effected by the comptroller without a judicial proceeding. 


Sec. 171.258. REVIVAL OF CORPORATE PRIVILEGES. The comptroller 

shall revive the corporate privileges of a corporation if the 

corporation, before the forfeiture of its charter or certificate of 

authority, pays any tax, penalty, or interest due under this chapter. 


Sec. 171.259. BANKING CORPORATIONS AND SAVINGS AND LOAN 

ASSOCIATIONS. (a) Except as provided by Subsection (b), this 

subchapter does not apply to a banking corporation that is organized 

under the laws of this state or under federal law and has its main 

office in this state. 

(b) The banking commissioner shall appoint a conservator under 

Subtitle A, Title 3, Finance Code, to pay the franchise tax of a 

banking corporation that is organized under the laws of this state and 

that the commissioner certifies as being delinquent in the payment of 

the corporation's franchise tax. 

Added by Acts 1984, 68th Leg., 2nd C.S., ch. 31, art. 3, part B, Sec. 

5, eff. May 1, 1985. Amended by Acts 1991, 72nd Leg., 1st C.S., ch. 

5, Sec. 8.20, eff. Jan. 1, 1992; Acts 1999, 76th Leg., ch. 184, Sec. 

3, eff. Jan. 1, 2000. 

Sec. 171.260. SAVINGS AND LOAN ASSOCIATION. (a) Except as 

provided by Subsection (b), this subchapter does not apply to a 

savings and loan association that is organized under the laws of this 

state or under federal law and has its main office in this state. 

(b) The savings and mortgage lending commissioner shall appoint 

a conservator under Subtitle B or C, Title 3, Finance Code, to pay the




6/25/2012 

franchise tax of a savings and loan association that is 

organized under the laws of this state and that the commissioner 

certifies as being delinquent in the payment of the association's 

franchise tax. 

Added by Acts 1999, 76th Leg., ch. 184, Sec. 4, eff. Jan. 1, 2000. 


Amended by: 

Acts 2007, 80th Leg., R.S., Ch. 921, Sec. 6.067, eff. September 

1, 2007. 

SUBCHAPTER G. FORFEITURE OF CHARTER OR CERTIFICATE OF AUTHORITY 

Sec. 171.301. GROUNDS FOR FORFEITURE OF CHARTER OR CERTIFICATE 

OF AUTHORITY. It is a ground for the forfeiture of a corporation's 

charter or certificate of authority if: 

(1) the corporate privileges of the corporation are 

forfeited under this chapter and the corporation does not pay, within 

120 days after the date the corporate privileges are forfeited, the 

amount necessary for the corporation to revive under this chapter its 

corporate privileges; or 

(2) the corporation does not permit the comptroller to 

examine the corporation's records under Section 171.211 of this code. 


Amended by Acts 1989, 71st Leg., ch. 584, Sec. 111, eff. Sept. 1, 1989. 

Sec. 171.3015. FORFEITURE OF CERTIFICATE OR REGISTRATION OF 

TAXABLE ENTITY. The comptroller may, for the same reasons and using 

the same procedures the comptroller uses in relation to the forfeiture 

of a corporation's charter or certificate of authority, forfeit the 

certificate or registration of a taxable entity. 


1, 2008. 

Sec. 171.302. CERTIFICATION BY COMPTROLLER. After the 120th 

day after the date that the corporate privileges of a corporation are 

forfeited under this chapter, the comptroller shall certify the name




6/25/2012 

of the corporation to the attorney general and the secretary of 

state. 


Sec. 171.303. SUIT FOR JUDICIAL FORFEITURE. On receipt of the 

comptroller's certification, the attorney general shall bring suit to 

forfeit the charter or certificate of authority of the corporation if 

a ground exists for the forfeiture of the charter or certificate. 


Sec. 171.304. RECORD OF JUDICIAL FORFEITURE. (a) If a 

district court forfeits a corporation's charter or certificate of 

authority under this chapter, the clerk of the court shall promptly 

mail to the secretary of state a certified copy of the court's 

judgment. On receipt of the copy of the judgment, the secretary of 

state shall inscribe on the corporation's record at the secretary's 

office the words "Judgment of Forfeiture" and the date of the judgment. 

(b) If an appeal of the judgment is perfected, the clerk of the 

court shall promptly certify to the secretary of state that the appeal 

has been perfected. On receipt of the certification, the secretary of 

state shall inscribe on the corporation's record at the secretary's 

office the word "Appealed" and the date on which the appeal was 

perfected. 

(c) If final disposition of an appeal is made, the clerk of the 

court making the disposition shall promptly certify to the secretary 

of state the type of disposition made and the date of the 

disposition. On receipt of the certification, the secretary of state 

shall inscribe on the corporation's record at the secretary's office a 

brief note of the type of final disposition made and the date of the 

disposition. 


Sec. 171.305. REVIVAL OF CHARTER OR CERTIFICATE OF AUTHORITY 

AFTER JUDICIAL FORFEITURE. A corporation whose charter or certificate 

of authority is judicially forfeited under this chapter is entitled to 

have its charter or certificate revived and to have its corporate




6/25/2012 

privileges revived if: 

(1) the corporation files each report that is required by 

this chapter and that is delinquent; 

(2) the corporation pays the tax, penalty, and interest 

that is imposed by this chapter and that is due at the time the suit 

under Section 171.306 of this code to set aside forfeiture is filed; 

and 

(3) the forfeiture of the corporation's charter or 

certificate is set aside in a suit under Section 171.306 of this code. 


Sec. 171.306. SUIT TO SET ASIDE JUDICIAL FORFEITURE. If a 

corporation's charter or certificate of authority is judicially 

forfeited under this chapter, a stockholder, director, or officer of 

the corporation at the time of the forfeiture of the charter or 

certificate or of the corporate privileges of the corporation may 

bring suit in a district court of Travis County in the name of the 

corporation to set aside the forfeiture of the charter or 

certificate. The suit must be in the nature of a bill of review. The 

secretary of state and attorney general must be made defendants in the 

suit. 


Sec. 171.307. RECORD OF SUIT TO SET ASIDE JUDICIAL FORFEITURE. 

If a court under this chapter sets aside the forfeiture of a 

corporation's charter or certificate of authority, the secretary of 

state shall inscribe on the corporation's record in the secretary's 

office the words "Charter Revived by Court Order" or "Certificate 

Revived by Court Order," a citation to the suit, and the date of the 

court's judgment. 


Sec. 171.308. CORPORATE PRIVILEGES AFTER JUDICIAL FORFEITURE IS 

SET ASIDE. If a court under this chapter sets aside the forfeiture of 

a corporation's charter or certificate of authority, the comptroller 

shall revive the corporate privileges of the corporation and shall




6/25/2012 

inscribe on the corporation's record in the comptroller's office 

a note of the revival. 


Sec. 171.309. FORFEITURE BY SECRETARY OF STATE. The secretary 

of state may forfeit the charter, certificate, or registration of a 

taxable entity if: 

(1) the secretary receives the comptroller's certification 

under Section 171.302; and 

(2) the taxable entity does not revive its forfeited 

privileges within 120 days after the date that the privileges were 

forfeited. 



eff. Sept. 1, 1984. 

Amended by: 


2008. 

Sec. 171.310. JUDICIAL PROCEEDING NOT REQUIRED FOR FORFEITURE 

BY SECRETARY OF STATE. The forfeiture by the secretary of state of a 

corporation's charter or certificate of authority under this chapter 

is effected without a judicial proceeding. 


Sec. 171.311. RECORD OF FORFEITURE BY SECRETARY OF STATE. The 

secretary of state shall effect a forfeiture of a corporation's 

charter or certificate of authority under this chapter by inscribing 

on the corporation's record in the secretary's office the 

words "Charter Forfeited" or "Certificate Forfeited," the date on 

which this inscription is made, and a citation to this chapter as 

authority for the forfeiture. 


Sec. 171.312. REVIVAL OF CHARTER OR CERTIFICATE OF AUTHORITY




6/25/2012 

AFTER FORFEITURE BY SECRETARY OF STATE. A corporation whose 

charter or certificate of authority is forfeited under this chapter by 

the secretary of state is entitled to have its charter or certificate 

revived and to have its corporate privileges revived if: 

(1) the corporation files each report that is required by 

this chapter and that is delinquent; 

(2) the corporation pays the tax, penalty, and interest 

that is imposed by this chapter and that is due at the time the 

request under Section 171.313 of this code to set aside forfeiture is 

made; and 

(3) the forfeiture of the corporation's charter or 

certificate is set aside in a proceeding under Section 171.313 of this 

code. 


Sec. 171.3125. REVIVAL OF CERTIFICATE OR REGISTRATION OF 

TAXABLE ENTITY AFTER FORFEITURE BY SECRETARY OF STATE. (a) The 

secretary of state may, using the same procedures the secretary uses 

in relation to the revival of a corporation's charter or certificate, 

revive the certificate or registration of a taxable entity. 

(b) The secretary of state may adopt rules to implement this 

section. 


1, 2008. 

Sec. 171.313. PROCEEDING TO SET ASIDE FORFEITURE BY SECRETARY 

OF STATE. (a) If a corporation's charter or certificate of authority 

is forfeited under this chapter by the secretary of state, a 

stockholder, director, or officer of the corporation at the time of 

the forfeiture of the charter or certificate or of the corporate 

privileges of the corporation may request in the name of the 

corporation that the secretary of state set aside the forfeiture of 

the charter or certificate. 

(b) If a request is made, the secretary of state shall 

determine if each delinquent report has been filed and any delinquent 

tax, penalty, or interest has been paid. If each report has been 

filed and the tax, penalty, or interest has been paid, the secretary




6/25/2012 

shall set aside the forfeiture of the corporation's charter or 



Sec. 171.314. CORPORATE PRIVILEGES AFTER FORFEITURE BY 

SECRETARY OF STATE IS SET ASIDE. If the secretary of state sets aside 

under this chapter the forfeiture of a corporation's charter or 

certificate of authority, the comptroller shall revive the corporate 

privileges of the corporation. 


Sec. 171.315. USE OF CORPORATE NAME AFTER REVIVAL OF CHARTER OR 

CERTIFICATE OF AUTHORITY. If a corporation's charter or certificate 

of authority is forfeited under this chapter by the secretary of state 

and if the corporation requests the secretary to set aside the 

forfeiture under Section 171.313 of this code, the corporation shall 

determine from the secretary whether the corporation's name is 

available for use. If the name is not available, the corporation 

shall amend its charter or certificate to change its name. 


Sec. 171.316. BANKING CORPORATIONS. This subchapter does not 

apply to a banking corporation that is organized under the laws of 

this state or under federal law and has its main office in this state. 

Added by Acts 1984, 68th Leg., 2nd C.S., ch. 31, art. 3, part B, Sec. 

6, eff. May 1, 1985. Amended by Acts 1999, 76th Leg., ch. 184, Sec. 

5, eff. Jan. 1, 2000. 

Sec. 171.317. SAVINGS AND LOAN ASSOCIATIONS. This subchapter 

does not apply to a savings and loan association that is organized 

under the laws of this state or under federal law and has its main 

office in this state. 


1, 1992. Amended by Acts 1999, 76th Leg., ch. 184, Sec. 6, eff. Jan.




6/25/2012 

1, 2000. 

SUBCHAPTER H. ENFORCEMENT 

Sec. 171.351. VENUE OF SUIT TO ENFORCE CHAPTER. Venue of a 

civil suit against a taxable entity to enforce this chapter is either 

in a county where the taxable entity's principal office is located 

according to its charter or certificate of authority or in Travis 

County. 


Amended by: 


2008. 

Sec. 171.352. AUTHORITY TO RESTRAIN OR ENJOIN. To enforce this 

chapter, a court may restrain or enjoin a violation of this chapter. 


Sec. 171.353. APPOINTMENT OF RECEIVER. If a court forfeits a 

taxable entity's charter or certificate of authority, the court may 

appoint a receiver for the taxable entity and may administer the 

receivership under the laws relating to receiverships. 


Amended by: 


2008. 

Sec. 171.354. AGENT FOR SERVICE OF PROCESS. Each taxable 

entity on which a tax is imposed by this chapter shall designate a 

resident of this state as the taxable entity's agent for the service 

of process. 


Amended by: 


2008.




6/25/2012 

Sec. 171.355. SERVICE OF PROCESS ON SECRETARY OF STATE. (a) 

Legal process may be served on a domestic corporation by serving it on 

the secretary of state if the process relates to the forfeiture of the 

corporation's charter or to the collection of a tax or penalty imposed 

by this chapter and: 

(1) if the local agent of the corporation or if the 

officers named in the corporation's charter or annual report on file 

with the secretary of state do not reside or cannot be located in the 

county in which the corporation's principal office, as stated in the 

charter, is located; or 

(2) if the principal office of the corporation is not 

maintained or cannot be located in the county in which the charter 

states that the office is located. 

(b) Complete and valid service of process is made on a 

corporation through the secretary of state by delivering duplicate 

copies of the process to the secretary of state or the deputy 

secretary of state. 

(c) On receipt of legal process under this section, the 

secretary of state promptly shall forward to the corporation by 

registered mail a copy of the process. The copy of the process shall 

be mailed to the address named in the corporation's charter as its 

principal place of business or to another place of business of the 

corporation as shown by the records in the secretary of state's office. 

(d) The failure of the secretary of state to mail a copy of 

legal process to a corporation does not affect the validity of the 

service of process. It is competent and sufficient proof of the 

service of process that the secretary of state certifies under the 

state seal the receipt of the process. 

(e) The secretary of state shall keep a record of each legal 

process served on the secretary under this section showing the date 

and time of the receipt of the process and the secretary's action on 

the process. 

(f) This section is cumulative of other laws relating to 

service of process. 


Amended by Acts 1993, 73rd Leg., ch. 300, Sec. 38, eff. Aug. 30, 1993.




6/25/2012 

Amended by: 

Acts 2005, 79th Leg., Ch. 41, Sec. 4, eff. September 1, 2005. 

Sec. 171.361. PENALTY FOR DISCLOSURE OF INFORMATION ON REPORT. 

(a) A person commits an offense if the person violates Section 

171.208 of this code prohibiting the disclosure of information on a 

report filed under this chapter. 

(b) An offense under this section is punishable by a fine of 

not more than $1,000, confinement in jail for not more than one year, 

or both. 


Sec. 171.362. PENALTY FOR FAILURE TO PAY TAX OR FILE REPORT. 

(a) If a taxable entity on which a tax is imposed by this chapter 

fails to pay the tax when it is due and payable or fails to file a 

report required by this chapter when it is due, the taxable entity is 

liable for a penalty of five percent of the amount of the tax due. 

(b) If the tax is not paid or the report is not filed within 30 

days after the due date, a penalty of an additional five percent of 

the tax due is imposed. 

(c) The minimum penalty under Subsections (a) and (b) is $1. 

(d) If a taxable entity electing to remit under Section 171.202 

(c)(2)(A) remits less than the amount required, the penalties imposed 

by this section and the interest imposed under Section 111.060 are 

assessed against the difference between the amount required to be 

remitted under Section 171.202(c)(2)(A) and the amount actually 

remitted on or before May 15. 

(e) If a taxable entity remits the entire amount required by 

Section 171.202(c), no penalties will be imposed against the amount 

remitted on or before November 15. 

(f) In addition to any other penalty authorized by this 

section, a taxable entity who fails to file a report as required by 

this chapter shall pay a penalty of $50. The penalty provided by this 

subsection is assessed without regard to whether the taxable entity 

subsequently files the report or whether any taxes were due from the 

taxable entity for the reporting period under the required report. 





6/25/2012 


eff. Sept. 1, 1984; Acts 1985, 69th Leg., ch. 37, Sec. 8, eff. Aug. 

26, 1985; Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.22, eff. Jan. 

1, 1992. 

Amended by: 


2008. 

Acts 2011, 82nd Leg., 1st C.S., Ch. 4, Sec. 14.08, eff. October 

1, 2011. 

Sec. 171.363. WILFUL AND FRAUDULENT ACTS. (a) A taxable 

entity commits an offense if the taxable entity is subject to the 

provisions of this chapter and the taxable entity wilfully: 

(1) fails to file a report; 

(2) fails to keep books and records as required by this 

chapter; 

(3) files a fraudulent report; 

(4) violates any rule of the comptroller for the 

administration and enforcement of the provisions of this chapter; or 

(5) attempts in any other manner to evade or defeat any 

tax imposed by this chapter or the payment of the tax. 

(b) A person commits an offense if the person is an accountant 

or an agent for or an officer or employee of a taxable entity and the 

person knowingly enters or provides false information on any report, 

return, or other document filed by the taxable entity under this 

chapter. 

(c) A person who commits an offense under this section may 

also, in addition to the punishment provided by this section, be 

liable for a penalty under this chapter. 

(d) An offense under this section is a felony of the third 

degree. 

(e) A person whose commercial domicile or whose residence is in 

this state may be prosecuted under this section only in the county in 

which the person's commercial domicile or residence is located unless 

the person asserts a right to be prosecuted in another county. 

(f) A prosecution for a violation of this section must be 

commenced before the fifth anniversary of the date of the violation.




6/25/2012 


1, 1992. Amended by Acts 1995, 74th Leg., ch. 1002, Sec. 20, eff. 

Jan. 1, 1996. 

Amended by: 


2008. 

SUBCHAPTER I. DISPOSITION OF REVENUE 

Sec. 171.401. REVENUE DEPOSITED IN GENERAL REVENUE FUND. The 

revenue from the tax imposed by this chapter shall be deposited to the 

credit of the general revenue fund. 


Amended by Acts 1984, 68th Leg., 2nd C.S., ch. 31, art. 3, part B, 

Sec. 7, eff. May 1, 1985; Acts 1987, 70th Leg., 2nd C.S., ch. 5, art. 

2, pt. 1, Sec. 2, eff. Jan. 1, 1988; Acts 1991, 72nd Leg., 1st C.S., 

ch. 5, Sec. 8.231, eff. Jan. 1, 1992. 

Amended by: 


2008. 

Sec. 171.4011. ALLOCATION OF CERTAIN REVENUE TO PROPERTY TAX 

RELIEF FUND. (a) Notwithstanding Section 171.401, beginning with the 

state fiscal year that begins September 1, 2007, the comptroller 

shall, for each state fiscal year, deposit to the credit of the 

property tax relief fund under Section 403.109, Government Code, an 

amount of revenue calculated by: 

(1) determining the revenue derived from the tax imposed 

by this chapter as it applied during that applicable state fiscal 

year; and 

(2) subtracting the revenue the comptroller estimates that 

the tax imposed by this chapter, as it existed on August 31, 2007, 

would have generated if it had been in effect for that applicable 

state fiscal year. 

(b) If the amount under Subsection (a) is less than zero, the 

comptroller shall consider the amount to be zero. 

Added by Acts 2006, 79th Leg., 3rd C.S., Ch. 3, Sec. 2(a), eff.




6/25/2012 

September 1, 2007. 

SUBCHAPTER J. REFUNDS 

Sec. 171.501. REFUND FOR JOB CREATION IN ENTERPRISE ZONE. (a) 

A corporation that has been certified a qualified business as provided 

by Chapter 2303, Government Code, may apply for and be granted a 

refund of franchise tax paid with an initial or annual report if the 

governing body certifies to the comptroller that the business has 

created 10 or more new jobs held by qualified employees during the 

calendar year that contains the end of the accounting period on which 

the report is based. 

(b) Only qualified businesses that have been certified as 

eligible for a refund under this section by the governing body to the 

comptroller are entitled to the refund. 

(c) Repealed by Acts 2003, 78th Leg., ch. 814, Sec. 6.01(10). 

(d) The amount of a refund under this section is the lesser of 

$5,000 or 25 percent of the amount of franchise tax due for any one 

privilege period before any other applicable credits. For purposes of 

this subsection, the initial and second periods are considered to be 

the same privilege period. 

(e) In this section: 

(1) "Enterprise zone" and "qualified employee" have the 

meanings assigned to those terms by Section 2303.003, Government Code. 

(2) "Governing body" means the governing body of a 

municipality or county that applied to have the project or activity of 

a qualified business designated as an enterprise project under Section 

2303.405, Government Code. 

(3) "New job" has the meaning assigned "permanent new job" 

by Section 2303.401, Government Code. 

(4) "Qualified business" means a person that is certified 

as a qualified business under Section 2303.402, Government Code. 

Added by Acts 1989, 71st Leg., ch. 1106, Sec. 25, eff. Sept. 1, 1991. 

Amended by Acts 1993, 73rd Leg., ch. 268, Sec. 44, eff. Sept. 1, 

1993; Acts 1995, 74th Leg., ch. 76, Sec. 5.59, 5.95(22), eff. Sept. 

1, 1995; Acts 1999, 76th Leg., ch. 1467, Sec. 2.61, eff. Jan. 1, 

2000; Acts 2001, 77th Leg., ch. 1263, Sec. 63, eff. Jan. 1, 2002; 

Acts 2003, 78th Leg., ch. 814, Sec. 3.58, 3.59, 6.01(10), eff. Sept.




6/25/2012 

1, 2003.

Appendix 2 

United States Constitution 

Amendment XIV, Section 1

UNITED STATES CONSTITUTION 

AMENDMENT XIV, SECTION 1 

All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are 

citizens of the United States and of the state wherein they reside. No state shall make or enforce 

any law which shall abridge the privileges or immunities of citizens of the United States; nor 

shall any state deprive any person of life, liberty, or property, without due process of law; nor 

deny to any person within its jurisdiction the equal protection of the laws.

Appendix 3 

United States Constitution 

Article I, Section 8

UNITED STATES CONSTITUTION 

ARTICLE I, SECTION 8 

The Congress shall have power to lay and collect taxes, duties, imposts and excises, to pay the 

debts and provide for the common defense and general welfare of the United States; but all 

duties, imposts and excises shall be uniform throughout the United States; 

To borrow money on the credit of the United States; 

To regulate commerce with foreign nations, and among the several states, and with the Indian 

tribes; 

To establish a uniform rule of naturalization, and uniform laws on the subject of bankruptcies 

throughout the United States; 

To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights 

and measures; 

To provide for the punishment of counterfeiting the securities and current coin of the United 

States; 

To establish post offices and post roads; 

To promote the progress of science and useful arts, by securing for limited times to authors and 

inventors the exclusive right to their respective writings and discoveries; 

To constitute tribunals inferior to the Supreme Court; 

To define and punish piracies and felonies committed on the high seas, and offenses against the 

law of nations; 

To declare war, grant letters of marque and reprisal, and make rules concerning captures on land 

and water; 

To raise and support armies, but no appropriation of money to that use shall be for a longer term 

than two years; 

To provide and maintain a navy; 

To make rules for the government and regulation of the land and naval forces; 

To provide for calling forth the militia to execute the laws of the union, suppress insurrections 

and repel invasions;

To provide for organizing, arming, and disciplining, the militia, and for governing such part of 

them as may be employed in the service of the United States, reserving to the states respectively, 

the appointment of the officers, and the authority of training the militia according to the 

discipline prescribed by Congress; 

To exercise exclusive legislation in all cases whatsoever, over such District (not exceeding ten 

miles square) as may, by cession of particular states, and the acceptance of Congress, become the 

seat of the government of the United States, and to exercise like authority over all places 

purchased by the consent of the legislature of the state in which the same shall be, for the 

erection of forts, magazines, arsenals, dockyards, and other needful buildings;--And 

To make all laws which shall be necessary and proper for carrying into execution the foregoing 

powers, and all other powers vested by this Constitution in the government of the United States, 

or in any department or officer thereof.

Appendix 4 

Texas Constitution 

Article 8, Section 1

THE TEXAS CONSTITUTION 

ARTICLE 8. TAXATION AND REVENUE 

Sec. I. EQUALITY AND UNIFORMITY; TAX IN PROPORTION TO VALUE; 

INCOME TAX; EXEMPTION OF CERTAIN TANGIBLE PERSONAL PROPERTY FROM 

AD VALOREM TAXATION. (a) Taxation shall be equal and uniform. 

(b) All real property and tangible personal property in this State, unless exempt as 

required or permitted by this Constitution, whether owned by natural persons or corporations, 

other than municipal, shall be taxed in proportion to its value, which shall be ascertained as may 

be provided by law. 

(c) The Legislature may provide for the taxation of intangible property and may also 

impose occupation taxes, both upon natural persons and upon corporations, other than municipal, 

doing any business in this State. Subject to the restrictions of Section 24 of this article, it may 

also tax incomes of both natural persons and corporations other than municipal. Persons 

engaged in mechanical and agricultural pursuits shall never be required to pay an occupation tax. 

(d) The Legislature by general law shall exempt from ad valorem taxation household 

goods not held or used for the production of income and personal effects not held or used for the 

production of income. The Legislature by general law may exempt from ad valorem taxation: 

(1) all or part of the personal property homestead of a family or single adult, 

"personal property homestead" meaning that personal property exempt by law from forced sale 

for debt; 

(2) subject to Subsections (e) and (g) of this section, all other tangible personal 

property, except structures which are substantially affixed to real estate and are used or occupied 

as residential dwellings and except property held or used for the production of income; 

(3) subject to Subsection (e) of this section, a leased motor vehicle that is not 

held primarily for the production of income by the lessee and that otherwise qualifies under 

general law for exemption; and 

(4) one motor vehicle, as defined by general law, owned by an individual that is 

used in the course of the individual's occupation or profession and is also used for personal 

activities of the owner that do not involve the production of income. 

(e) The governing body of a political subdivision may provide for the taxation of all 

property exempt under a law adopted under Subdivision (2) or (3) of Subsection (d) of this 

section and not exempt from ad valorem taxation by any other law. The Legislature by general 

law may provide limitations to the application of this subsection to the taxation of vehicles 

exempted under the authority of Subdivision (3) of Subsection (d) of this section.

(f) The occupation tax levied by any county, city or town for any year on persons or 

corporations pursuing any profession or business, shall not exceed one half of the tax levied by 

the State for the same period on such profession or business. 

(g) The Legislature may exempt from ad valorem taxation tangible personal property 

that is held or used for the production of income and has a taxable value of less than the 

minimum amount sufficient to recover the costs of the administration of the taxes on the 

property, as determined by or under the general law granting the exemption. 

(h) The Legislature may exempt from ad valorem taxation a mineral interest that has a 

taxable value of less than the minimum amount sufficient to recover the costs of the 

administration of the taxes on the interest, as determined by or under the general law granting the 

exemption. 

(i) Notwithstanding Subsections (a) and (b) of this section, the Legislature by general 

law may limit the maximum appraised value of a residence homestead for ad valorem tax 

purposes in a tax year to the lesser of the most recent market value of the residence homestead as 

determined by the appraisal entity or 110 percent, or a greater percentage, of the appraised value 

of the residence homestead for the preceding tax year. A limitation on appraised values 

authorized by this subsection: 

(1) takes effect as to a residence homestead on the later of the effective date of 

the law imposing the limitation or January 1 of the tax year following the first tax year the owner 

qualifies the property for an exemption under Section 1-b of this article; and 

(2) expires on January 1 of the first tax year that neither the owner of the 

property when the limitation took effect nor the owner's spouse or surviving spouse qualifies for 

an exemption under Section 1-b of this article. 

(j) The Legislature by general law may provide for the taxation of real property that is 

the residence homestead of the property owner solely on the basis of the property's value as a 

residence homestead, regardless of whether the residential use of the property by the owner is 

considered to be the highest and best use of the property. 

(j-1) (Added Nov. 6, 2001; expired Jan. 1, 2004.) 

(Amended Nov. 7; 1978, and Nov. 3,.1987; Subsecs. (b) and (f) amended Nov. 7, 1989; Subsec. 

(e) amended Aug. 10, 1991; Subsec. (c) amended Nov. 2, 1993; Subsec. (d) amended and (g) and 

(h) added Nov. 7, 1995; Subsec. (i) added Nov. 4, 1997; Subsecs. (d) and (e) amended Nov. 2, 

1999; Subsec. (d) amended and (j) and (j-1) added Nov. 6, 2001; Subsec. (d) amended, (i-1) 

added, and (j) repealed Sept. 13, 2003; Subsecs. (d) and (i) amended Nov. 6, 2007; Subsec. (j) 

added Nov. 3, 2009.)

Appendix 5 

2012 Texas Franchise Tax Report 

Information and Instructions

C 

-ki§, rod, 

AO ;i* 

2012 Texas Franchise Tax Report 

Information and Instructions 

f-Ak Form 05-396 (Rev 3 12/2) 

TEX AS 

Topics covered in this booklet: 

Amended Reports 9 

Annual Reports 4 

Annualized Total Revenue 3 

Change in Accounting Period 5 

Combined Reporting 6 

Credits 9 

Discounts 4 

Disregarded Entities 3 

Due Dates 4 

Electronic Funds Transfer (EFT) 6 

Entities Subject to Tax 2 

Estimated Tax 4 

Exempt Entities 2 

Extension of Time to File 6 

EZ Computation 4 

Final Reports 5 

Forfeiture 6 

Franchise Tax WebFile 2 

General Information 1 

Margin 3 

Minimum Franchise Tax 4 

Passive Entities 2 

Penalties and Interest 6 

Tax Rates 3 

Tiered Partnership Election 9 

Where to File 26 

Index of forms: 

Form # Title 

05-102 Public Information Report 11 

05-158-A Franchise Tax Report, page 1 11 

05-158-B Franchise Tax Report, page 2 17 

05-160 Credits Summary Schedule 19 

05-163 No Tax Due Information Report 20 

05-164 Extension Request 21 

05-165 Extension Affiliate List 22 

05-166 Affiliate Schedule 23 

05-167 Ownership Information Report 24 

05-169 EZ Computation 24 

05-170 Franchise Tax Payment Form 25 

05-175 Tiered Partnership Report 25 

General Information 

This booklet summarizes the Texas franchise tax law and 

rules and includes information that is most useful to the 

greatest number of taxpayers preparing Texas franchise tax 

reports. It is not possible to include all requirements of the 

Texas Tax Code (Chapter 171). Taxpayers should not 

consider this tax booklet as authoritative law. Additional 

information about Texas franchise tax can be found online 

at www.franchisetax.tx.gov . 

What's New for 2012? 

Late Filing Penalties 

Taxpayers will be assessed a $50 penalty when a report is 

filed late. The penalty will be assessed regardless of whether 

the taxpayer subsequently files the report, or any tax is due 

for the period covered by the late-filed report. This $50 

penalty is due in addition to any other penalties assessed 

for the reporting period. 

$1 Million No Tax Due Threshold Extended and Adjusted 

The expiration of the $1 million no tax due threshold has 

been extended to Dec. 31, 2013. However, with the 

Consumer Price Index adjustment required by Tax Code 

Section 171.006(b), the no tax due threshold is $1,030,000 

for reports due on or after Jan. 1, 2012, and before Jan. 1, 

2014. The statutory reduction to $600,000 has been 

postponed until Jan. 1, 2014. 

Unincorporated Political Committees are Nontaxable 

Unincorporated political committees are no longer subject 

to the franchise tax effective for reports originally due on or 

after Jan. 1, 2012. Unincorporated political committees that 

have been subject to the tax must send a letter to the 

Comptroller's office to end their filing responsibility. 

Additional Exclusions from Revenue 

Exclusions from revenue have been added for Qualified 

Live Event Promotion Companies (see Tax Code Section 

171.1011(g-5)) and Qualified Courier and Logistics 

Companies (see Tax Code Section 171.1011(g-7)). Eligible 

entities may take these exclusions on reports due on or 

after Jan. 1, 2012. 

Compensation Deduction Limit Adjusted 

The limit on the compensation deduction has been adjusted, 

as required by Tax Code Section 171.006(b), and is now 

$330,000 per person for reports due on or after Jan. 1, 2012, 

and before Jan. 1, 2014. 

Additional Reporting Requirement for Combined 

Groups with Temporary Credit 

The reporting entity of a combined group with a temporary 

credit for business loss carryforward preserved for itself and/ 

1

or its affiliates must submit common owner information by 

the due date of the report. This information must be 

submitted to satisfy franchise tax filing requirements, even 

if the combined group is not claiming the credit on the current 

year's report. For 2012, submit the common owner 

information electronically at window.texas.gov/ 

corn monowner/. 

Definition of Retail Trade Amended 

"Retail trade" means the activities described in Division G 

of the 1987 Standard Industrial Classification Manual 

published by the federal Office of Management and Budget 

and apparel rental activities classified as Industry 5999 or 

7299 of the manual. 

Franchise Tax WebFile 

Electronically file and pay your franchise tax report using 

WebFile. It helps with mathematical computations and has 

built-in edits to help you avoid mistakes that could lead to 

unnecessary billings and not-in-good-standing status. And, 

WebFile is free to use! 

If you owe tax, electronic payment options include credit 

card, electronic check or TEXNET (if enrolled). 

All the forms necessary for filing are included in the following 

packets: 

• Extension Request 

• No Tax Due Report 

• EZ Computation Report 

• Long Form Report 

To get started with WebFile for franchise tax, all you need 

is your 6-digit XT WebFile number listed on your 

Franchise Tax notice and have Adobe Reader 8.1.1 or 

higher installed on your computer. WebFile is available 

online at www.window.state.tx.us/webfile. 

Need a WebFile number? 

Call 1-800-442-3453, enter the taxpayer number when 

prompted and choose option number 1. Our automated 

system will require indentifying information, such as total 

revenue from prior report or last payment amount (if 

greater than zero), before releasing the Webfile number. 

Entities Subject to Tax 

The franchise tax is imposed on the following entities that 

are either organized in Texas or doing business in Texas: 

• corporations; 

• limited liability companies (LLCs), including series LLC(s); 

• banks; 

• state limited banking associations; 

• savings and loan associations; 

• S corporations; 

• professional corporations; 

• partnerships (general, limited and limited liability); 

• trusts; 

• professional associations; 

• business associations; 

• joint ventures; and 

• other legal entities. 

2 

The tax is not imposed on: 

• sole proprietorships (except for single member LLCs); 

• general partnerships where direct ownership is composed 

entirely of natural persons (except for limited liability 

partnerships); 

• entities exempt under Subchapter B of Chapter 171, Tax 

Code; 

• certain unincorporated passive entities; 

• certain gra ntor trusts, estates of natural persons and escrows; 

• real estate mortgage investment conduits and certain 

qualified real estate investment trusts; 

• a nonprofit self insurance trust created under Chapter 2212, 

Insurance Code; 

• a trust qualified under Section 401(a), Internal Revenue Code; 

• a trust exempt under Section 501(c)(9), Internal Revenue Code; 

or 

• unincorporated political committees. 

See Rule 3.581 for information on nontaxable entities. 

Exempt Entities 

Some entities may be exempt from the franchise tax. The 

exemptions vary depending upon the type of organization. 

Exemptions are not automatically granted to an entity. For 

more information on franchise tax exemptions, go to 

www.window.state.tx.us/taxinfo/taxpubs/tx96_1045.html. 

Note: An entity that qualifies as a passive entity is not considered 

an exempt entity. 

Passive Entities 

Partnerships (general, limited and limited liability) and trusts 

(other than business trusts) may qualify as a passive entity 

and not owe any franchise tax for a reporting period if at least 

90% of the entity's federal gross income (as reported on the 

entity's federal income tax return), for the period upon which 

the tax is based, is from the following sources: 

• dividends, interest, foreign currency exchange gain, 

periodic and nonperiodic payments with respect to notional 

principal contracts, option premiums, cash settlements or 

termination payments with respect to a financial instrument, 

and income from a limited liability company; 

• distributive shares of partnership income to the extent that 

those distributive shares of income are greater than zero; 

• net capital gains from the sale of real property, net gains 

from the sale of commodities traded on a commodities 

exchange and net gains from the sale of securities; and 

• royalties from mineral properties, bonuses from mineral 

properties, delay rental income from mineral properties 

and income from other nonoperating mineral interests 

including nonoperating working interests. 

Passive income does not include rent or income received 

by a nonoperator from mineral properties under a joint 

operating agreement if the nonoperator is a member of an 

affiliated group and another member of that group is the 


A passive entity that is registered or is required to be 

registered with the Secretary of State (SOS) or the 

Comptroller's office must file a No Tax Due Information

Report (Form 05-163) annually to affirm that the entity 

qualifies as a passive entity. A passive entity is not required 

to file an Ownership Information Report (Form 05-167). 

A partnership or trust that qualifies as a passive entity for 

the period upon which the franchise tax report is based, 

and is not registered and is not required to be registered 

with the SOS or Comptroller's office, will not be required to 

register with or file a franchise tax report with the 

Comptroller's office. 

A passive entity that is not registered with the Comptroller's 

office and that no longer qualifies as a passive entity must 

file a Nexus Questionnaire (Form AP-114) or a Business 

Questionnaire (Form AP-224) to register with the 

Comptroller's office and begin filing franchise tax reports. 

Disregarded Entities 

An entity's treatment for federal income tax purposes does 

not determine its responsibility for Texas franchise tax. 

Therefore, partnerships, LLCs and other entities that are 

disregarded for federal income tax purposes, are considered 

separate legal entities for franchise tax reporting purposes. 

The separate entity is responsible for filing its own franchise 

tax report unless it is a member of a combined group. If the 

entity is a member of a combined group, the reporting entity 

for the group may elect to treat the entity as disregarded 

and will not unwind its operations from its "parent" entity. In 

this instance, it will be presumed that both the "parent" entity 

and disregarded entity have nexus in Texas for 

apportionment purposes only. Whether or not the entity is 

disregarded for franchise tax, it must be listed separately 

on the affiliate schedule. Additionally, if the disregarded entity 

is organized in Texas or has physical presence in Texas, it 

will be required to file the appropriate information report 

(Form 05-102 or 05-167). 

Margin 

Unless a taxable entity qualifies and chooses to file using 

the EZ computation, the tax base is the taxable entity's 

margin and is computed in one of the following ways: 

• Total Revenue times 70% 

• Total Revenue minus Cost of Goods Sold (COGS) 

• Total Revenue minus Compensation 

A taxable entity must make an annual election to deduct 

COGS or compensation by the due date of the franchise 

tax report, the extended due date or the date the report is 

filed, whichever is latest. The election to use COGS or 

compensation is made by filing the franchise tax report using 

one method or the other. This is an annual election and is 

effective for the entire period upon which the tax is based. 

After the due date or the extended due date of the report, a 

taxable entity may not amend its report to change its election 

to COGS or compensation. However, a taxable entity may 

amend its report to change its method of computing margin 

from COGS or compensation to 70% of total revenue or, if 

eligible, the EZ computation. 

Note: Not all entities will qualify to use COGS to compute margin. 

See instructions for Item 11. Cost of goods sold (COGS) 

on page 15 for more information . 

Tax Rates 

The franchise tax rates are: 

• 1.0% (0.01) for most entities 

• 0.5% (0.005) for qualifying wholesalers and retailers 

• 0.575% (0.00575) for those entities with $10 million or less 

in annualized total revenue using the EZ computation 

Qualifying retailers and wholesalers are those entities that 

fall under Divisions F or G of the 1987 Standard Industrial 

Classification manual (www.osha.gov/pls/imis/ 

sicsearch.html) who are primarily engaged in retail and/or 

wholesale trade and apparel rental activities classified as 

Industry 5999 or 7299 of the manual. 

An entity is primarily engaged in retail and/or wholesale trade if: 

1) the total revenue from its activities in retail and wholesale 

trade is greater than the total revenue from its activities 

in trades other than the retail and wholesale trades; 

2) except for eating and drinking places as described in 

Major Group 58 of Division G, less than 50% of the total 

revenue from activities in retail and wholesale trade 

comes from the sale of products it produces or products 

produced by an entity that is part of an affiliated group to 

which the taxable entity also belongs; and 

3) the taxable entity does not provide retail or wholesale utilities, 

including telecommunications services, electricity or gas. 

Note: A product is not considered to be produced if modifications 

made to the acquired product do not increase its sales price 

by more than 10%. 

Annualized Total Revenue 

To determine an entity's eligibility for the $1,030,000 no tax 

due threshold and qualification for the EZ computation, an 

entity must annualize its total revenue if the period upon which 

the report is based is not equal to 12 months. 

Note: The amount of total revenue used in the tax calculations will 

NOT change as a result of annualizing revenue. Total revenue 

will equal the prescribed amounts for the period upon which 

the tax is based. 

To annualize total revenue, divide total revenue by the 

number of days in the period upon which the report is based, 

and multiply the result by 365. 

Examples: 

1) A taxable entity's 2012 franchise tax report is based on 

the period 09-15-2011 through 12-31-2011 (108 days), and 

its total revenue for the period is $400,000. The taxable 

entity's annualized total revenue is $1,351,852 ($400,000 

divided by 108 days multiplied by 365 days). Based on its 

annualized total revenue, the taxable entity would NOT 

qualify for the $1,030,000 no tax due threshold, but is 

eligible to file using the EZ computation. The entity will 

report $400,000 as total revenue for the period. 

2) A taxable entity's 2012 franchise tax report is based on 

the period 03-01-2010 through 12-31-2011 (671 days), 

3

and its total revenue for the period is $1,375,000. The 

taxable entity's annualized total revenue is $747,951 

($1,375,000 divided by 671 days multiplied by 365 days). 

Based on its annualized total revenue, the taxable entity 

would qualify for the $1,030,000 no tax due threshold, 

and is eligible to file using the No. Tax Due Information 

Report (Form 05-163). The entity will report $1,375,000 

as total revenue for the period. 

Minimum Franchise Tax 

There is no minimum tax requirement under the franchise 

tax provisions. An entity that calculates an amount of tax 

due that is less than $1,000 or that has annualized total 

revenue less than or equal to $1,030,000 is not required to 

pay any tax. (See note for tiered partnership exception.) 

The entity, however, must submit all required reports to 

satisfy its filing requirements. 

If an entity meets the $1,030,000 no tax due threshold in 

the previous paragraph, it may file a No Tax Due Information 

Report (Form 05-163). 

Note: A tiered partnership election is not allowed if the lower tier 

entity, before passing total revenue to the upper tier entities, 

has $1,030,000 or less in annualized total revenue or owes 

less than $1,000 in tax. If the election is made and revenue 

is passed, both the upper and lower tier entities will owe 

any amount of tax that is calculated as due even if the 

amount is less than $1,000 or annualized total revenue after 

the tiered partnership election is $1,030,000 or less. 

EZ Computation 

Entities with $10 million or less in annualized total revenue may 

choose to file using the EZ Computation Report (Form 05-169). 

Combined groups are eligible for the EZ computation. Upper 

and lower tier entities, when the tiered partnership election 

has been made, will qualify for the EZ computation only if the 

lower tier entity would have qualified for the EZ computation 

before passing total revenue to the upper tier entities. Entities 

using the EZ computation forego any credits for that report 

year, including the temporary credit for business loss 

carryforwards and economic development credits. 

The franchise tax rate for entities choosing to file using 

the EZ computation is 0.575% (0.00575). No deduction is 

allowed for COGS or compensation when choosing the 

EZ computation. 

Discounts 

Discounts do not apply for the 2010 through 2013 franchise 

tax reports because the no tax due thresholds of $1 million 

(for 2010 and 2011) and $1,030,000 (for 2012 and 2013) 

exceed the total revenue to which the discounts would apply 

($900,000). 

Due Dates 

If the due date (original or extended) of a report falls on a 

Saturday, Sunday or legal holiday included on the list 

published before Jan. 1 of each year in the Texas Register, 

the due date will be the next business day. 

4 

Annual Reports - due May 15 of each report year. 

Taxable entities that became subject to the franchise tax 

on or after Oct. 4, 2009, will owe a first annual report that is 

due on May 15 of the year following the year the entity 

became subject to the franchise tax. 

Estimated Tax 

Texas law does not require the filing of estimated tax reports 

or payments. 

Annual Reports 

Report Year 

The year in which the franchise tax report is due. The 2012 

annual report is due May 15, 2012. 

Privilege Period 

Jan. 1, 2012 through Dec. 31, 2012. 

For entities that became subject to the tax during the 2011 

calendar year, the privilege period begins on the entity's 

begin date and ends on Dec. 31, 2012. 

Accounting Period 

Accounting Year Begin Date: 

Enter the day after the end date on the previous franchise 

tax report. For example, if the 2011 annual franchise tax 

report had an end date of 12-31-10, then the begin date on 

the 2012 annual report should be 01-01-11. 

For entities that became subject to the tax during the 2011 

calendar year, enter the date the entity became subject to 

the tax. 

Accounting Year End Date: 

Enter the last accounting period end date for federal income 

tax purposes in the year before the year the report is 

originally due. 

Entities that became subject to the tax during the 2011 

calendar year and have a federal accounting year end date 

that is prior to the date the entity became subject to the tax, 

will use the day they became subject to the franchise tax 

as the accounting year end date on the first annual report. 

This results in a zero report. 

Example: An entity became subject to the tax on 10-05-11. 

The entity's federal accounting year end date is 08-31. Since 

the federal accounting year end date of 08-31-11 is prior to 

the date the entity first became subject to the tax, both the 

accounting period begin and end date on the 2012 annual 

report will be 10-05-11. This results in a zero report. On the 

2013 annual report, the entity will file with an accounting 

period 10-05-11 through 08-31-12. 

Combined Groups 

For the period that a combined group exists, the combined 

group will file only annual reports. For any accounting period 

that an entity is not part of a combined group, the entity 

must file a separate report.

Final Reports 

An entity that ceases doing business in Texas for any reason 

(i.e., termination, withdrawal, merger, etc.) is required to 

file a final franchise tax report (Forms 05-158-A and 05- 

158-B, 05-163 or 05-169) and pay any additional tax, if due. 

Due Date 

A final report is due 60 days after the entity ceases doing 

business in Texas. 

Accounting period 

Accounting Year Begin Date: 

The day after the end date on the previous franchise tax 

report. 

Accounting Year End Date: 

The date the taxable entity ceases doing business in Texas. 

For a Texas entity, the end date is the effective date of 

termination, merger or conversion into a nontaxable entity. 

For a non-Texas entity, the end date is the date the entity 

ceases doing business in Texas. 

Example: A Texas entity filed a 2012 annual franchise tax 

report using a 12-31-11 accounting year end date. The entity 

wants to end its existence on 08-03-12. To obtain a certificate 

of account status for termination, the entity must file a final 

report and pay tax for the accounting period from 01-01-12 

through 08-03-12. If the entity is not terminated until 08-16- 

12, the entity must file an amended final report. The 

amended final report is due the 60th day after 08-16-12, 

the date the entity terminated. 

Taxable entities must satisfy all tax requirements or state in 

the appropriate articles which entity will be responsible for 

satisfying all franchise tax requirements before they may 

terminate legal existence in Texas. All documents required by 

the Texas Secretary of State to terminate legal existence in 

Texas must be received in that office before 5:00 p.m. on Dec. 

31 to avoid liability for the next annual franchise tax report. If 

Dec. 31 falls on a weekend, the documents must be received 

by 5:00 p.m. on the last working day of the year. Postmark 

dates will not be accepted. You may refer to 

wvvw.wi n d ow. state .tx. u s/taxi nfo/fra nch ise/ta x_req_sos htm I for 

more information on filing requirements. This section does not 

apply to financial institutions. 

Non-Texas entities that have not registered with the SOS 

office, but have been doing business in Texas, must satisfy 

all franchise tax requirements to end their responsibility for 

franchise tax. The entity must notify the Comptroller's office 

in writing and include the date the entity ceased doing 

business in Texas. 


If every member of a combined group ceases doing 

business in Texas, a final report will need to be filed and 

paid before a taxable entity will receive clearance from the 

Comptroller for termination, cancellation, withdrawal or 

merger. In all other cases, a combined group will not file a 

final report. 

Except as provided below, if the entity that ceases doing 

business in Texas is part of a combined group, the data 

that should be reported on the final report will be included 

in the combined group's report for the corresponding 

accounting period. The entity should use Form 05-359, 

Request for Certificate of Account Status to identify the 

reporting entity of the combined group. 

An entity that joins a combined group and then ceases doing 

business in Texas in the accounting year that would be 

covered by a final report is required to file a final report for 

the data from the accounting year begin date through the 

date before it joined the combined group. The period 

beginning with the date the entity joined the combined group 

through the date the entity ceased doing business in Texas 

will be reported on the combined group's annual report for 

the corresponding period. 

A member of a combined group that leaves the combined 

group and then ceases doing business in Texas during the 

accounting year that would be covered by a final report is 

required to file a final report for the data from the date the 

entity left the combined group through the date that the entity 

ceased doing business in Texas. 

Change in Accounting Period 

Texas law does not provide for the filing of short period 

franchise tax reports. A change in a federal accounting 

period or the loss of a federal filing election does not change 

the begin and end dates of an accounting period for 

franchise tax reporting purposes. The keys to the period 

upon which the tax is based are the begin and end dates. 

The begin date will be the day after the end date on the 

prior franchise tax report, and the end date will be the last 

federal tax accounting period end date in the year prior to 

the year in which the report is originally due. Therefore, a 

change in a federal accounting period may result in an 

accounting period on the franchise tax report of more or 

less than 12 months. 

Example 1: A fiscal year entity changes its accounting year 

end from 09-30-11 to a calendar year end of 12-31-11. 

Because of the change in the federal accounting period, 

the entity is required to file a short period federal return 

covering the period 10-01-11 through 12-31-11. For 

franchise tax reporting purposes, the entity would file its 

2012 report based on the period beginning 10-01-10 through 

12-31-11, combining the relevant information from the two 

federal income tax reports. 

Example 2: A calendar year entity lost its S election under 

the Internal Revenue Code on June 27, 2011. As a result, 

the entity was required to file a short period federal S return 

for the period 01-01-11 through 06-27-11. The entity did 

not change its accounting year end and filed a second short 

period federal return for the period 06-28-11 through 

12-31-11. For franchise tax reporting purposes, the entity 

would include the period 01-01-11 through 12-31-11 on its 

2012 annual report and would combine the relevant 

information from the two federal reports. 

5

Extension of Time to File 

Please see extension requirements for combined reports and 

electronic funds transfer (EFT) payors in the respective 

sections of these instructions. 

If an entity cannot file its annual report, including the first 

annual report, by the original due date, it may request an 

extension of time to file the report. If granted, the extension 

for a non-EFT payor will be through Nov. 15, 2012. The 

extension payment must be at least 90% of the tax that will 

be due with the report or 100% of the tax reported as due 

on the prior franchise tax report (provided the prior report 

was filed on or before May 14, 2012). The extension request 

must be made on Form 05-164 and must be postmarked 

on or before May 15, 2012. If a timely filed extension request 

does not meet the payment requirements, then penalty and 

interest will apply to any part of the 90% not paid by May 

15, 2012, and to any part of the 10% not paid by Nov. 15, 

2012. 

A taxable entity that became subject to the franchise tax 

during the 2011 calendar year may not use the 100% 

extension option. 

An entity that was included as an affiliate on a 2011 

combined group report may not use the 100% extension 

option if filing as a separate entity in 2012. 

Note: A combined group must file the Extension Request (Form 

05-164) and an Affiliate List (Form 05-165) to have a valid 

extension for all members of the group. 

Electronic Funds Transfer (EFT) 

Taxable entities that paid $10,000 or more in franchise tax 

during the preceding state fiscal year are required to 

electronically transmit franchise tax payments to the 

Comptroller's office for the subsequent year. Additional 

information about EFT requirements are outlined in Rule 

3.9 concerning electronic filing and electronic fund transfers. 

The extended due date for mandatory EFT payors is different 

from that of other franchise taxpayers. An EFT payor may 

extend the filing date from May 15, 2012, to Aug. 15, 2012 by 

timely making an extension payment electronically using 

TexNet (tax type code 13080 Franchise Tax Extension) or 

WebFile. Mandatory EFT payors must remit at least 90% of 

the tax that will be due with the report or 100% of the tax 

reported as due on the prior franchise tax report, provided 

the prior year's report was filed on or before May 14, 2012. 

An EFT payor may request a second extension to Nov. 15, 

2012, to file the report by paying electronically before Aug. 

15, 2012, the balance of the amount of tax due that will be 

reported as due on Nov. 15, 2012, using TexNet (tax type 

code 13080 Franchise Tax Extension), WebFile or by 

submitting a paper Extension Request (Form 05-164) if the 

entity has paid all of the tax due with its first extension. 

If an online extension payment is made, the taxable entity 

should NOT submit a paper Extension Request (Form 05- 

164). 

6 


If any one member of a combined group receives notice 

that it is required to electronically transfer franchise tax 

payments, then the combined group is required to 

electronically transfer payments. The payment must be 

remitted as discussed above; however, the combined group 

must also submit an Extension Affiliate List (Form 05-165) 

to the Comptroller's office for the first extension request. 

Penalties and Interest 

Late Filing Penalties 

Taxpayers will be assessed a $50 penalty when a report is 

filed late. The penalty will be assessed regardless of whether 

the taxpayer subsequently files the report or any tax is due 

for the period covered by the late-filed report. This $50 

penalty is due in addition to any other penalties assessed 

for the reporting period. 

A penalty of 5% of the tax due shall be imposed on an entity 

that fails to pay the tax when due. If the entity fails to pay 

the tax within 30 days after the due date, an additional 5% 

penalty shall be imposed. 

Delinquent taxes accrue interest beginning 60 days after 

the date the tax is due. The interest rate to be charged is 

the prime rate plus 1%, as published in The Wall Street 

Journal on the first day of each calendar year that is not a 

Saturday, Sunday or legal holiday. 

Late EFT payments are subject to the same penalties noted 

above. Also, failure to follow the EFT requirements could 

result in an additional 5% penalty being assessed. 

Forfeiture 

If an entity does not file its franchise tax report and required 

information report and/or does not pay tax, penalty or interest 

due within 45 days of the due date, its powers, rights and 

its right to transact business may be forfeited. Entities that 

fail to file or pay within 120 days of the forfeiture of the right 

to transact business are subject to having their registration 

forfeited. 

Upon the forfeiture of the right to transact business, the 

officers and directors of the entity become personally liable 

for each debt of the entity that is created or incurred in this 

state after the due date of the report and/or tax and before 

the privileges are restored. Texas Tax Code Section 

171.255. 

Combined Reporting 

Taxable entities that are part of an affiliated group engaged 

in a unitary business shall file a combined group report in 

lieu of individual reports. The combined group is a single 

taxable entity for purposes of calculating franchise tax due 

and completing the required tax reports. 

An affiliated group is a group of entities (with or without nexus 

in Texas) in which a controlling interest (more than 50%) is 

owned by a common owner, either corporate or noncorporate, 

or by one or more of the member entities.

An affiliated group can include: 

• pass-through entities, including partnerships; 

• limited liability companies taxed as partnerships under 

federal law; 

• S corporations; and 

• disregarded entities under federal law. 

A combined group cannot include: 

• taxable entities that conduct business outside the United 

States if 80% or more of the taxable entity's property and 

payroll are assigned to locations outside the United 

States; 

• insurance companies that pay the gross premium tax; 

• an entity exempt under Chapter 171, Subchapter B; or 

• passive entities; however, the pro rata share of net income 

from a passive entity shall be included in the total revenue 

to the extent it was not included in the margin of another 

taxable entity. (See the section on Passive Entities for 

additional information.) 

A unitary business is defined as a single economic enterprise 

that is made up of separate parts of a single entity or of a 

commonly controlled group of entities that are sufficiently 

interdependent, integrated and interrelated through their 

activities so as to provide a synergy and mutual benefit that 

produces a sharing or exchange of value among them and 

a significant flow of value to the separate parts. All affiliated 

entities are presumed to be engaged in a unitary business. 

See franchise tax Rule 3.590 for more detailed information 

on combined reporting. 

Reporting Entity 

The combined group's choice of an entity that is: 

1) the parent entity, if it is a part of the combined group, or 

2) the entity that is included within the combined group, is 

subject to Texas' taxing jurisdiction, and has the greatest 

Texas business activity during the first period upon which 

the first combined group report is based, as measured 

by the Texas receipts after eliminations for that period. 

The reporting entity shall file a combined report on behalf 

of the group together with all reports and schedules required 

by the Comptroller. The reporting entity shall change only 

when the entity (other than the parent) is no longer subject 

to Texas' jurisdiction to tax or the reporting entity is no longer 

a member of the combined group. 

Combined Report 

A combined group shall include all taxable entities without 

regard to the $1,030,000 no tax due threshold on total 

revenue. For example, even if an entity in a combined group 

on its own has less than or equal to $1,030,000 in total 

revenue, that entity must still be included in the report for the 

combined group. 

Unless a combined group qualifies and chooses to file using 

the EZ computation, the combined group's margin is 

computed in one of the following ways: 

• Total Revenue times 70% 

• Total Revenue minus Cost of Goods Sold (COGS)** 

• Total Revenue minus Compensation 

"If eligible. See instructions for Item 11. Cost of goods sold (COGS) on 

page 15 for more information. 

A combined group must make an annual election to deduct 

COGS or compensation by the due date of the franchise tax 

report, the extended due date or the date the report is filed, 

whichever is latest. The election to use COGS or compensation 

is made by filing the franchise tax report using one method or 

the other. This is an annual election and is effective for the 

entire period upon which the tax is based. The election is 

effective for all members of the combined group. 

After the due date or the extended due date of the report a 

combined group may not amend its report to change its election 

to COGS or compensation. However, a combined group may 




A combined group may qualify to use the EZ computation if its 

combined annualized total revenue is $10 million or less. 

A combined group shall look at the total revenue of the group 

to determine the applicable tax rate. If the revenue from retail 

and/ or wholesale activities is greater than the revenue from 

all other activities, then the group may qualify as a retailer 

and/or wholesaler and may use the .5% (0.005) tax rate as 

long as it meets all the criteria specified for the .5% (0.005) 

rate. See Tax Rates, page 3. 

Accounting Period of the Combined Group 

The combined group's accounting period is generally 

determined as follows: 

• if two or more members of a group file a federal 

consolidated return, the group's accounting period is the 

federal tax period of the federal consolidated group; 

• in all other cases, the accounting period is the federal 

tax period of the reporting entity. 

See the accounting period begin and end date requirements 

in the annual and final report sections. 

The accounting year begin and end dates entered on page 

1 of the franchise tax report must reflect the full accounting 

period on which the combined group report is based. 

If the federal tax period of a member differs from the federal 

tax period of the group, the reporting entity will determine 

the portion of that member's revenue, cost of goods sold, 

compensation, etc. to be included by preparing a separate 

income statement based on federal income tax reporting 

methods for the months included in the group's accounting 

period. 

Note: The affiliates' accounting year begin and end dates on the 

affiliate schedule must be within the accounting year begin 

and end dates entered on page 1 of the franchise tax report. 

For example, a combined group selects a newly formed 

7

entity (formed 07-01-2011) as the reporting entity. The 

combined group's franchise tax report is based on the 

accounting period 01-01-2011 through 12-31-2011. On page 

1 of the franchise tax report, the accounting year begin date 

is 01-01-2011, and the accounting period end date is 12- 

31-2011. On the affiliate schedule, the newly formed entity 

will be listed with an accounting year begin date of 07-01- 

2011 and an accounting year end date of 12-31-2011. 

Newly Formed or Acquired Entities 

When a combined group acquires or forms another taxable 

entity during the period upon which the combined group's report 

is based, it will be presumed that the newly acquired or formed 

entity is unitary and will be included in the combined filing. 

See the annual and final report sections of these instructions 

for additional information. 

Combined Total Revenue 

A combined group shall determine its total revenue by: 

1. calculating the total revenue of each of its members as if 

the member were an individual taxable entity without 

regard to the $1,030,000 no tax due threshold (See 

instructions for Items 1-9 on Form 05-158-A to compute 

total revenue on an individual entity basis.); 

2. adding together the total revenues of the members 

determined under (1); and 

3. subtracting, to the extent included in (2), items of total 

revenue received from a member of the combined group. 

Combined Cost of Goods Sold (COGS) 

A combined group that elects to subtract COGS shall 

determine that amount by: 

1. calculating the COGS for each of its members as if the 

member were an individual taxable entity (See 


COGS on an individual entity basis.); 

2. adding together the amounts of COGS determined under 

(1); and 

3. subtracting from the amount determined under (2) any 

COGS amounts paid from one member of the combined 

group to another member of the combined group, but 

only to the extent the corresponding item of total revenue 

was subtracted. 

Note: COGS amounts may be computed ONLY for those affiliates 

that are eligible for COGS. See instructions on page 15 for 

more information. 

Combined Compensation 

A combined group that elects to subtract compensation shall 

determine that amount by: 

1. calculating the compensation for each of its members as 

if each member were an individual taxable entity (See 


compensation on an individual entity basis.); 

2. adding together the amounts of compensation determined 

under (1); and 

3. subtracting from the amount determined under (2) any 

compensation amounts paid from one member of the 

combined group to another member of the combined 

group, but only to the extent the corresponding item of 

total revenue was subtracted. 

If any employee, officer, director, etc. is paid by more than 

one member of the combined group, that individual's 

compensation is capped at $330,000 per 12-month period 

upon which the report is based when computing the 

compensation deduction for the group. 

Combined Apportionment 

Texas gross receipts of a combined group include only 

receipts for entities within the group that are organized in 

Texas or that have nexus in Texas. Receipts from 

transactions between members that are excluded from 

revenue may not be included in Texas Gross Receipts. 

However, Texas Gross Receipts will include certain sales 

of tangible personal property made to third party 

purchasers if the tangible personal property is ultimately 

delivered to a purchaser in Texas without substantial 

modification. For example, drop shipments made by a 

member of a combined group from a Texas location to a 

Texas purchaser would be included in Texas receipts 

based on the amount billed to the third party purchaser if 

the seller is also a member of the combined group and 

the seller does not have nexus. 

Gross Receipts Everywhere for a combined group should 

include receipts for all entities within the group, regardless 

of whether the entities have nexus in Texas. Receipts from 

transactions between members that are excluded from 

revenue may not be included in Gross Receipts Everywhere. 

Additional Reporting Reauirement for Combined Groups 

with Temporary Credit 




the due date of the report. This information must be submitted 

to satisfy franchise tax filing requirements, even if the 

combined group is not claiming the credit on the current year's 

report. For 2012, submit the common owner information 

electronically at window.texas.gov/commonowner/. 

Combined Extensions 

A combined group may only use the 100% extension option 

if the combined group has lost a member or if the members 

of the combined group are the same as they were on the 

last day of the period upon which the report due in the 

previous calendar year was based. 

A combined group must timely submit Forms 05-164 and 

05-165 along with the required payment to request an 

extension of time to file its report. See the Extensions and 

EFT sections of this booklet for additional information. 

Liability for the Tax 

Each taxable entity identified on the Affiliate Schedule (Form 

05-166) is jointly and severally liable for the franchise tax of 

the combined group [Texas Tax Code, Sec. 171.1014(i)]. 

Notice of any such tax liability shall be sent to the reporting 

8

entity at the address listed on the report and shall be deemed 

sufficient and adequate notice of such liability to each 

member of the combined group. Separate notice to each 

member shall not be required. 

Tiered Partnership Election 

A "tiered partnership arrangement" means an ownership 

structure in which any of the interests in one taxable entity 

treated as a partnership or an S corporation for federal 

income tax purposes (a "lower tier entity") are owned by 

one or more other taxable entities (an "upper tier entity"). A 

tiered partnership arrangement may have two or more tiers. 

The tiered partnership election, under Sec.171.1015 Tax 

Code , is not mandatory; it is a filing option for entities in a 

tiered partnership arrangement. 

The tiered partnership election is not an alternative to 

combined reporting. Combined reporting is mandatory for 

taxable entities that meet the ownership and unitary criteria. 

Therefore, the tiered partnership election is not allowed if 

the lower tier entity is included in a combined group. 

Additionally, the tiered partnership election is not allowed if 

the lower tier entity, before passing total revenue to the upper 

tier entities, has $1,030,000 or less in annualized total 

revenue or owes less than $1,000 in tax. 

The tiered partnership election allows the lower tier entity 

to pass its total revenue to its upper tier entities. The upper 

tier entities then report this passed revenue with their own 

total revenue. It is important to note that this election does 

not allow the lower tier entity to pass its deductions for cost 

of goods sold or compensation to the upper tier entities. 

The requirements for filing under the tiered partnership 

election are: 

• All taxable entities involved in the tiered partnership election 

must file a franchise tax report, a Public Information Report 

(Form 05-102) or Ownership Information Report (Form 05- 

167), and the Tiered Partnership Report (Form 05-175). 

• Both the upper and the lower tier entities must blacken 

the tiered partnership election circle on their tax reports. 

• Total revenue may be passed only to upper tier entities 

that are subject to the Texas franchise tax. 

• Total revenue must be passed to upper tier taxable entities 

based on ownership percentage. 

• Deductions (COGS or compensation) may not be passed 

to upper tier entities. 

• The upper and lower tier entities may use the EZ 

Computation (Form 05-169) only if the lower tier entity has 

$10 million or less in annualized total revenue before total 

revenue is passed to the upper tier entities. 

• The upper tier entities are not eligible to file a No Tax Due 

Information Report (Form 05-163). 

Both the upper and lower tier entities will owe any amount 

of tax that is calculated as due even if the amount is less 

than $1,000 or annualized total revenue after the tiered 

partnership election is less than $1,030,000. 

If the upper and lower tier entities have different accounting 

periods, the upper tier entity must allocate the total revenue 

reported from the lower tier entity to the accounting period 

on which the upper tier entity's report is based. 

Credits 

2008 Temporary Credit for Business Loss Carryforwards 

A taxable entity is eligible for the credit if the entity was, on 

May 1, 2006, subject to the franchise tax. The credit is based 

on business loss carryforwards that were created on the 2003 

and subsequent franchise tax reports that were not exhausted 

or expired on a report due before Jan. 1, 2008. Business 

loss carryforwards must have been used to offset any positive 

amount of earned surplus, even in years when no tax was 

due or the tax due was based on taxable capital. 

Each eligible taxable entity must have preserved its right to 

take the credit on or before the due date of its 2008 report. 

The taxable entity (including combined groups) must elect to 

claim the credit on or before the original or extended due date 

of the report on which the credit will be taken. The election is 

made by actually taking the credit on a completed report form 

filed on or before the original or extended due date. 

A taxable entity that is a combined group is allowed to take a 

credit for eligible members of the combined group (i,e., the 

member was subject to the franchise tax on May 1, 2006, 

and preserved the right to take the credit). If a member of a 

combined group changes combined groups the business loss 

carryforward of that member will no longer be included in the 

temporary credit calculation of the group and the related share 

of any temporary credit carried over from a previous year is 

lost to the group. There is no proration for a partial year. 

See Rule 3.594 for additional information regarding this credit. 

Economic Development Credits 

A taxable entity that established a research and 

development or job creation credit on a franchise tax report 

originally due prior to Jan. 1, 2008, may claim any unused 

credit carried forward to offset the tax on margin. 

A taxable entity that established a capital investment credit 

on a franchise tax report originally due prior to Jan. 1, 2008, 

may claim any unused installments and credit carried 

forward to offset the tax on margin. 

Note: An enterprise project that established a capital investment 

credit on a 2008 franchise tax report may carry forward any 

unused credit to offset the tax on margin. See Rule 3.593 

for additional information. 

Amended Reports 

If an entity needs to amend a report, it must file all pages of 

the report (as originally filed) along with a cover letter 

explaining the reason for the amendment. The entity must 

write "AMENDED" on the top of the report and submit 

supporting documentation. See Rule 3.584 for additional 

information. 

9

Instructions for Completing Taxpayer Information 

Included on Texas Franchise Tax Forms 

Taxpayer number: 

Due date: 

Enter the Texas taxpayer identification For annual filers, enter May 15, 

number that has been assigned to your 2012. If you are filing a final 

entity by the Comptroller's office. If you report, enter the due date that 

do not have an assigned number, enter was provided on the letter you 

your federal employer identification received. 

(FEI) number. 

Taxpayer name: 

The legal name 

of the entity filing 

the report. 

Mailing address: 

The mailing 

address of the 

entity filing the 

report. If there is, 

a change of 

address for this 

entity, please 

blacken the circle 

as indicated. 

Combined Report: 

If this report is 

being filed on 

behalf of an affiliated 

group of entities 

engaged in a unitary 

business, please 

blacken the circle 

accordingly. 

Accounting year begin date: 

See the accounting year begin 

date requirements in the 

annual and final report 

sections. Also see the 

accounting period 

information in 

the combined 

reporting 

section. 

Entity type: 

Blacken circle if this entity 

is legally formed as a 

corporation, limited 

liability company or 

financial institution. 

10 

.......1..V1a 

o 

Report year: 

The year the report is due. 

, 05-15 A exas Franchise T Report - Page 1 

■ Tcode 

3250 Annual 

Tiered Partnership: 

If you are making a tiered 

partnership election and 

are the upper tier entity 

including revenue passed 

to you by the lower tier 

entity, or if you are the 

lower tier entity excluding 

revenue passed to an 

upper tier entity, blacken 

this circle and complete 

Form 05-175. Do not 

blacken this circle just 

because you own an 

interest in another entity. 

Privilege period: 

See the privilege 

period information 

in the annual 

report sections. 

Accounting year end date: 

See the accounting year 

end date requirements 

in the annual and final 

report sections. Also see 

the accounting period 

information in the 

combined reporting 

section. 

SIC code: 

Enter the code that is 

appropriate for the 

taxable entity or the 

code that reflects the 

overall business activity 

of a combined group. 

The 1987 Standard 

Industrial Classification 

(SIC) codes can be 

found at www.osha.gov/ 

pls/imis/sicsearch.html. 

Secretary of State 

file number or 

Comptroller file 

number: 

The number 

assigned to the 

entity by the SOS 

or Comptroller. 

■ xpayer number ■ Report year Due date Privilege period covered by t is report 

Taxpayer Name 

ng address 

Secretary of S ate file number 

or Comptroll file number 

City State Country ZIP Code Plus 4 Blacken circle if the 

address has changed ■ 

Blacken circle if this is a combined repo 

Blacken circle if Total Revenue is adjusted for 

Tiered Partnership Election, see instructions 

Blacken circle if this is a Corpo or Limited Liability Company O Blacken cle if this is an Entity other than a Corporation or Limited Liability Company 

If not twelve m 

Acco mg year 

in datel 

s, see instructions for annualized reven e 

m an d y y m an d y y SIC code NAICS code 

Acco nting year 1 

en date ■ 

■ 

Entity type: 

Blacken circle if 

this entity is legally 

formed as a 

partnership, 

association, trust 

or entity other 

than a corporation, 

limited liability 

company or 

financial institution. 

NAICS code: 

Enter the code that is 

appropriate for the taxable 

entity or the code that reflects 

the overall business activity 

of a combined group. The 

North American Industry 

Classification System (NAICS) 

codes can be found at 

www.census.gov/eos/www/ 

naics/.

Specific Line Instructions for 

Each Report Included in this Booklet 

Form 05-102 

Texas Franchise Tax Public Information 

Report 

Filing Requirements: Each corporation, LLC and financial 

institution that has a franchise tax responsibility must file a 

public information report (PIR) to satisfy their filing obligation. 

The PIR is due on the date the franchise tax report is due. 

The report must be completed and signed by an officer, 

director or other authorized person. A separate PIR is to be 

filed for each corporation, each LLC and each financial 

institution that files a separate franchise tax report or that is 

part of a combined group (unless the corporation, LLC or 

financial institution is not organized in Texas and does not 

have physical presence in Texas). 

Even if the franchise tax report is filed and all taxes paid, 

the right to transact business may be forfeited for failure to 

file the completed and signed PIR. The effects of forfeiture 

include the denial of the corporation's or LLC's right to sue 

or defend in a Texas court, and each officer and director 

becomes personally liable for certain debts of the 

corporation or LLC (Secs. 171.251, 171.252 and 171,255, 

Tax Code). Forfeiture provisions do not apply to financial 

institutions (Secs. 171.259 and 171.260, Tax Code). 

Changes to the registered agent or registered office must 

be filed directly with the Secretary of State, and cannot be 

made on this form. The changes can be made online or on 

forms downloaded from their website at www.sos.state.tx.us/ 

corp/forms_option.shtml. 

If there are no changes to the information in Section A of 

this report, then blacken the circle as indicated and complete 

Sections B and C. If no information is displayed or preprinted 

on this form, complete all applicable items. 

Section A: Report the name, title and mailing address of 

each officer and director of the corporation, LLC or financial 

institution as of the date the report is filed. If ALL the 

preprinted information in Section A is correct, blacken the 

circle located below the mailing address on the form. 

Otherwise, mark through any incorrect information and type 

or print the correct information next to the incorrect item or, 

if Section A is blank, complete Section A. 

Domestic profit corporations and domestic professional 

corporations must list all officers, which must include the 

president and secretary, and all directors. One person may 

hold all offices. Domestic non-profit corporations must list all 

officers. Different persons must hold the offices of president 

and secretary. There is a minimum of three directors. Domestic 

limited liability companies must list all managers and, if the 

company is member-managed, list all members. All officers, if 

any, must be listed. Non-Texas entities must list all officers 

and directors that are required by the laws of the state or 

country of incorporation or organization. 

Sections B and C: Complete both sections as applicable 

for the entity for which this report is filed. 

Processing, Accessing and Correcting Information 

Reported on the PIR: 

Reports filed by Texas corporations or LLCs and corporations or 

LLCs registered with the Secretary of State (SOS) are sent to the 

SOS, as required by law. After processing, officer and director 

information from the report is made available on the Comptroller's 

Certificate of Ac,cou nt Status website, http://ourcpa.cpa.state.tx.us/ 

coa/Index.html. If the information is not available online, you may 

request a copy of the most recent PIR by contacting us at 

open.records@cpa.state.tx.us , or write to: 

COMPTROLLER OF PUBLIC ACCOUNTS 

Open Records Section 

P. O. Box 13528 


Changes to officer and director information that occur after 

the report is filed, should be reported to the Comptroller on 

the next PIR the corporation, LLC or financial institution is 

required to file. The Comptroller will not accept changes 

during the year, except as noted below. 

An individual whose name was included on the report, but 

who was not an officer or director on the date the report 

was filed, may file a sworn statement to that effect with the 

Comptroller. A corporation, LLC or financial institution that 

made an error on its PIR may file an amended PIR with a 

cover letter explaining the error. 

Signature Block: Report may be signed by an officer, 

director or other authorized person. This includes a paid 

preparer authorized to sign the report. 

Form 05-158-A 

Texas Franchise Tax Report — Page 1 

Filing Requirements: Any entity (including a combined 

group) that does not qualify to file using the EZ computation 

or that does not have $1,030,000 or less in annualized total 

revenue (qualifying to file the No Tax Due Information 

Report) should file this report. 

Note: If a tiered partnership election is made and revenue is 

passed, both the upper and lower tier entities will owe any 

amount of tax that is calculated as due, even if the amount 

is less than $1,000 or annualized total revenue after the 

tiered partnership election is $1,030,000 or less. 

A taxable entity must make an annual election to deduct 

cost of goods sold (COGS) or compensation by the due 

date of the franchise tax report, the extended due date 

or the date the report is filed, whichever is latest. The 

election to use COGS or compensation is made by filing 

the franchise tax report using one method or the other. This 

is an annual election and is effective for the entire period 

upon which the tax is based. 

11

After the due date or the extended due date of the report, a 

taxable entity may not amend its report to change its election 

to COGS or compensation. However, a taxable entity may 




Note: A taxable entity may elect to use COGS to compute margin 

ONLY if the taxable entity sells real or tangible personal 

property in the ordinary course of business OR if the taxable 

entity qualifies to compute COGS under any one of the 

exceptions noted in Texas Tax Code Section 171.1012 or 

Rule 3.588. 

The instructions for Items 1-7 and 9 below are for taxable 

entities that are filing as a separate entity and not as part of 

a combined group. A combined group should follow these 

specific instructions for each member of the group and then 

add across each item to determine the amounts that will be 

reported for the group. Intercompany eliminations should 

be reported on Item 9 as an exclusion from revenue. 

The amounts referenced in the instructions presume that a 

separate federal income tax return was filed by each 

separate taxable entity. If a taxable entity was part of a 

federal consolidated return or was disregarded for federal 

tax purposes and is not being treated as disregarded in a 

combined group report for franchise tax purposes, report 

the amounts on Items 1-7 and 9 as if the entity had filed a 

separate return for federal income tax purposes. 

The instructions for Items 11-13 and 15-17 below are also 

for taxable entities that are filing as a separate entity and 

not as part of a combined group. A combined group should 

follow these specific instructions for each member of the 

group, add across each item, and then subtract any 

intercompany eliminations to determine the amounts that 

will be reported. Eliminations may be made only to the extent 

that the related items of revenue were eliminated. 

The line items indicated in this section refer to specific 

lines from the 2011 Internal Revenue Service (IRS) 

forms. The statute and administrative rules base total 

revenue on specific line items from the 2006 IRS forms 

and state that in computing total revenue for a 

subsequent report year, total revenue: 

• is based on the 2006 equivalent line numbers on any 

subsequent version of that form and 

• is computed based on the Internal Revenue Code in 

effect for the federal tax year beginning on Jan. 1, 2007. 

The actual line numbers in the statute and rules are not 

updated to reflect subsequent changes in the federal 

form line numbering. Although the instructions are 

updated annually to reflect federal line numbering 

changes that affect total revenue, be aware that federal 

line numbers are subject to change throughout the year. 

FAQ #22 under Tax Rule 3.587 Margin: Total Revenue 

tracks the cumulative changes in federal form numbers. 

Item 1. Gross receipts or sales 

• For a taxable entity filing as a corporation for federal tax 

purposes, enter the amount from line le, 2011 Form 1120. 

12 

• For a taxable entity filing as an S corporation for federal tax 

purposes, enterthe amount from line 1 e, 2011 Form 1120S. 

• For a taxable entity filing as a partnership for federal tax 

purposes, enter the amount from line le, 2011 Form 1065. 

• For a taxable entity filing as a trust for federal tax purposes, 

enter the amount from line 3, Schedule C, Form 1040. 

• For a taxable entity that is a single member LLC filing as 

a sole proprietorship for federal tax purposes, enter the 

amount from line 3, Schedule C, Form 1040. 

• For a taxable entity filing a federal tax form other than those 

mentioned above, enter an amount that is substantially 

equivalent to the amounts discussed in this section. 

Item 2. Dividends 


purposes, enter the amount from line 4, Form 1120. 

• For a taxable entity filing as an S corporation for federal 

tax purposes, enter the amount from line 5a, Schedule 

K, Form 1120S. 


purposes, enter the amount from line 6a, Schedule K, 

Form 1065. 

• For a taxable entity filing as a trust for federal tax 

purposes, enter the amount from line 2a, Form 1041. 

• To the extent dividends earned by the LLC are included 

for a taxable entity registered as a single member LLC 

and filing as a sole proprietorship for federal tax purposes, 

enter the amount associated with dividends from line 6, 

Schedule C, Form 1040. 




Item 3. Interest 




tax purposes, enter the amount from line 4, Schedule K, 

Form 1120S. 


purposes, enter the amount from line 5, Schedule K, Form 1065. 



• To the extent interest earned by the LLC is included for a 

taxable entity registered as a single member LLC and 

filing as a sole proprietorship for federal tax purposes, 

enter the amount associated with interest from line 6, 

Schedule C, Form 1040. 




Item 4. Rents 


purposes, enter the amount from line 6,2011 Form 1120. 

• For a taxable entity filing as an S corporation for federal tax 

purposes, enterthe amount from line 3a, Schedule K, Form 

1025S, and the amount from lines 18a and 19,2011 Form 

8825. 


purposes, enterthe amount from line 3a, Schedule K, Form 

1065 and the amount from line 18a, 2011 Form 8825.


enter rents included in line 4, 2011 Form 1040, Schedule E. 


a sole proprietorship for federal tax purposes, enter rents 

included in line 4, 2011 Form 1040, Schedule E, to the 

extent that it relates to the LLC. 




Note: Do not include in Item 4 net rental income (loss) passed 

through from a partnership or S corporation on IRS Form 

K-1; report this amount in Item 7. This amount must also be 

included in Item 9 when subtracting "net distributive income 

from a taxable entity treated as a partnership or as an S 

corporation for federal tax purposes." 

Item 5. Royalties 




tax purposes, enter the amount from line 6, Schedule K, 

Form 1120S. 


purposes, enterthe amount from line 7, Schedule K, Form 1065. 


enter royalties included in line 4, 2011 Form 1040, Schedule E. 


a sole proprietorship for federal tax purposes, enter 

royalties included in line 4, 2011 Form 1040, Schedule 

E, to the extent that it relates to the LLC. 




Item 6. Gains/losses 


purposes, enter the amount from lines 8 and 9, Form 1120. 


tax purposes, enter the amount from line 4, Form 1120S 

and lines 7, 8a and 9, Schedule K, Form 1120S. 


purposes, enter the amount from line 6, Form 1065 and 

lines 8, 9a and 10, Schedule K, Form 1065. 


purposes, enter the amount associated with gains/losses 

from lines 4 and 7, Form 1041. 



amount from line 16, Form 1040, Schedule D, to the 

extent that it relates to the LLC; and the amount from line 

17, Form 4797, to the extent that it relates to the LLC. 




Item 7. Other income 


purposes, enter the amount from line 10, Form 1120 to the 

extent not already included; and any total revenue passed 

from a lower tier entity under the tiered partnership election. 


tax purposes, enter the amount from line 5, Form 1120S; 

line 10, Schedule K, Form 1120S to the extent not already 

included; and any total revenue passed from a lower tier 

entity under the tiered partnership election. 


purposes, enter the amount from line 4 and line 7, Form 

1065; the amount from line 11, Schedule K, Form 1065 

to the extent not already included; the amount from line 

9 plus line 1d, or line 44, 2011 Form 1040, Schedule F; 

and any total revenue passed from a lower tier entity 

under the tiered partnership election. 


enter the amount from line 8, Form 1041 to the extent not 

already included; the amount from line 6, Form 1040, 

Schedule C, that has not already been included; the 

amount from line 32 and line 37, Form 1040 Schedule E; 

the amount from line 9 plus line 1d, or line 44, 2011 Form 

1040, Schedule F; and any total revenue passed from a 

lower tier entity under the tiered partnership election. 



ordinary income or loss from partnerships, S corporations, 

estates and trusts from Form 1040 Schedule E, to the 

extent that it relates to the LLC; enter the amount from 

line 9 plus line 1d, or line 44, 2011 Form 1040, Schedule 

F, to the extent that it relates to the LLC; enter the amount 

from line 6, Form 1040, Schedule C, that has not already 

been included; and any total revenue passed from a lower 

tier entity under the tiered partnership election. 




Item 8. Total gross revenue 

Total the amounts entered on Items 1 through 7. 

Item 9. Exclusions from gross revenue 

Only the following items may be excluded from gross 

revenue. See Rule 3.587 for additional information. 

Bad Debt Expense 




tax purposes, enter the amount from line 10, Form 1120S. 



• For a taxable entity registered as a single member LLC 

and filing as a sole proprietorship for federal tax purposes, 

enter the amount associated with bad debt expense from 

line 27, Schedule C, Form 1040. 


purposes, enter the amount associated with bad debt 

expense from line 15a, Form 1041. 




Foreign Dividends and Foreign Royalties 

Enter the amount of foreign royalties and foreign dividends, 

including amounts reported under Section 78 or Sections 

951-964, Internal Revenue Code, to the extent included in 

gross revenue. 13

Net Distributive Income 

• A taxable entity's pro rata share of net distributive income 

from another taxable entity treated as a partnership or 

as an S corporation for federal income tax purposes. Net 

distributive income for the calculation of total revenue is 

the net amount of income, gain, deduction or loss of the 

pass-through entity that is included in the federal taxable 

income of the taxable entity. (If this amount is negative, it 

will be added in computing total revenue.) 

• A taxable entity that owns an interest in a passive entity 

shall not enter an amount on this item to deduct the taxable 

entity's share of the net income of the passive entity unless 

the income was included in the computation of the total 

revenue of another taxable entity. See Rule 3.587. 

Note: For an upper tier entity using the tiered partnership election, 

the total revenue passed by the lower tier entity to the upper 

tier entity cannot be deducted as net distributive income. 

Schedule C Dividends Received 

For a taxable entity reporting a Schedule C dividends 

received deduction, enter the amount reported on line 29b, 

Form 1120, to the extent the relating dividend income is 

included in gross revenue. 

Revenue from Disregarded Entities 

Ataxable entity may exclude, to the extent included in gross 

revenue (Items 1-7 above), its share of income directly 

attributable to another entity that is treated as disregarded 

for federal income tax purposes but that is not treated as 

disregarded in a combined group report for franchise tax 

purposes. A taxable entity cannot exclude its share of 

income directly attributable to another entity that is treated 

as disregarded for federal income tax purposes and is 

treated as disregarded in a combined group report for 

franchise tax reporting purposes. 

Flow-through Funds 

To the extent included in gross revenue: 

• A taxable entity may exclude an amount for flow-through 

funds mandated by: (1) law, (2) fiduciary duty or (3) 

contract (limited to sales commissions to non-employees, 

the tax basis of securities underwritten, and a taxable 

entity's flow-through payments to subcontractors for the 

design, construction, repair or improvement of real 

property or the location of boundaries to real property); 

• A taxable entity that provides legal services may exclude 

an amount equal to the following flow-through funds: 

— damages due the claimant; 

— funds subject to a lien or other contractual obligation arising 

out of the representation, other tha n fees owed to the attorney; 

— fees paid to another attorney not within the same 

taxable entity; 

— reimbursement of case expenses; and 

— $500 per case for providing pro bono legal services. 

• A taxable entity may exclude the tax basis of securities and 

bonds sold as determined under the Internal Revenue Code. 

Dividends and Interest from Federal Obligations 

Enter the amount of dividends and interest from federal 

obligations to the extent included in gross revenue. See 

Rule 3.587(b). 

14 

Other Exclusions 

To the extent included in gross revenue: 

• Ataxable entity that qualifies as a lending institution may 

enter an amount equal to the principal repayment of loans. 

• A taxable entity that is a staff leasing services company 

may enter an amount equal to payments received from a client 

company for wages, payroll taxes, employee benefits and 

workers' compensation benefits for the assigned employees. 

A staff leasing services company cannot exclude payments 

received from a client company for payments made to 

independent contractors assigned to the client company 

and reportable on Internal Revenue Service Form 1099. 

• A taxable entity that is a health care provider may enter 

100% of revenues (including copayments, deductibles and 

coinsurance) from Medicaid, Medicare, CHIP, workers' 

compensation claims and TRICARE, and actual costs for 

uncompensated care (healthcare institutions may enter only 

50%). See Section 171.1011(p)(2), Tax Code. To calculate 

the cost of uncompensated care, see Rule 3.587(b)(1). 

• A taxable entity that is a management company may enter 

an amount equal to reimbursements of specified costs 

incurred in its conduct of the active trade or business of 

a managed entity. 

• A taxable entity may enter amounts received that are 

directly derived from the operation of a facility that is 

located on property owned or leased by the federal 

government and managed or operated primarily to house 

members of the armed forces of the United States. 

• A taxable entity that is a qualified live event promotion 

company may exclude from revenue a payment made to 

an artist in connection with the provision of a live 

entertainment event or live event promotion services. 

• A taxable entity that is a qualified courier and logistics 

company may exclude from revenue subcontracting 

payments made by the taxable entity to nonemployee 

agents for the performance of delivery services on behalf 

of the taxable entity. 

Intercompany eliminations — combined reports 

To the extent included in total revenue, subtract items of total 

revenue received from members of the combined group. 

Tiered partnership election 

For a lower tier entity that makes the tiered partnership election, 

enter the total revenue passed to the upper tier entities. 

Item 10. Total Revenue 

Item 8 minus Item 9. If less than zero, enter zero. If the 

annualized total revenue is less than or equal to $1,030,000, 

and the entity is not an upper or lower tier entity making the 

tiered partnership election, stop here and file Form 05-163, 

No Tax Due Information Report. If the annualized total 

revenue is $10 million or less, the entity may choose to file 

using the EZ Computation (Form 05-169). 

Note: The tiered partnership election is not allowed if the lower 

tier entity, before passing total revenue to the upper tier 

entities, has $1,030,000 or less in annualized total revenue 

or owes less than $1,000 in tax. An upper or lower tier entity 

making a tiered partnership election qualifies to use the EZ 

computation only if the lower tier entity would have qualified 

for the EZ computation before passing total revenue to the 

upper tier entities.

Item 11. Cost of goods sold (COGS) 


ONLY if the taxable entity sells real or tangible personal 

property in the ordinary course of business OR if the taxable 


exceptions noted in Texas Tax Code Section 171.1012 or 

Rule 3.588. Enter an amount ONLY if the entity qualifies to 

use COGS to compute margin. 

"Goods" are defined as real or tangible personal property sold 

in the ordinary course of business. Tangible personal property 

includes computer programs as well as films, sound recordings, 

videotapes, live and prerecorded television and radio 

programs, books and other similar property. Tangible personal 

property does not include intangible property or services. 

Generally, a taxable entity in the service industry will not 

have COGS as they do not sell tangible personal property 

or real property in the ordinary course of business. However, 

if a transaction contains elements of both a sale of tangible 

personal property and a service, a taxable entity may only 

subtract as COGS the cost otherwise allowed by this section 

in relation to the tangible personal property sold. The 

taxable entity may not subtract as COGS the labor costs 

related to the services performed. 

A taxable entity may make a subtraction under this section 

in relation to the COGS only if that entity owns the goods. A 

taxable entity that is a member of a combined group may 

subtract allowable costs as COGS if the goods for which 

the costs are incurred are owned by another member of 

the combined group. A payment made to an affiliated entity 

who is not a member of the combined group may only be 

included in COGS if the transaction is made at arm's length. 

A taxable entity that is subject to Internal Revenue Code, 

263A, 460 or 471 may choose to expense or capitalize 

allowable costs associated with the goods purchased or 

produced. All other taxable entities will expense allowable 

costs associated with the goods purchased or produced. 

Expensing COGS — An entity that elects to expense 

allowable costs will have no beginning or ending inventory. 

The entity should include all allowable costs as described 

below for the accounting period on which the report is based. 

Capitalized COGS — If the entity elects to capitalize COGS, 

the calculation will include those allowable costs that were in 

inventory at the beginning of the period upon which the tax is 

based plus allowable costs capitalized during the period minus 

allowable costs in ending inventory at the end of the period. 

The election to expense or capitalize allowable costs is 

made by filing the franchise tax report using one method or 

the other. The election is for the entire period on which the 

report is based and may not be changed after the due date 

or the date the report is filed, whichever is later. 

Note: Generally COGS for Texas franchise tax reporting purposes 

will not equal the amount used for federal income tax 

reporting purposes or for financial accounting purposes. 

Typically, this amount cannot be found on a federal income 

tax report or on an income statement. It is a calculated 

amount specific to Texas franchise tax. 

Cost of goods sold includes all direct costs of acquiring or 

producing the goods, including: 

• labor costs including W-2 wages, IRS Form 1099 wages, 

temporary labor, payroll taxes and benefits; 

• cost of materials that are an integral part of specific 

property produced; 

• cost of materials that are consumed in the course of 

performing production activities; 

• handling costs, including costs attributable to processing, 

assembling, repackaging and inbound transportation; 

• storage costs (except for the rental of a storage facility), 

including the costs of carrying, storing or warehousing 

property; 

• depreciation, depletion and amortization reported on the 

federal income tax return on which the report under this 

chapter is based, to the extent associated with and 

necessary for the production of goods, including recovery 

described by, Sec. 197, Internal Revenue Code, and 

property described in Sec. 179, Internal Revenue Code; 

• the cost of renting or leasing equipment, facilities or real 

property used for the production of the goods, including 

pollution control equipment and intangible drilling and dry 

hole costs (does NOT include impairment costs/expenses); 

• the cost of repairing and maintaining equipment, facilities 

or real property directly used for the production of the 

goods, including pollution control devices; 

• costs attributable to research, experimental, engineering and 

design activities directly related to the production of the 

goods, including all research or experimental expenditures 

described by Sec. 174, Internal Revenue Code; 

• geological and geophysical costs incurred to identify and 

locate property that has the potential to produce minerals; 

• taxes paid in relation to acquiring or producing any 

material, or taxes paid in relation to services that are a 

direct cost of production; 

• the cost of producing or acquiring electricity sold; and 

• a contribution to a partnership in which the taxable entity 

owns an interest that is used to fund activities, the costs of 

which would otherwise be treated as COGS of the 

partnership, but only to the extent that those costs are 

related to goods distributed to the contributing taxable entity 

as goods-in-kind in the ordinary course of production 

activities rather than being sold by the partnership. 

In addition to the items listed above, COGS includes the 

following costs in relation to the taxable entity's goods: 

• deterioration of the goods; 

• obsolescence of the goods; 

• spoilage and abandonment, including the costs of rework, 

reclamation and scrap (does NOT include impairment 

costs/expenses); 

• if the property is held for future production, preproduction 

direct costs allocable to the property, including storage 

and handling costs, unless specifically excluded below; 

• postproduction direct costs allocable to the property, 

including storage and handling costs, unless specifically 

excluded below; 

• the cost of insurance on a plant or a facility, machinery, 

equipment or materials directly used in the production of 

the goods; 

• the cost of insurance on the produced goods; 

15

• the cost of utilities, including electricity, gas and water, 

directly used in the production of the goods; 

• the costs of quality control, including replacement of 

defective components pursuant to standard warranty 

policies, inspection directly allocable to the production of 

the goods and repairs and maintenance of goods; and 

• licensing or franchise costs, including fees incurred in 

securing the contractual right to use a trademark, corporate 

plan, manufacturing procedure, special recipe or other 

similar right directly associated with the goods produced. 

Cost of goods sold does not include: 

• any amounts excluded from revenue; 

• officers' compensation; 

• the cost of renting or leasing equipment, facilities or real 

property that is not used for the production of the goods; 

• selling costs, including employee expenses related to sales 

and credit card fees; 

• distribution costs, including outbound transportation costs; 

• advertising costs; 

• idle facility expense; 

• rehandling costs; 

• bidding costs, which are the costs incurred in the solicitation 

of contracts ultimately awarded to the taxable entity; 

• unsuccessful bidding costs, which are the costs incurred in 

the solicitation of contracts not awarded to the taxable entity; 

• interest, including interest on debt incurred or continued during 

the production period to finance the production of the goods; 

• income taxes, including local, state, federal and foreign 

income taxes, and franchise taxes that are assessed on 

the taxable entity based on income; 

• strike expenses, including costs associated with hiring 

employees to replace striking personnel; however, COGS 

does include the wages of the replacement personnel, costs 

of security and legal fees associated with settling strikes; and 

• costs of operating a facility that is located on property 

owned or leased by the federal government and managed 

or operated primarily to house members of the armed 

forces of the United States. 

Note: A taxable entity renting motor vehicles, heavy construction 

equipment or railcar rolling stock may use COGS for costs 

related to the property rented. Lending institutions that make 

loans to the public may deduct interest expense as a COGS. 

A client company that contracts with a staff leasing services 

company may include in COGS payments to the staff leasing 

services company to the extent the payments relate to 

assigned employees that provide labor or services described 

as COGS in Sec. 171.1012, Tax Code. 

Item 12. Indirect or administrative overhead costs 

A taxable entity may subtract, as part of COGS, indirect/ 

administrative overhead costs, including all mixed service 

costs, such as security services, legal services, data processing 

services, accounting services, personnel operations and 

general financial planning and financial management costs, 

that it can demonstrate are allocable to the acquisition or 

production of goods. This amount is limited to 4% of total 

indirect/administrative overhead costs. Any costs specifically 

excluded from the computation of COGS may not be included 

in indirect or administrative overhead costs. 

16 

Item 13. Other 

The only allowable amounts to be entered on this line are 

related to undocumented worker compensation and 

compensation of active duty personnel. These amounts will 

offset one another. The result can be either a negative 

(undocumented worker compensation) or a positive number 

(active duty personnel compensation). 

Undocumented Worker Compensation 

A taxable entity must exclude from COGS any compensation 

for undocumented workers for the period upon which the tax is 

based. Undocumented worker means a person who is not 

lawfully entitled to be present and employed in the United States. 

Compensation of Active Duty Personnel 

A taxable entity may include, as an additional cost, the 

wages and cash compensation paid during the period upon 

which the report is based to an individual for the period the 

individual is serving on active duty as a member of the armed 

forces of the United States if the individual is a resident of 

this state at the time the individual is ordered to active duty, 

plus the cost of training a replacement for the individual. 

Item 15. Wages and cash compensation 

"Wages and cash compensation" means the following amounts 

paid to officers, directors, owners, partners and employees 

for the accounting period, limited to $330,000 per person, 

prorated for the period upon which the tax is based: 

• Medicare wages and tips on Form W2; 

• net distributive income reported to a natural person from 

a limited liability company treated as a sole proprietor for 

federal income tax purposes, regardless of whether it is 

a positive or negative amount; 

• net distributive income reported to natural persons from 

partnerships, trusts and limited liability companies treated 

as partnerships for federal income tax purposes, 

regardless of whether it is a positive or negative amount; 

• net distributive income reported to natural persons from 

limited liability companies and corporations treated as S 

corporations for federal income tax purposes, regardless 

of whether it is a positive or negative amount. 

• stock awards and stock options deducted for federal 

income tax purposes. 

If an employee, officer, director, etc. is paid by more than 

one member of the combined group, that individual's 

compensation is capped at $330,000, per 12-month period 

upon which the tax is based. 

Net distributive income for the calculation of compensation 

is the amount of income, gain, deduction and loss relating 

to a pass-through entity or disregarded entity reportable to 

the owner for the tax year of the entity regardless of whether 

an actual distribution was made. 

If net distributive income is a negative number, it must be included 

in the computation of compensation as a negative number. There 

is no cap or limitation on "negative" compensation. 

To compute Net Distributive Income from a partnership: 

From IRS Form 1065 K-1, add boxes 1, 2, 3, 4, 5, 6a, 7, 8, 

9a, 10 and 11. Subtract from that result the sum of boxes 

12, 13 and 16, Code L (Foreign taxes).

To compute Net Distributive Income from an S corporation: 

From IRS Form 1120S K-1, add boxes 1, 2, 3, 4, 5a, 6, 7, 

8a, 9 and 10. Subtract from that result the sum of boxes 

11, 12 and 14, Code L (Foreign taxes). 

Note: A single member LLC treated as a sole proprietorship for federal 

tax purposes may include in compensation the net distributive 

income to the single member that is a natural person. 

Wages and cash compensation DOES NOT include: 

• payments on IRS Forms 1099; 

• amounts excluded from gross revenue; 

• an employer's share of employment taxes; 

• amounts paid to an employee whose primary employment 

is directly associated with the operation of a facility that 

is located on property owned or leased by the federal 

government and managed or operated primarily to house 

members of the armed forces of the United States. 

Note: A staff leasing services company may only include wages 

and cash compensation paid to the entity's own employees, 

and may not include wages, benefits, workers' compensation 

benefits or payroll taxes of assigned employees. A taxable 

entity that is a client company that contracts with a staff 

leasing services company may include amounts paid to the 

staff leasing services company relating to the assigned 

employees for wages as defined by Item 15 (Wages & Cash 

Compensation) and Item 17 (Other — Compensation of 

Active Duty Personnel), and may include amounts paid for 

employee benefits including workers' compensation 

benefits, as defined by Item 16 (Employee Benefits). The 

client company may not include any administrative fee, 

payroll taxes or other amounts related to the assigned 

employees. In addition, the client company may not include 

as compensation any amounts reported on IRS Forms 1099. 

Note: A management company may not include as wages or cash 

compensation any amounts reimbursed by a managed 

entity. A managed entity includes as compensation 

reimbursements made to the management company for 

wages and compensation as if the reimbursed amounts had 

been paid to employees of the managed entity. 

Item 16. Employee benefits 

Enter the cost of benefits provided to officers, directors, 

owners, partners and employees, including workers' 

compensation, health care and retirement benefits. The 

deduction for employee benefits is not limited to $330,000 

per person but is only deductible to the extent deductible 

for federal income tax purposes. 


The only allowable amounts to be entered on this line are 

related to undocumented worker compensation and 

compensation of active duty personnel. These amounts will 

offset one another. The result can be either a negative 

(undocumented worker compensation) or a positive number 

(active duty personnel compensation). 

Undocumented Worker Compensation 

A taxable entity must exclude from compensation any wages 

and cash compensation paid to undocumented workers for 

the period upon which the tax is based. "Undocumented 

worker" means a person who is not lawfully entitled to be 

present and employed in the United States. 

Compensation of Active Duty Personnel 

A taxable entity may include, as an additional cost, the 

wages and cash compensation paid during the period upon 

which the report is based to an individual for the period the 

individual is serving on active duty as a member of the armed 

forces of the United States if the individual is a resident of 

this state at the time the individual is ordered to active duty, 

plus the cost of training a replacement for the individual. 

Form 05-158-B 

Texas Franchise Tax Report — Page 2 

Item 19. Revenue 

Multiply Item 10 times 70%. If less than zero, enter zero. 


Item 10 minus Item 14 — COGS. If less than zero, enter zero, 


only if the taxable entity sells real or tangible personal 

property in the ordinary course of business or if the taxable 


exceptions noted in Texas Tax Code Sec. 171.1012 or Rule 

3.588. Enter an amount only if the entity qualifies to use 

COGS to compute margin. 


Item 10 minus Item 18 — Compensation. If less than zero, 

enter zero. 

Item 22. Margin 

Enter the lowest amount from Items 19, 20 or 21. 

Item 23. Gross receipts in Texas 

Texas gross receipts and gross receipts everywhere should 

be reported for the same accounting period used in the 

calculation of total revenue. Gross receipts means all 

revenues reportable by a taxable entity on its federal tax 

return, without deduction for the COGS or other costs 

incurred unless otherwise provided for by law. 

"Gross receipts in Texas" means: 

• sales of tangible personal property when the property is 

delivered or shipped to a purchaser within Texas; 

• sales of real property located in Texas, including royalties 

from oil, gas or other mineral interests; 

• services performed within Texas; 

• rentals of property situated in Texas; 

• royalties from use of patents or copyrights within Texas; 

• revenues from the use of trademarks, franchises or 

licenses within Texas. These revenues include receipts 

from the sale or license of computer software or programs 

if the legal domicile of the payor is Texas; 

• the net gain/loss from the sales of investments or capital 

assets. If both Texas and out-of-state sales have occurred, 

then a separate calculation of net gains and losses on Texas 

sales must be made. If the combination of net gains and 

losses results in a net loss, the taxable entity should net the 

loss against other receipts, but not below zero. In no instance 

shall the apportionment factor be greater than 1. Net gain/ 

loss on sales of intangibles held as capital assets or 

investments is apportioned to the location of the payor. 

Examples of intangibles include, but are not limited to, 

17

stocks, bonds, futures contracts, patents, copyrights, 

licenses, trademarks, franchises, goodwill and general 

receivable rights. 

• receipts from the sale of securities are apportioned based 

on the location of the payor. If securities are sold through 

an exchange, and the buyer cannot be identified, then 

7.9% of the revenue is a Texas receipt; 

• membership or enrollment fees paid for access to benefits 

are considered gross receipts from the sale of an 

intangible asset and will be a Texas gross receipt if the 

payor is legally domiciled in Texas; 

• receipts from the servicing of loans secured by real 

property are Texas gross receipts if the real property is 

located in Texas; and 

• the pro rata share of net income from a passive entity if 

the passive entity's principal place of business is in Texas. 

Any item of revenue that is excluded from total revenue 

under Texas law or United States law is not included in Texas 

gross receipts or gross receipts everywhere. For example, 

a taxable entity should not include in Texas gross receipts: 

• income excluded because of IRC Sections 78 or 951-964; 

• dividends and/or interest received from federal 

obligations; or 

• dividends for which a deduction is allowed on Schedule 

C, Form 1120. 

In addition, a taxable entity that is a combined group should 

not include in Texas gross receipts any revenues generated 

by a member of the group that is organized outside of Texas 

and that does not have nexus in Texas. However, Texas 

gross receipts will include certain sales of tangible personal 

property made to third party purchasers if the tangible 

personal property is ultimately delivered to a purchaser in 

Texas without substantial modification. For example, drop 

shipments made by a member of a combined group from a 

Texas location to a Texas purchaser would be included in 

Texas receipts based on the amount billed to the third party 

purchaser if the seller is also a member of the combined 

group and the seller does not have nexus. 

Banking Corporations and Savings & Loan Associations 

Dividends and interest received by a banking corporation or 

savings and loan association are Texas receipts if they are 

paid by a corporation incorporated in Texas or if they are 

paid by an entity or person legally domiciled in Texas. A 

banking corporation should exclude from its Texas receipts 

interest earned on federal funds and interest earned on 

securities sold under an agreement to repurchase that are 

held in a correspondent bank domiciled in Texas. 

Item 24. Gross receipts everywhere 

Any amounts not included in total revenue (Item 10) must 

not be included in computing gross receipts everywhere. 

Therefore, gross receipts everywhere should equal the 

amount reported in Item 10 unless the taxable entity is a 

health care provider, health care institution, law firm, lending 

institution or security broker dealer. 

Health care providers and health care institutions must add 

back the cost of uncompensated care when computing 

18 

gross receipts everywhere. Law firms must add back 

amounts related to pro bono cases when computing gross 

receipts everywhere. 

In accordance with Texas Tax Code Sections 171.106(f) 

and (f-1), qualified lending institutions and security broker/ 

dealers may use the gross sales price of securities or loans 

sold instead of the net gain/loss on the sale in computing 

gross receipts everywhere. 

Gross receipts everywhere include: 

• all sales of tangible personal property; 

• all rentals; 

• all services; 

• all royalties; 

• all other business receipts; 

• all dividends and interest; and 

• the net gain/loss from the sales of investments or capital 

assets. 

A capital asset is any asset, other than an investment, which 

is held for use in the production of income, and is subject to 

depreciation, depletion or amortization. An investment is 

any non-cash asset not a capital asset. 

Item 25. Apportionment factor 

If Texas gross receipts in Item 23 are zero, enter zero. If 

Item 23 and Item 24 are the same and greater than zero, 

enter 1.0000. If Item 23 is more than Item 24 and both are 

greater than zero, enter 1.0000. Otherwise, divide Item 23 

by Item 24 and round to 4 places past the decimal. 

Item 26. Apportioned margin 

Multiply Item 22 by Item 25. If less than zero, enter zero. 

Item 27. Allowable deductions 

Each of the following deductions may be subtracted from 

apportioned margin: 

• A taxable entity may deduct 10% of the amortized cost of 

a solar energy device if the device meets the criteria in 

Sec. 171.107(b), Tax Code. The deduction may not 

reduce apportioned margin below zero, and no carryover 

of unused deductions is allowed. 

• A taxable entity may deduct 10% of the amortized cost of 

equipment used in a clean coal project if the equipment 

meets the criteria in Sec. 171.108(b), Tax Code. The 

deduction may not reduce apportioned margin below zero, 

and no carryover of unused deductions is allowed. 

Item 28. Taxable margin 

Item 26 minus Item 27. 

Item 29. Tax rate 

Enter the appropriate tax rate: 

• 0.01 (1.0%) for most entities 

• 0.005 (0.5%) for qualifying wholesalers and retailers 

(see Tax Rates, page 3) 

Note: If the SIC code on Form 05-158-A does not fit the definition 

of qualifying retailers and wholesalers on page 3, the 0.5% 

tax rate will be denied when the report is processed.

Item 30, Tax due 

Item 28 multiplied by Item 29. 

Item 31. Tax credits 

Carry the amount of allowable tax credits forward from 

franchise tax Form 05-160. 

Item 32. Tax due before discount 

Item 30 minus Item 31. If less than zero, enter zero. 

Item 33. Discount 


tax reports because the no tax due threshold exceeds the 

total revenue to which the discounts would apply ($900,000). 

Item 34. Total tax due 

Must equal the amount of tax due in Item 32 since discounts 

do not apply to the 2010 through 2013 report years. 

If this amount is less than $1,000, or the annualized total 

revenue is $1,030,000 or less, you owe no tax, but you 

must submit this report along with the appropriate 

information report(s) (Form 05-102 and/or Form 05-167). 

See note for tiered partnership exceptions. 

If this amount is $1,000 or more, and the annualized total 

revenue is more than $1,030,000, please complete the 

franchise tax payment (Form 05-170). Make the check 

payable to the Comptroller of Public Accounts. Submit both 

pages of this report (Forms 05-158-A and 05-158-B), all 

appropriate schedules, the appropriate information report(s) 

(Form 05-102 and/or Form 05-167), the franchise tax 

payment form (Form 05-170) and your payment. 

Note: If the tiered partnership election is made and total revenue 

is passed, both the upper and lower tier entities will owe 

any amount in Item 34, even if the amount is less than 

$1,000 or annualized total revenue after the tiered 

partnership election is $1,030,000 or less. 




Form 05-160 

Texas Franchise Tax Credits Summary 

Schedule 

Additional Reporting Requirement for Combined Groups 

with Temporary Credit 




the due date of the report. This information must be 

submitted to satisfy franchise tax filing requirements, even 

if the combined group is not claiming the credit on the current 

year's report. For 2012, submit the common owner 

information electronically at www.window.texas.gov/ 

commonowner/. 

A taxable entity that has carryforwards or installments from 

economic development credits must complete this form to 

take any of those carryforwards or installments. A taxable 

entity must also complete this form if it is taking either the 

temporary credit for business loss carryforwards or the 1992 

temporary credit. 

PART A - Investment Credit 

Item 1. Investment credit installment from prior years 

Enter the yearly installment amount for an investment credit 

established on a franchise tax report originally due prior to Jan. 

1, 2008. Investment credits must have been established by filing 

the appropriate credit schedules on the 2005-2007 franchise 

tax reports. If, in one of the five years in which the installment of 

an investment credit would be claimed, the capital investments 

are taken out of service, removed from Texas, or otherwise 

disposed of or the credit expires, the corporation may not take 

any remaining installment of the credit. 

Item 2. Investment credit carried forward from prior years 

Investment credit carried forward to this year from prior 

years. Subtract Item 19 from Item 3 of the 2011 franchise 

tax report credits summary schedule, Form 05-160. 

Item 3. Subtotal 

Add Item 1 plus Item 2 

Item 4. Tax due before credits 

Enter the amount of tax due before credits as reported on 

Form 05-158-B, Item 30. 

Item 5. Investment Credit Limit 

Item 4 multiplied by 0.50 (50%). 

Item 6. Investment Credit Available 

Enter the lower of Item 3 or Item 5. 

PART B - Jobs Creation Credit 

Item 7. Jobs creation credit carried forward from prior 

years 

Job creation credit carried forward to this year from prior 

years. Subtract Item 20 from Item 7 of the 2011 franchise 

tax report credits summary schedule, Form 05-160. 



Form 05-158-B, Item 30. 

Item 9. Jobs creation credit limit 


Item 10. Jobs creation credit available 


PART C - Research and Development Credit 

Item 11. Research credit carried forward from prior 

years 

Research credit carried forward to this year from prior years. 

Subtract Item 21 from Item 11 of the 2011 franchise tax 

report credits summary schedule, Form 05-160. 



Form 05-158-B, Item 30. 

19

Item 13. Research credit limit 


Item 14. Research credit available 


PART D - Temporary Credits 

Item 15. Temporary credit for business loss 

carryforwards 

A qualifying taxable entity must have preserved its right to 

take this credit on or before the due date of its 2008 report. 

Enter the result of the following calculation in Item 15: 

• preserved amount of business loss carryforwards (Item 

2 of Form 05-172 filed in 2008) 

• multiplied by 2.25% (0.0225) 

• multiplied by 4.5% (0.045) 

The unused carryover from a previous report should be 

reported in Item 22. 

If the taxable entity is a combined group, each qualifying 

member of the group should have made a separate 

preservation of the business loss carryforwards. Use the 

cumulative amount of the preserved business loss 

carryforwards in the calculation of the credit. 

Note: If a member of a combined group leaves the group, the 

business loss carryforward of that member may no longer 

be used by the group or by the member. There is no 

proration for a partial year. 

Item 16. 1992 Temporary credit 

This credit is only available to corporations that preserved 

their right in writing to take the credit by March 2, 1992. If the 

credit has been taken on any previous reports or will be taken 

on this report, the corporation must pay the additional tax in 

Item 17. This credit expires for all eligible entities in 2012. 

The credit is computed as follows: 

• determine the amount, as of the end of the corporation's 

accounting year ending in 1991, that is the excess of the 

basis used for financial accounting purposes over the 

basis used for federal income tax purposes of qualifying 

assets and liabilities that at some future date will reverse 

(use this amount every year the credit is taken); 

• multiply this amount by the apportionment factor entered in 

Item 18 of the corporation's 1992 franchise tax report (use 

this apportionment factor every year the credit is taken); 

• multiply this amount by 5.0% (0.05) per privilege period; 

• multiply this amount by 4.5% (0.045) 

Item 17. 1992 Additional tax due 

If the corporation has elected to take the 1992 temporary 

credit on this or previous reports, then an additional tax 

due must be calculated by multiplying the taxable entity's 

taxable capital by 0.2% (0.002) or this credit will be revoked 

for the current and future reports. 

The taxable entity's taxable capital is computed by adding together 

the entity's stated capital and surplus as those terms are defined 

in franchise tax Rules 3.550 and 3.551. If taxable capital is zero 

or less, then no additional tax is due and the temporary credit 

may still be taken to reduce tax due on net taxable margin. 

Item 18. Total temporary credits 

Add Items 15 and 16, then subtract Item 17. 

PART E - Credits Claimed 

The total credits claimed cannot reduce the total tax due below 

zero; therefore, you may need to allocate the credits claimed 

in Items 19 through 21 so that the tax due will equal zero. 

Item 19. Investment credit claimed 

Cannot be greater than the amount entered on Item 6. 

Item 20. Jobs creation credit claimed 


Item 21. Research credit claimed 



Carryover of 2008 temporary credit for business loss 

carryforwards 

Enter the amount of credit that exceeded the amount of tax 

due on the 2008 or subsequent reports that has not already 

been used. If the EZ computation was used on a prior report, 

there is no carryover amount from that year. Additionally, if 

the credit was not claimed on a prior year's report or the 

prior year's report was not filed timely, there is no carryover 

amount from that year. 

Example: A taxable entity had a business loss credit of 

$2,000 that could be used on the 2011 franchise tax report. 

The entity had $1,200 tax due, so they used only $1,200 of 

the available business loss credit, They may carryover the 

remaining $800 to subsequent report years. On the 2012 

report, this $800 should be reported in Item 22. 

Credit amounts reported by banks for tax erroneously paid 

on reports originally due prior to Jan. 1, 1992. 

Note: Credits for extension payments or prior payments should 

not be entered in this item. Enter extension payments on 

franchise tax Form 05-170, Item 2. 

Item 23. Total credits claimed 

Add Items 18, 19, 20, 21 and 22. Enter this amount on Item 

31 of the franchise tax report Form 05-158-B. 

Form 05-163 

Texas Franchise Tax No Tax Due Information 

Report 

Filing Requirements: A taxable entity, including a combined 

group, qualifies to file the No Tax Due Information Report 

when any of the four statements shown in Item 1 through 

Item 4 are true. Blacken the circle for each true statement. 

Combined report 

A combined group may file a No Tax Due Information Report. 

The determination of whether a combined group is eligible 

is based on the total revenue of the combined group as a 

whole after eliminations. Each member of the group must 

20

e included in the combined group report even if, on a 

separate company basis, the member has $1,030,000 or 

less in total revenue. 

When filing a combined No Tax Due Information Report, an 

Affiliate Schedule (Form 05-166) containing all of the required 

information for each member must be submitted. In addition, 

an information report must be submitted for each member that 

is organized in Texas or has physical presence in Texas. 

Tiered Partnership Election 

A tiered partnership election is not allowed if the lower tier 

entity, before passing total revenue to the upper tier entities, 

has $1,030,000 or less in annualized total revenue or owes 

less than $1,000 in tax. Do NOT blacken the Tiered 

Partnership Election circle. 

If a tiered partnership election is made, the lower tier entity 

may file the No Tax Due Information Report ONLY if the 

entity passed 100% of its total revenue to upper tier entities. 

Upper tier entities are not eligible to file a No Tax Due 

Information Report if the tiered partnership election is made. 

Item 1. This entity is a passive entity as defined in 

Chapter 171, Tax Code. 

A partnership (general, limited and limited liability) or trust 

(other than a business trust) may qualify as a passive entity 

and not owe any franchise tax for a reporting period if at 

least 90% of the entity's federal gross income (as reported 

on the entity's federal income tax return), for the period upon 

which the tax is based, is from the following sources: 

• dividends, interest, foreign currency exchange gain, periodic 

and non periodic payments with respect to notional 

principal contracts, option premiums, cash settlements 

or termination payments with respect to a financial 

instrument, and income from a limited liability company; 

• distributive shares of partnership income to the extent that 

those distributive shares of income are greater than zero; 

• net capital gains from the sale of real property, net gains 

from the sale of commodities traded on a commodities 

exchange and net gains from the sale of securities; and 

• royalties from mineral properties, bonuses from mineral 

properties, delay rental income from mineral properties 

and income from other nonoperating mineral interests 

including nonoperating working interests. 

Passive income does not include rent or income received 

by a nonoperator from mineral properties under a joint 

operating agreement, if the nonoperator is a member of an 

affiliated group and another member of that group is the 


Passive entities are not required to file an Ownership 

Information Report (Form 05-167). 

Item 2. This entity's annualized total revenue is below 

the no tax due threshold. 

If annualized total revenue is less than or equal to 

$1,030,000, the entity qualifies to file the No Tax Due 

Information Report. See the annualized total revenue 

section of these instructions for more information. 

Note: The $1,030,000 no tax due threshold does not apply to an 

upper tier entity if a tiered partnership election is made. 

Item 3. This entity has zero Texas gross receipts. 

The apportionment factor of an entity with zero Texas gross 

receipts is zero; therefore, no tax is due. See the instructions 

for Item 23 of Form 05-158-B for additional information on 

computing Texas gross receipts. 

Item 4. This entity is a Real Estate Investment Trust 

(REIT) that meets the qualifications specified in 171 

.0002(c)(4), Tax Code. 

A REIT that meets the qualifications of Sec.171.0002(c)(4), 

Tax Code, is not a taxable entity for the year upon which 

the report is based. The REIT must establish its nontaxable 

status by filing a No Tax Due Information Report for the 

period upon which the report is based. 

A REIT or its qualified REIT subsidiary entities are not 

considered taxable entities if: 

• the REIT holds interests in limited partnerships or other 

entities that are taxable entities and that directly hold real 

estate; and 

• the REIT does not directly hold real estate, other than 

real estate it occupies for business purposes. 

An information report must be submitted by each REIT or 

qualified REIT subsidiary: 

• a Public Information Report (Form 05-102) for each REIT 

legally organized as a corporation or LLC and 

• an Ownership Information Report (Form 05-167) for each 

REIT legally organized as a partnership, trust or association. 

Item 5a. Accounting year begin date 

See the accounting period begin date requirements in the 

annual and final report sections. 

Item 5b. Accounting year end date 

See the accounting period end date requirements in the 

annual and final report sections. 


Enter the amount of total revenue using the instructions for 

Items 1-10 of Form 05-158-A. A passive entity or a REIT 

may leave this blank. 


director or other authorized person, This includes a paid 


Form 05-164 

Texas Franchise Tax Extension Request 


group) that cannot file its annual (including the first annual) 

or final report by the original due date may request an 

extension of time to file on or before the due date. A 

combined group must also file an Extension Affiliate List 

(Form 05-165) with the extension request. 

An extension for an annual, non-EFT (electronic funds 

transfer) payor will be through Nov. 15, 2012. When 

submitting the extension request, the taxable entity must remit 

21

at least 90% of the tax that will be due with this year's report 

or 100% of the tax reported as due for the previous calendar 

year (provided that the report due in the previous calendar 

year was filed on or before May 14, 2012) in order for the 

extension to be granted. 

A taxable entity that became subject to the franchise tax 

during the 2011 calendar year, filing its first annual report, 

may not use the 100% extension option. 

An entity that was included as an affiliate on a 2011 

combined group report may not use the 100% extension 

option if filing as a separate entity in 2012. 

Final Reports: A taxable entity may request a 45-day 

extension and must remit with the extension request at least 

90% of the tax that will be due with the final report. 

Electronic Funds Transfer (EFT): Conditions for requiring 

a taxable entity to pay via EFT are outlined in Rule 3.9 

concerning electronic filing and electronic funds transfers. 

Information about the EFT requirements can be viewed at 

www.window.state.tx.us/webfile/req_franchise.html. 

The extension rules for mandatory EFT payors are different 

from that of other taxpayers. In order to extend the due date 

of the report from May 15, 2012 to Aug. 15, 2012, a taxable 

entity that is required to pay by EFT must make their extension 

payment electronically using tax type Code 13080 (Franchise 

Tax Extension) or WebFile in a timely fashion that permits 

the payment to be posted on or before May 15, 2012. With 

the extension request, taxable entities must remit at least 

90% of the amount of tax that will be due with this year's 

report or 100% of the tax reported as due for the previous 

calendar year on the report due in the previous calendar 

year. If the taxable entity elects to pay 100% of the tax reported 

as due for the previous calendar year, the previous year's 

report must be filed on or before May 14, 2012 in order for the 

extension to be granted. 

Combined groups that are mandatory EFT payors must submit 

the required Extension Affiliate List (Form 05-165) by mail. 

An EFT payor may request a second extension through 

Nov. 15, 2012 to file the report by paying electronically on 

or before Aug. 15, 2012, the balance of the amount of tax that 

will be reported as due on Nov. 15, 2012, using tax type Code 

13080 (Franchise Tax Extension), Webfile or by submitting 

a paper Extension Request (Form 05-164) if the entity has 

paid all of the tax due with its first extension. If an electronic 

extension payment is made, then the taxpayer should not 

submit a paper Extension Request (Form 05-164). 

A combined group should not submit an Extension Affiliate 

List (Form 05-165) when requesting a second extension. 

Note: See Form 96-590, TEXNET Payment Instruction Booklet, for 

additional infamation concerning requirements for EFT payments. 

Item 1. Blacken this circle if you will be using your 

2008 Temporary Credit for Business Loss 

Carryforward for the report year for which you are 

requesting this extension. 

22 

See the instructions for Credit Summary Schedule (Form 

05-160) and Rule 3.594 for additional information on this 

credit. 

Item 2. Blacken this circle if you will begin using your 

1992 Temporary Credit for the report year for which 

you are requesting this extension. 

Section 171.111(a), Tax Code (text of section effective until 

Jan. 1, 2008) requires that a taxable entity elect to claim 

this credit on or before the original due date of any report 

due after Jan. 1, 1992. 

Item 3. Extension payment 

Enter the amount submitted with this request. 

Combined Report Extensions 

If the extension request is being made on behalf of a 

combined group, the reporting entity must also submit Texas 

Franchise Tax Extension Affiliate List (Form 05-165). 

A combined group may only use the 100% extension option 

if the combined group has lost a member or if the members 

of the combined group are the same as they were on the 

last day of the period upon which the report due in the 

previous calendar year was based. 




Form 05-165 

Texas Franchise Tax Extension Affiliate List 

Filing Requirements: A reporting entity filing an extension 

request on behalf of a combined group, must file the extension 

affiliate list along with the Extension Request (Form 05-164). 

If the combined group is required to file using EFT and 

makes an extension payment electronically, it is not required 

to file Form 05-164, but must submit an Extension Affiliate List 

(Form 05-165).The filing of this list by itself does not 

constitute a valid extension. Attach as many forms as 

necessary to report all members of the combined group. 

Column 1 — Legal name of affiliate 

Enter the legal name of each affiliate in the combined group. 

Affiliates can be any type of taxable entity including 

corporations, LLCs, partnerships (general, limited and limited 

liability), business trusts, professional associations, etc. 

Column 2 — Affiliate's Texas Taxpayer Number 

Enter the assigned Texas taxpayer identification number of 

the affiliate. If the affiliate does not have a taxpayer 

identification number, enter the affiliate's federal employer 

identification (FEI) numberlf-the-affiliate-does-not-have-an- 

FEI number, leave blank. 

Column 3 - Blacken this circle if affiliate does not 

have nexus in Texas 

Blacken the circle if the affiliate is not organized in Texas 

and does not have nexus (i.e., physical presence) in Texas.

Form 05-166 

Texas Franchise Tax Affiliate Schedule 

Filing Requirements: A reporting entity filing a combined report on behalf of an affiliated group engaged in a unitary 

business must complete the required information for each member of the group, including the reporting entity, on this form 

(Form 05-166). Attach as many forms as necessary. 

Additional Reporting Requirement for Combined Groups with Temporary Credit — The reporting entity of a combined group 

with a temporary credit for business loss carryforward preserved for itself and/or its affiliates must submit common owner 

information by the due date of the report. This information must be submitted to satisfy franchise tax filing requirements, 

even if the combined group is not claiming the credit on the current year's report. For 2012, submit the common owner 

information electronically at window.texas.gov/commonowner/. 

Item 2. Affiliate taxpayer number 

Item 3. Affiliate NAICS code 

Enter the Texas taxpayer identification number that has been Enter the code that is appropriate for the affiliate. The 

assigned to the affiliated entity by the Comptroller's office. If the North American Industry Classification System (NAICS) 

affiliate does not have an assigned number, enter the affiliate's codes can be found at www.census.gov/eos/www/naics/. 

federal employer identification (FEI) number. If the affiliate 

does not have a separate FEI number, leave blank. 

Item 4. Blacken circle if 

disregarded for franchise tax 

If this affiliate is a disregarded 

entity for federal income tax 

reporting purposes, the 

reporting entity may blacken 

this circle and treat the entity 

as disregarded for franchise 

tax reporting purposes. 

Blackening this circle means 

that the disregarded entity will 

not unwind its operations from 

its "parent" entity and both 

entities are considered to have 

nexus in Texas for purposes 

of apportionment. If circle is 

blackened, skip Items 8-11. 

Blacken circles to indicate 

organization type such as 

corporation, limited liability 

company or other entity ONLY 

when the member has nexus. 

Item 5. Blacken circle 

if this affiliate does NOT 

have NEXUS in Texas 

Blacken this circle if the 

affiliate is not organized in 

Texas and does not have 

nexus (i.e., physical presence) 

in Texas. 

Item 11. Cost of goods 

sold (COGS) or compensation 

The reporting entity will make an 

election on behalf of the 

combined group to compute 

margin using one of the 

following three calculations: 

• 70% of total revenue 

• Total revenue minus COGS 

• Total revenue minus 

compensation 

If the reporting entity elects the 

COGS or compensation method, 

enter the applicable amount for 

each member of the combined 

group. 

Item 7. Affiliate reporting 

end date 

Enter the end date of the 

affiliate's accounting 

period that will be 

included in the 

combined report. 

See note under 

"Accounting Period 

of the Combined 

Group" (Page 7). 

1. Legal name of affiliate • 2.11ffillate taxpayer numb r (if none, use FEI number) \ ■ 3. Affiliate NA t5 code 

4. Bla en circle if entity is 

disrega ed for franchise tax 

• 0 

5. Blacken cle if this affiliate does 

NOT have XUS In Texas rn 

. 0 

■ B. Gross receipts subject to throwback in other states (before eliminations) 

Item 8. Gross receipts subject 

to throwback in other states Item 10. Gross 

Texas Tax Code Section 171.103(c) receipts in Texas 

requires that Texas gross receipts The amount entered is 

subject to throwback provisions in the portion of gross 

other states be reported for each receipts everywhere that 

member of the combined group. are attributable to Texas 

This means that if a member makes before intercompany 

a sale of tangible personal property eliminations but after 

to a purchaser in Texas and those exclusions from revenue. 

receipts are subject to the 

See the instructions for 

throwback provisions of any other Item 23 of Form 05-158-B 

state, that sale should be included and Rule 3.591 for more 

in this computation. Note: Texas information on 

throwback provisions have been determining 

repealed. 

Texas receipts. 

Item 6. Affiliate reporting 

begin date 

Enter the begin date of 

the affiliate's accounting 

period that will be included 

in the combined report. See 

note under "Accounting 

Period of the Combined 

Group" (Page 7). 

\ ‘ 

• 6. Affiliate repo g begin date 

an yd y 

\ 

■ 9. Gross receipts everywhere (before eliminations) 

• 7. Affiliate reportin 

n do yd 

end date 

y 

0 0 J 0 0 

■ 10, Gross receipts in Texas e fore eliminations) ■ it Cost of goods sold or compensation (before elim ations) 

0 0 r J I 1 0 0 

Blacken circle If Is Is a Corporation or L' Bed Liability Company 0 Blacken circle if this is En Entity other than a Corporation or Limite Liability Company 0 

Item 9. Gross 

receipts 

everywhere 

The amount entered 

should equal the 

gross revenue of the 

entity before 

intercompany 

eliminations but after 

other exclusions 

from revenue. To 

determine gross 

receipts everywhere, 

review the 

instructions for Items 

1-7 and Item 9 of 

Form 05-158-A. 

23

Form 05-167 

Texas Franchise Tax Ownership Information 

Report 

Filing Requirements: The Ownership Information Report 

(OIR) is to be filed for each taxable entity other than a legally 

formed corporation, limited liability company or financial 

institution. This includes professional associations, 

partnerships and trusts. 

The OIR is due on the date the franchise tax report is due 

and must be completed and signed by a partner, member, 

owner, or other authorized person of the taxable entity. A 

separate OIR is to be filed by each taxable entity that files a 

separate franchise tax report or that is part of a combined 

group (unless the taxable entity is not organized in Texas 

and does not have physical presence in Texas). 

Even if the franchise tax report is filed and all taxes paid, 

the entity's right to transact business may be forfeited for 

failure to file the completed, signed OIR. The effects of 

forfeiture may include the denial of the taxable entity's right 

to sue or defend in a Texas court, and each partner, member 

or owner may become personally liable for certain debts of 

the entity (Secs. 171.251, 171.252 and 171.255, Tax Code). 

Changes to the registered agent or registered office must 

be filed directly with the Secretary of State, and cannot be 

made on this form. The changes can be made online or on 

forms downloaded from their website at www.sos.state.tx.us/ 

corp/forms_option.shtml. 

Section A: 

Report the name, title and mailing address of each general partner 

and each person or entity that owns an interest of 10% or more 

of the taxable entity as of the date that the report is filed. 

Professional associations should check the other box and 

report the members of their executive committee. Trusts 

should report their trustee information and not check any 

box (partner or other). Associations should report 

information for the individuals who have authority to sign a 

contract on behalf of the association and not check any 

box (partner or other). All other entities should report their 

executive board members and check the other box. If there 

is no FEI number for the owner(s), please leave the field 

blank. (Do not enter any Social Security numbers.) 

Section B: 

Registered Agent and Registered Office - This should 

include the entity's registered agent or agent for service of 

process in accordance with Sec. 171.354 (Tax Code). 

Changes that occur after the report is filed should be 

reported to the Comptroller on the next OIR the entity is 

required to file. The Comptroller will not accept changes 

during the year, except as noted below. 

An individual whose name was included on the report but 

who was not associated with the entity on the date the report 

24 

was filed, may file a sworn statement to that effect with the 

Comptroller. An entity that made an error on its OIR may 

file an amended OIR with a cover letter explaining the error. 




Form 05-169 

Texas Franchise Tax EZ Computation Report 


group) that has annualized total revenue of $10 million or 

less is eligible to use the EZ computation to report their 

franchise tax. Upper and lower tier entities, when the tiered 

partnership election has been made, will qualify for the EZ 

computation only if the lower tier entity would have qualified for 

the EZ computation before total revenue is passed to the upper 

tier entities. Taxable entities that elect this method to file are 

not eligible to take any economic development or temporary 

credits. When using the EZ computation, the current year's 

portion of the temporary credit for business loss carryforwards 

may not be used and may not be carried forward to a future 

period. If a combined group elects to use the EZ computation 

method to report its franchise tax, the reporting entity is 

required to provide the requested information on Texas 

Franchise Tax Affiliate Schedule (Form 05-166) for each 

member of the combined group. 

Note: If using the EZ computation, be aware that you may not 

subsequently amend the report to use either COGS or 

compensation to compute margin. See Texas Tax Code 

Section 171.002(d). 

Item 1. Gross receipts or sales 

See instructions for Item 1 on Form 05-158-A (page 12). 

Item 2. Dividends 




Item 4. Rents 


Item 5. Royalties 


Item 6. Gains/losses 


Item 7. Other income 


Item 8. Total gross revenue 


Item 9. Exclusions from gross revenue 

Do not enter COGS or compensation amounts as they 

cannot be deducted if electing to use the EZ computation. 

See instructions for Item 9 on Form 05-158-A (page 13).

Note: Do not enter any amount related to cost of goods sold 

(COGS) or compensation as an exclusion from revenue. 

These amounts are prohibited as an exclusion from revenue 

by Texas Tax Code, Sec, 171.1011. 



Item 11. Gross receipts in Texas 

See instructions for Item 23 on Form 05-158-B (page 17) and 

Rule 3.591 for more information on determining Texas receipts. 

Item 12. Gross receipts everywhere 

See instructions for Item 24 on Form 05-158-B (page 18) 

and Rule 3.591 for information on determining gross receipts 

everywhere. 

Item 13. Apportionment factor 

See instructions for Item 25 on Form 05-158-B (page 18). 

Item 14. Apportioned revenue 

Multiply Item 10 by Item 13. 

Item 15. Tax due before discount 

Multiply Item 14 by 0.575% (0.00575). 

Item 16. Discount 


tax reports because the no tax due thresholds exceed the 

total revenue to which the discounts would apply ($900,000). 

Item 17. Total tax due 

Item 17 must equal Item 15. 

If this amount is less than $1,000, or the annualized total 

revenue is $1,030,000 or less, you owe no tax, but you 

must submit this report along with the appropriate 

information report(s) (Form 05-102 and/or Form 05-167). 

If this amount is $1,000 or more, and the annualized total 

revenue is more than $1,030,000, please complete the 

franchise tax payment Form 05-170. Make the check 

payable to the Comptroller of Public Accounts. Submit this 

report, all appropriate schedules, the appropriate information 

report(s) (Form 05-102 and/or Form 05-167), the franchise 

tax payment form (Form 05-170) and your payment. 

Note: If the tiered partnership election is made and total revenue is 

passed, both the upper and lower tier entities will owe any 

amount in Item 17, even if the amount is less than $1,000 or 

annualized total revenue after the tiered partnership election 

is $1,030,000 or less. 

Signature Block: Report may be signed by an ocer, 



Form 05-170 

Texas Franchise Tax Payment Form 

Filing requirements: Any taxable entity that owes any 

amount of franchise tax where the tax was not remitted 

electronically is required to submit the payment form with a 

check or money order made payable to the Comptroller of 

Public Accounts. Please put the reporting entity's Texas 

taxpayer identification number and the report year on the check. 

Item 1. Total tax due on this report 

Enter the amount of tax due as reflected on: 

Form 05-158-B, Item 34, or 

Form 05-169, Item 17 

Item 2. Enter prior payment 

Enter prior payments, such as an extension payment. 

Item 3. Net tax due 

Item 1 minus Item 2 

Item 4. Penalty 

A $50 late filing penalty will be assessed if a franchise tax 

report (Long Form, EZ Computation or No Tax Due Form) 

is filed after the due date. The $50 penalty is due in addition 

to any other penalties assessed for the reporting period. 

If the taxable entity did not file an extension request on or 

before the due date, and the franchise tax payment is not 

postmarked on or before the due date, then a penalty of 

5% of the tax reported as due will be assessed (multiply 

Item 3 by 0.05). If the payment is more than 30 days 

delinquent, an additional 5% penalty will be assessed. 

For the first annual and final franchise tax report, if the timely 

extension payment is not at least 90% of the tax that will be 

due, then penalty will apply to any tax not paid by the original 

due date. 

If there is a timely filed extension request for an annual 

report, and the extension payment was not at least 100% 

of the tax reported as due for the previous calendar year 

(on the report due in 2011, filed on or before May 14, 2012) 

or 90% of the tax that will be due with the 2012 annual 

report, then penalty will apply to any part of the 90% not 

paid on or before May 15, 2012, and any part of the 10% 

not paid on or before Nov. 15, 2012. 

For taxable entities required to pay their franchise tax by 

EFT, see Rule 3.585 for penalty calculations. 


If any amount of the required payment is not made within 

60 days of the original or extended due date, interest will 

be assessed beginning on the 61st day. 

For more information on interest calculations see 

www.window.state.tx.us/taxinfo/intrate.html. 

Form 05-175 

Texas Franchise Tax Tiered Partnership 

Report 

Filing requirements: This form must be completed by all 

upper and lower tier entities making the tiered partnership 

election under Section 171.1015, Texas Tax Code. 

25

The tiered partnership election, under Sec. 171.1015, Tax 

Code, is not mandatory; it is a filing option for entities in a 

tiered partnership arrangement. A "tiered partnership 

arrangement" means an ownership structure in which any 

of the interests in one taxable entity treated as a partnership 

or an S corporation for federal income tax purposes (a "lower 

tier entity") are owned by one or more other taxable entities 

(an "upper tier entity"). The tiered partnership election is 

not an alternative to combined reporting. Combined 

reporting is mandatory for taxable entities that meet the 

ownership and unitary criteria. Therefore, the tiered 

partnership election is not allowed if the lower tier entity is 

included in a combined group. 

If the lower tier entity has $1,030,000 or less in annualized 

total revenue or owes less than $1,000 in tax before passing 

total revenue to the upper tier entities, this election is not 

allowed. If the election is made and total revenue is passed, 

both the upper and lower tier entities will owe any amount 

of tax that is calculated as due even if the amount is less 

than $1,000 or annualized total revenue after the tiered 

partnership election is $1,030,000 or less. 

Lower Tier Entities: 

If the entity filing this report is a lower tier entity, then enter 

the requested information below for each upper tier entity 

to which revenue was passed. 

Item 1. Enter the lower tier entity's total revenue before 

revenue is passed to upper tier entities. 

Item 2. Enter the Texas taxpayer number or FEI number of 

the upper tier entity to which the total revenue was passed. 

Item 3. Enter the amount of total revenue excluded by the 

lower tier entity that was passed to the upper tier entity. 

Item 4. Enter the legal name and address of the upper tier 

entity to which the total revenue was passed. 

Item 5. Enter the state of formation of the upper tier entity. 

Item 6. Leave blank. 

Item 7. Blacken this circle. 

Upper Tier Entities: 

If the entity filing this report is an upper tier entity, then enter 

the requested information below for each lower tier entity 

that total revenue was passed from. 

Item 1. Enter the lower tier entity's total revenue before 

revenue is passed to upper tier erittes. 

Item 2. Enter the Texas taxpayer number or FEI number of 

the lower tier entity from which the total revenue was passed. 

Item 3. Enter the amount of total revenue included by the 

upper tier entity that was passed from the lower tier entity. 

Item 4. Enter the legal name and address of the lower tier 

entity from which total revenue was passed. 

Item 5. Enter the state of formation of the lower tier entity. 

Item 6. Blacken this circle. 

Item 7. Leave blank. 

Note: An upper tier entity may also be a lower tier entity if there 

are multiple tiers. If this is true for the upper tier entity filing 

this report, then complete both upper and lower tier 

information as requested above. 

For additional information on all instructions in this booklet, 

refer to the following franchise tax rules: 

3.581 Margin: Taxable and Nontaxable Entities 

3.582 Margin: Passive Entities 

3.583 Margin: Exemptions 

3.584 Margin: Reports and Payments 

3.585 Margin: Annual Report Extensions 

3.586 Margin: Nexus 

3.587 Margin: Total Revenue 

3.588 Margin: Cost of Goods Sold 

3.589 Margin: Compensation 

3.590 Margin: Combined Reporting 

3.591 Margin: Apportionment 

3.592 Margin: Additional Tax 

3.593 Margin: Franchise Tax Credit 

3.594 Margin: Temporary Credit for Business Loss 

Carryforwards 

3.595 Margin: Transition 

All of these rules can be viewed on the Comptroller's website 

at www.window.state.tx.us . 

Where to file 

Reports and payments should be mailed to: 

Comptroller of Public Accounts 

P.O. Box 149348 

Austin, TX 78714-9348 

If tax is due, and the taxable entity is not required to use 

EFT or does not submit payment online, make the check or 

money order payable to the Comptroller of Public Accounts. 

Write the Texas taxpayer identification number and the report 

year on the check or money order. Complete the franchise 

tax payment (Form 05-170). 

Private Delivery Services 

Texas law conforms to federal law regarding the use of certain 

designated private-delivery-services-to-I neet tl re "timely-mailing 

as timely filing/paying" rule for tax reports and payments. If a 

private delivery service is used, address the return to: 

Comptroller of Public Accounts 

Franchise Tax Processing 

111 E. 17th St. 

Austin, TX 78711 

26

Appendix 6 

Affidavit of Alan Pasetsky

AFFIDAVIT 

1. My name is Alan Pasetsky. I am Vice President, Tax Counsel of Nestle 

USA, Inc., a Delaware Corporation (the "Company"), and I have personal knowledge of 

the facts stated in this affidavit. 

2. I am over the age of 18 years and am competent and not otherwise 

disqualified to make this affidavit. As part of my responsibilities within the Company, I 

am familiar with the matters stated herein are, and to my personal knowledge, they are 

true and correct. 

3. The Company's principal place of business is in California. 

4. On or about May 9, 2012, the Company filed the Texas Franchise Tax 

Report attached hereto as Attachment A for report year 2012 for the combined group that 

includes the Company and its affiliates (the "Nestle Combined Group") and paid the 

$8,682,998.99 in Texas franchise tax show on line 34 of that report. There is a 

substantial likelihood that the Company will owe future Texas franchise tax. 

5. The Nestle Combined Group paid franchise tax at the rate of 1% of taxable 

margin. 

6. The following companies included in the Nestle Combined Group 

manufacture food and nutrition products for distribution and sale throughout the United 

States: 

Nestle Prepared Foods Company 

Nestle Dreyer's Ice Cream Company 

Nestle Purina Petcare Company 

Nestle Healthcare Nutrition, Inc. 

Gerber Products Company 

Vitality Foodservice, Inc. 

7. The Nestle Combined Group engages exclusively in wholesale and retail 

sales and distribution operations in Texas and has no ac ring aci ies oca e 

within Texas. 

8. The Company elected the cost of good sold deduction on the 2012 Texas 

Franchise Tax Report for the Nestle Combined Group. The Nestle Combined Group 

entities in the table below did not have a cost of goods sold deduction. The same entities

would have had a compensation deduction but for the requirement of Section 

171.1014(d), Texas Tax Code, that all entities within a combined group elect the same 

deduction: 

Company COGS Compensation 

Nestle Holdings, Inc. $0 $2,325,776 

Nestle Transportation $0 $10,211,468 

Company 

The Haagen Dazs Shoppe $0 $1,832,560 

Company, Inc. 

(estimated) 

Purinacare Insurance $0 $1,920,378 

Services, Inc. 

Nestle Purina Claims $0 $100,162 

Processing, Inc. 

9. For federal income year 2011, PurinaCare Insurance Services, Inc. paid 

$337,000.11 in Medicare wages and tips to an employee whose initials are D.G. 

Attachment B is a true and correct copy of the W-2 issued to D.G., with the identifying 

information of D.G. redacted. 

10. For federal income year 2011, Nestle Transportation Company paid 

$197,489.90 to Mark A. Knight, an individual performing work as an independent 

contractor for Nestle Transportation Company. Attachment C is a true and correct copy 

of the Form 1099-MISC issued to Mark A. Knight. 

SIGNED this 20th day of June, 2012. 

1141-1 

Alan Pasetsky 

Vice President, Nestle USA, Inc. 

STATE OF CONNECTICUT

COUNTY OF FAIRFIELD 

Before me the above individual executed th . 

sworn this 20th day of June, 2012. 

ffidavit upon oath, being first duly 

Name: D 

ald J. Lewis 

Commission Expires: 

AUSTIN_1 \667504 vl 06/18/2012

'32212 

vet-. 35 ,3 :".f! A Texas Franchise Tax Report Page 1 

Tcode 132 t 

An.r.sel 

er number Re orl veer covered by this report. 

:551571209S 2012 D.1t12 ' 31:•2012 

• NESTLE ".::: A 11'1, AND APIFILIA7E•S 

Pri..1. v 4 :r•,•.1,-,, 

NESTLE r-rtn:!4:33 !NC" 

MAIN AVv 

,;..,cis" 

I c.::. ...,1 ft i.i 

- 

. 

1 - 

if- en:;:i -, a: .Wilfl ifii 

• if . i:.i . iii i iiiii„ti 

1 4,:t1.1 Pa-rp,o ,vji F., , e:14z., st,t fq...! 14.t•-v.,,, 

iv J ,..:, , 3,,,..., n. 0 

i.a ,.:Nr,j; r.,,, , ii• .s ."-. rn , , F ' :.:1-o. lt,-,,r ;,-., ..,-- ;.:.:.....*1 .1 ; irr,:,.. 1 :.:;,,,; -, ID 

if 

m rn d d 

RI m d Y Y 

Accounting year 

Accounting year 

begin date III 01,2411 

end date • 

SIC code 

NAICS code 

REVENUE (Whole. i0ars cnty, 

1. Gross receipts or sales 

2. Dividends 

3. Interest 

4, Rents 

5., Royalties 

6. GainslIOSses 

7, Other income ,, if 

8. Total gross revenue , 

Q. .Exclusions from gross revenue 

ii , --Srs Errs 1. • • 

10. TOTAL REVENUE •,...!`nr 

COST OF GOODS SOLD (Whole dollars only) 

11. Cost of goods sold 11. • 

1.. 

2. 

3. 

4. I 

61 

7. 

.00 

2E75711 .00 

.00 

21'.1(€8.00 

• --•-..,_, 

472-5-487:: .00 

24398121552 ,00 

.252E ,1 .00 

92E 552U .00 - 

:213:439P934 .1,- 

12. Indirect or administrative overhead costs 

t2. 

13„ Other 

14, TOTAL COST OF GOODS SOLD 

CON1PENSATIONciVhole dollars nyI 

15. Wages and cash compensation 

16, Employee benefits 

13' 

14 

16. is 

v .00 

:::?Vif;3:039P4? 

' 4 .00 

4:41: .00 

17. Other ••••.-: 

17, m 

It 'TOTAL COMPENSATION 

18, is .00 

Pa,,le 

VE/DE 

111111111111111 

PM Date 

lilt 

MUM 

H ill tilt 

112:„; 

till ill E I 

Attachment A

TX,20:r1 

Ver . 

Texas Franchise Tax Repo - Rage 2 

• Tcode 331 Anaua 1 

1$ Taxpayer numOer Report year Due date 1,vpa et name 

:72 209t 2012 1 :•5/15:'20:2 NESTLE USA _w AFF:LTATES 

MARGIN 

19. Revenue 

20. Revenue • ; .1. 

21. Revenue 

22. MARGIN 

APPORTIONMENT FACTOR 

23. Gross receipts in Texas 

24. Gross receipts everywhere 

1 9. 174444917 

:,..129"..432 .00i 

21, ;33274C,49 ,00 

22.. 11-:,0554 .00 

.00 

7.49926 .5 52E1 . 001 

25. APPORTIONMENT FACTOR 

TAXABLE MARGIN 

11414 ,;•%1, 

25. A pportaned margin •, 

27. AVON/Mlle deCtlietIOnS t,,, 

0 

,. 

27, m 

0 .00 

28. TAXABLE MARGIN 

TAX DUE 

29. Tax rate 

28 m 

X X X . C.' • 

30. Tax clJe :0•1, • 

TAX ADJUSTMENTS 

31. Tax credits tin 05-160:, 

32. Tax due before discour.t 

19. N 

801:09t .55 

33. Discount Kr•kt 3.00 

TOTAL TAX DUE 1.: ,11 , s• 

34. TOTAL TAX DUE 

14 ' [ 

Dc not include payment if item 34 IS less than $1,000 0 1 7:1 , :o31444.:teer,n1 ^Is " a 

t111" OF14e- , 

VE S2 99F.59 

"1 ,0 Me 4,1 .ii ,, Dosl 

Mail 

lo: 

sign 

here 

A 1.11.1,14: 

!x • 

I 2, 

0,3 

Texas Comptroller Official Use Only 

PM O.:Ite 

II

2.2 

Val:, 3 

liTexpavel rixliter 

05 - 170 

(Rev 9-11(61 

Tcode 

1353 Annual 

Texas Franchise Tax Payment Form 

1V±:157:-.29 

Taxnaver (Tame 

YESTLE. 12,5A 1NC_kt AFP!L1ATS3 

1. 'Total lakdilo on this report 

H.q.: 

'4:`4-•• 

1, 

;CUM. 

Z. 'Enter prier payment ,,, t •• ■•• • ■ ••p 

2, 

D ,CC, 

3 Net tax due • 2; 

?,t-,82. 1:98.95 

A. Penalty 4. 3. cr3 

5, Interest 5. C.CL, 

S. TOTAL AMOUNT DUE AND PAYABLE 6‘Ke9E.1. 4') 

axpayets whc paid $10.00-Ci or more d,if ing the preceding fiscal i,ieat :Seo 1 thrtiAtig 31) are requir„•,C to electronically 

pay their fran,chiSe tax For more information , visit 

state.tx,usiwenfileireik.franctilse•htmil• 

Mali •orithattl tel 

4 A'a vi• 

I• • ' 0.. 1,, MI 3 r•"•:••?.. •• ur ,. 4., • III •:i+ . 

•■••,..., k'Jte "

7X2c"..2 


MiTcode 112t3 

•1S. 5 .:5• 7 ;;•ii.2:32 

I pt 

r 

2C:2 !.4?..5.TLE USA :NC ANL AFFILIATES 

t •• , t '.',••4 rod 

:%.141)C, , I r.::•,.; zli 'IL V , 21:: 7.;:•.;.; E...:'z.:• 

'Dr,' 19153276414 

3:.15CA 

4 

:",: • 

. : , •5 .0,:.1,r.::',I, 41:lif.tt..,..v,,,,••4 1...e..,•,. . 

..... !.:V.(.. NEXUS , li.,.. ,.; rn m 40)1Y ni m 

.--- 

a — 

nO111 

1 ' 

''' G. 

s.....: .f•ct s: -i:cuc:ressmCcc:. ::: .;•:,,,,, vcib., •,.. ?:‘,,,,,t,••••,,,. c •s•s .....-,ris, T,,•,,, ....x,.. ,,,r• 1"1,r, 

1-1 .00 b9,24 .00 

..,, ,..,,rN 0 1 1,i, :11:,, s14irr,a.11,,in.41 -4,1 , 3per,s44"..4. i!.,,; :-.• :::...c.:r.:. , • 

i:1661 i '654 .00 --1.----- 425I, 86WE. J)0 

,, '7.: .',.• ,v. , t 4 :.:4,1.11 !.1.•• ■ •• ■ t:',..N-4.1.3.n, :!•:'!1•6::. ,.< b....?•;• 0 114 .4 •2:- f or 3 3 934, '1, ■•••• 4 ..kar.,,r:il . 9 ' ': 3.:, L .....12, :! : .:.:,..:1:14 i .ir....,, 

.. 

II :.Sl4.i. IV. ,,,.1Fr.t."%tsf,:r.hr ,:t 0t.vit ., I ..i•,t:ex s .1,11,.: NAIC!.: :. 

gESTLE TI,..ANS?01:TATION ::..C41PAIL, 

4 

•..:ts.,.,. 2,1 •^:• ,,,,,•:••• !In: I., 

t, 4:.t.r.fn* t., t ,? "I •; jjti .4..e. 1:,,S 

.NOT el,.1.1 NEXUS: I,.. -, 

a .,-.. 

1 I 

19!1. 671:54E I 

0412C 

. . . 

A4..1.40., ti-t,r1,11S.,4.,, 1,44.."- 

n in d d . d . .y 

',Y.': ,71,1 1:14, 

nr m d d . •y y . 

I t..,411, 1,..1.,,63!1,, ••,•1..,,,,z. :, t 1 , 1, Mattl; Of....;. 0 114:ett•54, 4! `..t Cr.l. '9 Yori,r.:1f.%.0 . y*,.'.. i' ....,,.,YV 

0 60.5“9.1 .00 

Coll of ;,..,:•0,•;:•:.: ,,,,: ,• 1.....i,rh.at,:• I:4-: -, 0' , 

00 rj-...00 

„.. . , ,,,,,10 .01 ; ■ •,, • 4. • ; , .W.e..0. , .. ,., ,, t. t.. ,S... N. •A 0,, :. 

r--: 

.7. SF.RV:CY:S COnAki INC 06An0664 

,......, ! 

1 Sr4111..1 4....-: .:....r :tael,..• ■ , NiO1 ■ :',..•, NEXUS a• ' .,. 

., ,ifiettiiite LVA .4 r g..y,.., 401.: 4' i.. •• ■ :, Iit , I• `,.• , Alt. , .,, o• NAI(....; •

7E2012 

Vet- , 3.0 


WiTcOdo 1)253 Ittual 

9.e., •• "It.:,14t1N 

R4.k,:«11.`.5 

I y 

:S.5:572208 

NESTLE V5.4 :NC: AN L .AFF:L.T.A7::S 

••• 

■+:•;• . Att put. t) :11.3 w es j i Le. , 

• 

lit :. '4" 1:411t!'a ■,..41.ff., t`t-gtIt5t, ..ti f '.:: thi:taiti: 5.4,5)CS 

N -4 ■ 4: 3ERVIcEg :NC W7,f495.7 5.519S.2. 

v46 .0i, ;ate rli2itts 

p.,... ! ..0 . ..e NEXUS • T,,,,,e 

. ilJr 

l't 

m 

d d Y d v ....E. 

• 

0.1:1.111 !.275:11 

ttA 1,4. , 11, 4:,:ttti tC,,,a itt4, ,,Ro.,na.No,,.• •ot.v•I. ,,,:...,44t• U••••• , :znr, .,....,.... ,,...a.,.• • 

-G.00 

: ..“,•,!, , ..,.„ :,,,,,..;„. ,, 5)...:.•6tt ia•t4 .; r .;, : v...:Ve., )1,0 1. t?:,),7414 ; 

V AO 0 ..00 

Coolplo,4• 0 ti,a7.0 N., 4 1 , 5 :5 «r F.t1g4 ::"#,Itt tt1.)), .1 4,,,,t11 ott :'. . 0, te, i : nt :ti•t ti t tt-,:)..),,, 

• ..,-. ,..,,A I, AN„.,....,. ,...,...„..„, -.,,„,,, „..,....,:>4. .4,1 ,4461,1,4 A.,,,,,,„N. NAIL:, 

-"TALTTY rc-c44:3TRVI`CE He,%I.n. ,(1 CORP 

1.14111 

2a:.584iO3 

o 

.... 

1:1,614 :•4:4 r tit); 55 )4 6.4::•)4c4 Ntt "ili 1Ht iitti: ti N65. d Ali I,:t.,1 , 13,5:4 L. , I :in:, 

tt in d d y y 

A •i....e. , Wl;.; 41.1 •.441tti. 

in in d d .y y . 

, 

.4^M111 1Z:3111 

.....4: te.,..01:, -. i 1:11ttr41, 11.1ttift, •Ltitft. ),,,,,In Int (1, c., .e,.....evt. ,..e.:4 1rft: :4)4044, tirtitt)...., , 

rt 0 >,:10 

,,,..,. ;.., , .e.44 ç ,,,:tit -, ,. C, 41 ..if 1) 54.140 it: ti),:' i,,, 44 .;!, 

■j .00 

,- e 1,,' A •• 1 Z'.... 1.- C41,4, .., 5 .10.4—) t1.51t04 1: C)1,4trOry C5 1,,y t.or :t V.Vi• ,F, el , F:t1 

ID 

tIt ',gni), t r .sill. • :,:)01i! t.41,4)1.f y 6, , itttlti5 , ..I' t441 16. )466 41 I It. og• ...„ t;I:41i4 NAlt.:S 46.411 

V77A.:.:TY FOnSERVICE • 2 114 I. 

41'29” 

0 ..t•itt") tet ,-. .- :,) 

X 1.1:25 :- 4, 

it 0 

2.4114 

a d y y m d a y y 

1 

.4.1511'i 

3' 1 

,114.11: 4 :0) 1., 1'. I ?..... ',wt.).. 1,.0; 41 tit ,tsiA,,,i ft: t^:". 451,tti t 5 t4)1. 0:16 evt4,44.l4r, '..41444:14 44.4440 4 

0 .00 I 2:C.:2271 '5 .00 

-.,....,., , :1 itwe„,,,,,,,,,,,,, . 4 9 .1,.,111 .1041 4,.• f ....wrq,,, 1 ad :44 , 16,0t, 

:224.3741' .00 11281r12 .00 

r ! L ..4":.C ., .. nr" , (... ,, e ,..1. ws. ri ..t, < ., r,... i .., 1 

146 t06$ r.,E0WOr hii'15 tl4r ,. J ! 

■ 141! .4 • nw. 

Texas Comptrot or Officiat Use Only 

II 

II II It 11I1 I 

20

7/121.2 

Ver. 3.'J 

, !•1 

11 Mode 


IN A' 

1 0f1 

22 

2012 

NESTLE USA IRc Ni AFFIL:ATS5 

Al% ;U• •A; • 

; .:,,•; • • ,r( ir • :' .Wr.: . 

--., 

YST.1,1 I",.• 1 06....944f1 

, n5.., i:, a , tl, ir ' • ilr , ..r.prrs 

A,:'.INEXUS P. 1..,15, m rn d d Y 

;sr* fOri•• • t ,.4.4 II.1:1' cr' , ..• 

n m al d if it.. 

. -„, •.:,. -..,,, , ,. ,1,‘'.:. ',j Mr.:. mO> ' .1 -, I,r ..E.U•5 1.1qtt •r• .10,1,4i,14t.,0 

.00 

., ,; ■ :.,.. r. , ■ •: .. I,,,11, i:44,..• o , - ,-;...3.15 '1 c0 -;,1-:41 , ,, a . .1 , :•4.6 '..1,1' '.! ,ef •:., :.;, Ir•ol.; Is: 

:0 •: ...00 r,'- ...o0 

r --; 

.--..... 

,c,.... I.,.,, ., ,p 5 if, , : ad: 4,•• i...0,,,,11, 

a ('4 , alt III 1 Atflii.gr” .,,,q.a...ef IL,:r.r.., ,i? •••,r1i; :.rsc• f ; . 

141.15T1X 7..:APIT.C... :::AIJ-I'Il:+.A".7::',Ii :.2610.17951 

523.9C0 

c:,_.:., NI, f rt.: s a $, al.., 1,4 

,-, .:4 -.310 NEXUS :, : ,o, 

,k, 

4: ::4.$(: F1:4 1 ,.., 91•• 41,• 

ni m 

, p..:dir..4 88..1 ,4014, 

d d yy 

ill 

(101:1 11..i 111 

1 , ,,,,,..;,,, ,,,,, q ..,• , tr,,,r,,ic r ,r, mr•11 i!,res .1.1 ■1:yr .::,..:1‘41 ,1.14: M C.iv....Ss 1,, oipt ,, 1.,,,,;,,.1,,, a .. fr.",, 4..,,, !..,, : 

.. 

0 .00 47: ../ .00 

.+1:1-•••51r•N•VS i •• , ',Vie , - ''' ,‘,.d.nr,i 41 Or ;4C141. 14:15 .•! • ••••II•t-114.!••-, if. • ,•,.. -,,i , c , !.. 

-0..90 .00 

c.,1,-,..k :•,.., .1 ,..,•:. ,r, •:•• i 4 4. , 

_ P.4111. 1 11. NA114 54411 

7.5C /4..:".1::NG.5 :N.7 ',12169650. 

112 

, 1 

, s•hp..1 .14•• 1,.• •::: . :. 

ill • NEXUS , T ,,J, 

r , ..:, -, • ■ • ,.: tt...:. - - Oa', 

d d y y m d d y 

• 

:12111. 121111. 

• ,.... ve..1:. ,...,.. :'•(,:yer:I01..- ,• ■ '..., . •tr• , •!ider• :r.,,,,,,,, ,•••, ••••••,d,, r . v ■ Cr••••:•., ..e.:rel.11, 7,117: j 'A hkr..,. .;:,•,.,:i ., , . 

,00 

i•-,:. .00. • t . .00 

• !. • „ : .ow ,,, I ,....:::11‘4 , ..Z.,2.1!, r.. ,,t,rf:','' 

e,fl!, .. iil:4 •,. 44140 -.1. 10/414:45 

• :•1- : o,4,10-4; . . 4 ,1” 4 y, 1.1,5 411,•• ■• :111•8144 1•1 ; ,•,1 r• t • r • ',air.% Ir•a•-• • 

or, '“ •-• i••••• 1 a, .314.: 11:41 . 445511 , 15: 04 141: 5 , ', 


11 

In 1111 

II 

III

TE2C- 12 

Vez' . 3. e. 


arcade 132 ,A Annual 

M P.,;„•:t 

a 1al.n1 y ea, 

Vi•yy74,1•".,1 , 

4:4;:xyy., rsen, 

IS51.F:12702 

2012 

'ESTLE USA INC ANT AFFIL:ATES 

•• . 60...tgat r igrgo•: ^7,AI .g;.gt.. ,•••,-t.,grioc, 

,• , I•. , . t..11:.1;g•g.g !a .: :kw • '.rtc :;• It A n i 'vs, 10 `C••••"; : .., t‘g 

THE S:cUFFER CR::RAT:DN 34-,91 5E111C, 

4 r • ' ,r..1; , 

al 

■••0 1. f•:•gor NEXUS .: , 

E r, r.• '.. it,: 

. Th .. Pr? 31 d , d s V- 

E ,.]:•if' ; • ,:..,,, : , s..: g •••• :. g, ,Avt,.:1•:..• t••• :411, 01,. g I. 1.0•;,.. fr,17i7:111,c01•Sut. . a' 

11, , , t•i've11:15 VII- g 't, , II •,1,• •- 

P ',GO 1 

, .: 4... ,..,., :., ..- 4,•.,....., ,,...., - Wet•,,,,,,, . 

!J.. 400.. ( .00 

,.,,v :4 A ...:.”1o,y7r,f III 4. '11 !ed !. •a: .••• , ,• C.:Nrip414., E. Cne:••• •ty:. 0 Thf 4P ".,••••• enit .4.1sy. 4 ...::.1':E 4 , '0% '..g. 1 g' t,.' 1 4. IrtHI if ,s t.(.1'1,,,,,, 

1 =•,--- . -', g111t,• ig.' , 131:161 1.5. 1 : g1 1-h,1 :4,11L;eg i I ••17:016. 11W I . 1: 1: "1db' a' , Aei • ...7i4 N.•11 4., ‘,Y . , ..1... 

"INNIMININIIIINIS. 

.:,f,".g. t?Ai,g I ti,s• :1.,.f .: 

41,,y,14. :,•,; ,..g. ”;,..:. n.,.., •., • 1,e,,, NEXUS , I4,,aQ 

2237/671120i 

311900 

A- 4 WY° ie4,-,,, ,,, 1-.4r,, '140gt. ..,,,, ggt:gg • 10, 11 

m d d y y d d 

M 

i Li 

11 

- ,01,,AIL115 FM: 1 .2...1 hgowit,...• 1 , ,g1 1,4 9 e; g DOA •• tIgg,,,iil•g•grgS 1 a. 

c›:1,,,,fir•• ■1ipt s ev.:• - . ,•-•••>ye :tyot.:4.4. en,r 0. ;,..• 

0 ..00 352V:341:-1 .00 

(.4i11s.., it:ft.:4.g% -, 1.44 ,.y...4•,••;• y...,,,,..,1 ....,,.:1 •:, .:...(.,,..s :0 ,, ., ••• ..ey.4- 4. • 

296••-•619 .1:6 40 n .1 619yr12 .00 

c.,...,• : :•,..: • •: ,:l.•• ••:, , . ;',0•Lita.,' gr g , ..,1 i a tt, rl ',. ' ' M1 1,.-• nho,", Vie. ti tr:, ,r.t , 4' ... .• .., . .41,01 t 

L ,11•4,g10 Ill .' A111. ■ We, 1,1A 1.• aye • .10-.1',1' If g 1:i.o 4.,Ig 1 .1 14...,,.4gtg, . 

41I- R4 RAND iCE CREAM HOLDTU:GH 7N: i2.3447 

••;, ,:;•.: ,,..1 • Ir.-11:;, , 4, 

,•„,,...k.,, 4 .•,,. v v:, i,•asi• 

., ,.10.1 Nexus • ,• 

a 

: t+ 11 A4, 

m d d In d d y •y .. 

r--' 

U _1 

- 

le , rj ...... ẹ : 

• 'o_. 410. . .c, .00 

.. .•• . . . 

,,,,,, : ‘ !..„..,.. ,,•,:, , ger A 5,1,g,P kt gg.1 g•-• C.,11 1,•‘,..1•,', 

• - - . 

:' .0-01 

. . . . . . 

•;',, .00 

... • t.'•'h itail,' t; , t,•••• t0,, , 0 7 , , : .7: . r• 

t.1 ..,;;;: • 1 1 g• • •k, .2• 1,..g! •gi.t, 

Texas Comptrol or Official Use Only

T2 112 

Vex, 3.0 . 


Bleeds. 13253 Atriva: 

f.r.7:44 , 4.4.4•••3• 2 5" t,t , •9f.t.t !NM,: 

1.951572209E 

NKSTLE USA IXC 

AFFiLIATES 

AM .4t, 1.• FOI,CKSCi. mut. i.e. 4LY-r, L' 4 

. ;.:. Afff :,, 0,4 fts•q:40 --::: .4-: ....if N.r CI , :t .^.00'. , -,,, ttfattz:', ,:.K,.1:',• C 

.. i•- -.:; F Diier22:3 :CS CREAN COMPANY 19A2505234 33.1.5S: 

me fa,, 

41454, if !V: . .jill . ..419 ,t.,,, 

NO! ',),Y, NEXUS ., 1 e.:•as 

1, to ,.:1 .,A1, re,.to•i ■ ry4 i•...74, 43,... 

d d Y Y. 

13 . h.::•a,. 

m m 0 4 .. C ttf 

' 

IT D 

ii.. L.1 

c.:%ii ::2.3111 

c., s 5.i.!: ;e0 :.;.■ 1, , oV.t.:1 ,_1. ■■ •• .,1!,•,' 1.':4. ':).0k , ',e.elk,M.'n'OiY-lit'.., siC 1:, .•••, 1, ,, ■ • ■ ,. I, , 

........--.., 

P ADO 

_—___. 

. ,... 0 4 ,.;00:.% ,..,:•.: , ...,r,c...:-.441,.." :cre •1, !S• •••, ,W.j. 

9 9327 542 .00 JO 

1Ca44'r- l" 1 ..,.:,,,o , ,,,- ,4-_,..ty t's,v4vparw , , sr, i .I ,r' .i.ec4-44 044, .J - s. .. Cl .....24414., , v., k '''''=.'..,,''. k 0 

.-• 

..,,, .7:0, 44 i2.1 eiftillkit a .f 

#:: :,,.. ,..o c ri vw r . ■ ..t,:, ,: , ,,,... ; ,.: . . r i . AC : Sx1 ,, 1401.''.:5 .....1.., 

DAZS Slit , I, PF. 4.:-.'i.iP.VY ;N,',:' 1212 2151 

53111S 

4•.: ,.. VC, 0 ,11.", :4 '.1 :...',...,- i• 5.0 4 :1 i,'I ,4, .ifyeg 

f,, ,,• .......■ rt.-.. 1- ar ,,,, l'.4,4 i ND! .a.d, NEXUS 

.A.' , V,VB ,tin"..400 .1:i orril,, • 

in m d 0 y y 

, ifr ,s,e>. is?r,•`..1.•:1, 04.0 dom. 

in d d 

"-/ 

M L....1 8 01,1iI I 

12 .51.11 

S% ,d1.1...1crl, ,:a.1.•,., ,., S'•11:,•: ■ ii.•1. '3 C.:1.2! 4511, 45',,.. ' •• ,••^41. .; V 9 ti,S "I'...r 0 V; fil..,1'0• ■ •1,., ,f..0r0f tt C.:.' .rn• 

I 

5124r1 

0 

l',.. ;.1i...,.. '"es I" ..". 144 0 , .1.:0fc, 4 .4 - 00.11 .c44, ; I it .4r...0.s0t ...00t ...,..,,,,,. — ,,. ft01 , :,, . , '• ,4 •0,0; 

65 1.iy,rty4 104.0,44"f".°.00,0044 et.,,,,,,, tw,„ 4144 Ii ,.., E.,....,,,., 029, p5i4y. A f ,af.: • , , S. ..;;.i l 't ,a't 1 •0'..II•4 C r• ,,,..••,• ., 

04 

'9494 ,•.'. . ■Vii,o,. I Au' wog twq.. 4 0,1 t'. AO...? I i...I. I ,•91-4`• .1 111 000•0t2 14OW.0 ,. ■;! 

■ZtSPRES54...; USA INU 

:, .. .4 .., , i.-, • •,. •' Th , .. ;Wit 'tii• ,' 

,..,f1S39260 

A`..i.i.04, ,..{..;,..V.1. •.7, 

1.,-.1.1', ,Frtt, 

.423EMe, 

WI" 

in in 0 4 yr. d 0 y - 

, ....,,.....4.,,,, , r4....a:......1 . !,::.1,..10.. i:" tr , •5•15141 ,Bfkrn• 0 , .,,, A£C,.t, .• 

0 .00 17W., :5 4., 55 ADO 

a 41 , 4 I •,1 ,,,,,.,,,,,,..1.,...•• • 0,i(:.."9.; 

192 00 5, 5f, 5 '. `,..". .f ..00 

e. a -',.. ■• ,V171"::' , • •.: .. :re ,•••:1 z,,t• I Irr ts::. :t % s ik ?, i,1,... ,1+ - , : •....., ,, 

. 

115 '2,1'S : i••••.•1., :1'1 "r 1.11-.••••;4,;.; 14' ;." 

‘4 , p, ..44 , 44. • :a 41145 'Ice IS set I'd. 


ft 

II 

hi 

II 

11 111 11 11t 

0 12.0

TX2112 

er, 

• ,q,p: 


I 1,711.i4?,,,l11,1,; Pri;t'y 

r 

19515 7 22:1 9E 

V Tcede 

1•0•0`,.:,‘ 

r 

:12 INC ANT AYFILIATES: 

,r ; , ,I;11•16. 1 •• wt111.4 RC+43 1 , 4451 ■1r. 1.3 ir • •; ■■ •• 

N 

Af'....Jee t;xplim• "1k •711'.1,/, k 1 1 ;')•"••. •.• • ■■ •••1, ,n', 

Nr:STLE -..?:N ITARE C.311- ANY 1414'.3 5$)C 

, . t ,•,::•••„ , . 

. t, tli, 3,4, ',it 

7 Nexus f• I'inaV 

of 

A" Wit, rvt,1: W'.• r....,••1:•• ■ 0,• ■ ••w 

In d d . in 

) Th:t1 11, . 

..". 4,1:431 1'. ,Irt-,- I. ..II -r.Wr.rri , I 7 r...144 ,!.....•-fe 4, ... n1'244.1;1.5.1 Ii 0''" r 'f,.‘4, 111:1 (.4.4V• ,,t1...fr • .1.,•: 1 e,e■ tr i • :;: .r .N• 

2 .00 7525145 . :t1:t 0 

t. ,,,, 5 1 1:•113 A.,;:f Ji z: :2 ■ :ii,:iti.: -.si 

' c1ii:C32.6e7 AID i 45.1.8EC ■., .00. 

(,.--... ;.,.. 0 tr ,.s ,‘.. of• 1 , 11 tv :AP.,- ,..1., • .... r , 

. 

' at ., AlKM, '..ivil:diitii •1/14-mr :.i ..e.-vt 1.,43 '',,,t ■••• • t.,^ 110, 11 1... 4. 

1.71 

.Y.CXER.SOARD IT. , ,,liN'.; '..N't . /•,0! :N.: 

......----..:---i 

41124,S8:9 

44 

0 •••.,..• 0 at'•,•••1. 1 ,..•1 !,;1,', -.11:i; 134?' 

• - , VGi I •.'11 4,1• •Wir, 1 ; 

Fril 1,,r, NEXUS ••••• 

II ri 

Pin.iiie •Per.ori.q. 14?,1 '11 'Wl.. 

in in d d y y 

fl. 4 opr.:..•Fio t••••: .: 0.41, 1 

in in d d / y 

Cl:V.1 

• .-...., - 1 

'1 , 0‘;,. 51114er , 34 ti•,w1,wr ,: ,.■ 1 ■ 1 ',1 .!;',4 1‘,3, : 11011., 1)01:: r4; 1 ,=' Cr: •'.4. turiNf• . ' 1?.. 113',,t•04l3, 3t4111'4' 4?,-0,i:.• 

.00 

1 

;I1'•••, 131f,•.:0 1, ••' ...Is •'',..,,, ,I•i•I '1 ■ Nrsla qlf".1. (;• .-X 1 A ...?:.:o.cl. se.:r.• . ... ..,.,;•,,' 'a • ii0 • ■ •:'; 0 . ..•• . •••• ■ • ■ ,in1•• ■.',... 

Vsi....P"..! .00 

2.00 2.00 

• ,..: ••• 3' • . 1. 00 ,. IN .7 :plie4t...1•; ,;...: I ireII.7,1 1,3*•.1 1,,,• t‘.••••,, r.: 'NM, .LIC.I. : r I., 5 .i. Fri:?: :..11-1 0- 11 a ,,... 1 71,1.:, , , :. ..,,C1, • 

1 , ..:,, 1':1 . 0 • 41,011., taq .., Y `.. r :f! •Hrtit• .154 F F i •'...1•I• ■ ••1; 3 f.ii,m,, NAii.: .1•1:, 

LASkr.r..F. ;, AP.Y. REDW.IE *..02MENT TION 4 ..(..)i5,0 .2 7 

Y.:..1".•.K 

.1 •,..41,,,•• I., 

1 S• •';.• .,'...43 1 1 11,' 0:10( .1 1 ......-.:,, 

• N 11...• .3, '21 1r 

NEXUS. 

IN dt, 1,1:•:,,, ,i tt!,; F • "1403 

m d d y y 

..._ 

r:c1:1 

12-A1,1; 

.... ),. ....... 4',g,i,..-.3 !,1 11- ,::H1'.:4.' • ■ .•••)Qt 311103, , bt.1•••-n , •13,,,,,,,,-.5 . W GI: 34' it ,....0:; IS 411'31, Ali, t ,:• ■ ••1,,,,' ...:ar 0....• 443. 

•■•' ,00 

1 

i 1...' 1 

.• rxr . mpk; • I TA. I:. •F: .. 4.3,,.,, 1 . C...1' rti: At:I., . r..-i, : ...:- i:1;',..,.eiinetiI. ,,, 

••;•• ■- •••• , P1 3••••31. ., ; i..,,,,s•hr,•,••• ..40 4 ! 

11: 1, :14314': .3111 

A' , 1 1 ,•" 1, • I ;1. 1.• • •••':1 ‘',.• 

!VT 4.3411433:30. •• ■ • 1 ' .1 • 

Texas Coniptroffer Official Use On y 

I 

Hit Iffhilliti 

1120

172 DI 

vet . 

' • 4:54 

IlIcode 

Aznutl 


1,141,4344, 3:3 3 I 4 A.y 3 141".c.,1 y44. "Rep, • I•Oci, 4:44Vi 

195 S722;19F 2012 

NESTLE 1SA INC AND ArPILIATES 

:••• flu 1 .4 :;•.40 ,74 41 3.641143 :a,: LE: „:;41- 

3 r' 4:4 4 , 4.., :01,4.33thr 

2;ESTLE PC:IRINA CHILD L'EvErk:.:PMENT ,IENTER INC 

4- Al l ,, a,(: 1.0143,•e' -.e-bt- a , vo-:e ,, ■ •crl,, • 11 .., A41',44E P :3:, '.. - S ,,,, E, 

t 

1 421637123 62441i.1 

:;45 • 03:335,::•,-4 IN 1,13:3,4 : 4,44 1,43, 

I. v ...1 .' ", 334 V : : AP, ..r.06 

r-r:>1 'if,' NEXUS ••• 1.,...,,:. 

. i'l ' ,ff .:QR.. • 4 5,,,.., :4 ■,. 1 ,... 'Ia' 4 

m m d d y 

a 

1..t', ,...,45. •rt i ., i, ,, 

m qn d d .4. t 

:, 111 1:Sill . 

. ' 425.::,,,:0P5 14 3 :354115,1 !..4 l'•11.P.vf,l'' • • !`,03; 4: 74t5. 53 LEWE , 014" .3,51, 4 5 : 

0 3."' . 

44 r ■ 44343 - 134 15 1, .1"0Ka1: , ,,'•', 'el ', ■ • 1409,M . i. ...,,,$± (..! ;,..,.37., , °.: ,. ..1 -..4 44:3,-.54t.":7 MO 4 .• (4i II .:0 ,f. ,...,1.,: 

, c.00 

.... ,,......L. :.*, - .4 . I C.:eV - ,ji I ,- '''- 1150e I. 3 t ., ,,,,,,i),/ , 444 454'.4 A .,,PrKfr is 94611' 414"": 4 C pot 41.o, -.:e 1 • , /al . , ..sy 

.... 

eq:41 6,1,4, “ 1 :011:14, 14 AN low, meave,f ::,..1f4E, i. ; 1 , lefle 454:: I 1 4 4:x.ent.154:: A `f.'. 3.5RP 55.W.S (1 4: 

.1111.E PURINA GOVREIIME.:T &MIES :NC 

5211a9505 

541990 

4 1 ein, 1 . , 15 

. .. 

II 

E.:4:3. 

.' 5%, I !i :: ', %el ,r4: 7>.rz 

NQ r -,,r4,4 NEXUS • .3 1,1i 

iii 

a 6 A".1--a, aen,". rtV 145,01, .3:4 44' 

fil d d y . 

Clnll 

0 :::i',..,, r pc. o V. r. 14 0 , :•!I .• ,i., I C i q , ', 1 , ■ r.' ,3, .3:401, E.:: EE . ' ' .3,41,33:1.:. _ . ,... G'14.5.5 rt.,...41015 5:, 5 is 41 ,441, .,1 4: 1 ■ ::44 :443 1 11, I , 

14 1 

I 

i 

,, 3 .. py: NE::: ,,' 4 :. :5:444 

d el y •It 

• :. 1 

,0O .-.' 0 

' '' -',1 f:r....,i ..e...:` ;f:to t• ....''Fil ,.. ....P .O.,, t:•1,41,4434:455 3. 03 5" 14 .43:3c.:15 .133.9 ,31 :4" :::•Efr,4:33 :4 40ior: :t• 

j 

;:boN. 1 , • II 15,4 i G. 34 C:c3:3 , 44 3::: -,„ -etwn ■:,-, I 41,1 503-s415 . i..11,,, 1....t.,..:14•V Cr.514 4. 1465 :' t . "•5 '5 11' 1: .1":1, 4 : 4 -30 , 15 ..4, 3, :-.4t .......s. :.. ,..w ... •• • L Ave!ti i' ,e-4,e,,, 

I tq , . ':5i554., -0, -;e• , £.5.:(4 1545.4:%r ::::: 5. 4 :3' . 144415. ..1 .44: i I. '5.414W '' 511,5414 kle:C,t; ;!.,,,,,„, 

t,DEINACARE 1NSUEANCE SERVICEi INC 1263543 

52511;7 

' •,.55..... I 01..:3 41E,1 '4 :1,3,5 

• IA .5 NEXUS, 7,4 444. 

In t• A"tNere, fop. ,, •, 55444. :LA, 

ha d y y 

• 

4.3.":.4.4331, :4555:45115 4 45" 

AY: r3t ... d y • 

sir:] 

i4i4111 j . 

, .:•,.., 3- 1,4435.:5 , ..35::-,31 !, El,33.,..5.13- 5: r.

. 2 

der, 3.4 


■ Tcode 

n3 krinual 

■ keb';''her t•• • ■..,!•••t, 

15511-.72E;S 2C12 NESTLE USA INC AND AFFTLIATER 

:lc: pr Jah,4 er . c1 ,3 s 

2 , , :,r . dyrl ,.1 e 10 • 1 a, ...!,. wo . , 

NESTLE PF.:RINA CLA1HS PROCESSING INC 124116584V34 51420 

cre.i.. t.,., r 

!,:2 aNr•• ,IN: ...1 .,:e.,, 

NO 1 ••,,,,.: NEXUS • • 1 :••• ..a.i. 

,.• 10I, •t,rc•r ,,... ‘.,..y., , ., , ,,, 4.1. 

m m d a V 4 - .Y. 

gli 

D 

1, 111 123111 

, ,..: .. .b .,...1 *,,, — i •, .4, , 

..00 : , o-c...00 

,--...... 

••,, r. 1,,, • ,. ,..i, ,.„1:,1.,, ,In..4, ,,, ,, ,,,I,,, , ...,.t. ' . ..11.,21,,.%; 

16517 0 (''..$ii .00 

In a C.: , : ,- ..." :,,r4 4,,1,11-:,;20:2 Lis.312.?" , !S f;.,,.....,,an., C , 4?1.. N.. I' It..v. x 1.-, : 1 's •"•,...•:• ' - • - 

0 1 11w, m,,,, .:2,•4 .,.. r ; , 

' ' 2A11 .13 -'.)..., 

450.4f-1451 II 

5511«2 

•., ..2.. ', f.ie., ,,ts.4 12,,- 

■ 

is 

!:., , n., A :4, In' at', j:21,6. 

,r0 nave NEXUS '..",.IN 

■ 

Il A1, 1.120 .2 

t I:1i;el N• Iles :rely, -, oWitas. Y ss es , rct.ri: e're•••; ;11, .•. i, 41 .7, •••:.,,, . • 

L 

.,,, . :2 ,,, reg,-. n.-; 

d d y y 

.00 .00 

i 

.; h: ..121r,:. ) 

.tio i 0. 

, Sri 2.1 .....,2.281',.. C.It.... t.202 if .€..k s On 1 , a 1. E i ,' t,,, ,g'1.1.5, C.:1,9.1 , 

. rr.,.. L. ,2f , r1a2p /...tiOnt I 's .r erf • sore VW' ,.,, I, !..,...,, 

. 

JENNY CI4A7G INC 

Yici6s1e8 

51112 

::. .1 II•.., ,,,, .1 v,...., „,, 

., , n4, .... 

4, ,....2 1,. ■ , .2.42:1,ir2 1.. 

,...r., NEXUS 

y y 

_, 

a 

OIC1,11 

I x• '1 ,.2 .22.`l, StgF et .1 Clc.,:t. .c: : r.i.-,, . i 

:00 

.. IS...: . .. ' 

' ," .00 

':...ri r :, 1 

Cc., 


11,20

TX.201.7i 

Ver. 3,a 

err! : 

: 

IIITtooe :22F73 karival 


t.i*dott tc nr.ta, f ,9111.41 

291 . 2 .SA 714:: 14.FF11.1XrES 

f1.• 

".1.1 • 111."'14 •.'101 

',", •••ti, N.,Ii';::::.:, , ,,, 

,T.ENY :RAN WEIGHT UZSS. CENTRES INC 

L 

W....9.19130 

01.;.-13 

OP •1 ,i' ,.: ' 

,1, 1,11 

.•,.....r±,•,11 , ut ,-;• 4:,,o.si. 

M)1 •• ■ 45...: NEXU5 ..'• 1 oas 

M A P1::011.1' Itf0,11 ,`,1 1,4, •,',70,1 

rn .. m d d 

y 

fit!1 ,1014: 'QV :.'111,:i V•1'.1 if,..S.' 

m d y• ii 

' 

0 X C:t.t.-,i1 

.3 :;,,, s, ,,,,,,,,p, tt-tt:,:Lt I.:: tt,l'nwnrit S. ,-, ,.q..7 , ,,' .ti"..553.5 fi,01(0 , ,r,,1:114".,1%) i1, C.5.5 't5:'.45.:.5 t YUP ovN..i,.., I VW v , i., o fl. 1., f 1 

7, .00 .00 

,.,.: e3f.,..,,,t, r. ::' ,,,L -,', 1.4,, 4, .,,,,r. lalfg",1,:, 1;1., f: (.1' gl,,,,,, ',Cif 1 ,ty .... 1,4; ',..1:1....ff ;;,' :, f.. ff•,,,1,,, ; 's , 

a . 

. .. . . 

1641;E:1.00 

. 

. 

;,.,. ,.... II , I, i..,. ,, .... ; •r",•=5„.3,- — 1,im'e'..'2 tAlt,,b-4, eOrTamy a Cr n :l. :4, 1.' !P , .k , i rA !, tul- tr• 13,..^ ..I (.4,-,, ,,3,...., 13.: : i.1',•,,, Ix 

....... 

t -,,p1 .•

TX2- 0 .4.2 

Ver. 3. 

t+ 

ificode 1321 

c... Ii 


. . 

111 

riov!;.1,19I.:a.g.aytt 

19 572099 

NEETLE :JSA INC ANL, AFF11.:ATES 

L 

. . 

AAA,11A 1,:ysoes.:1 date .1),' Lnfi .. 

I Ati. , mt ta.i.:.1/21,,,t ,..,,, To.:' i 0 1,.'W,.; ..3i. , i ni .i I.e ;..:11 tali NA 

ZEWNY ',21AI:, NA 1I .w' nr, 3344:: 51311:: 

• 

al... 'Alf. .5:,..t 

4 .,1,. ,,i, ..1,,,./ 

11 

nv: .,..... 

r 

1i, 1,a• 

NEXUS • r,,:v.r: 

m d d 

m Ss 4 d io 

In 

14 

:„....„. 

f.:••••!i•tq SU:ieZ.: :i., , !) ...),4,3., ,, ..;:. , :,E-• V'..Mqrt: ,t7i, ,, ,, r:i.,iii.nr,t1 ..e OL,c , S '..3k.W4..,:,1 ,..re It. ri. re • t .0 .:47 ,,,:,.,•!.%, 

...) -A)0 1 ' 26":.'6 *.:9 .00 

•,• .,, 14c..1; y .:' .11.11. :A•trii,. ,, ,,,,,r,risi Ca. ,: 4'..', I.N.:,,, 4., ' i.4,0. ,....; ■,,Q11..q. It, . r•:4., ...ri, 

1 0 O :..' MO 

1...mult)0:. 1:,410..:1* CflfIVA)14 C'ir):,.. I.".01 i , , t "•,,,.. , ' ,W., .,,' CO? t' ,. .3:,.', ?? ...J '..01,1 la . (: ■,, r1.1n. 71 

--....... 

:,.... , •,„..e :'..,:. IiIN . ...C.s3 , NAlc-S A 

N 1.7LS :NS'JRANCE iCLDINGS :N-7„ 

• 1 :•,,,:•,., ::. 

,. r.!...v......., II il., il ." ' .311, ,,,As 

1,;;')'. - ,,ve NEXUS 

2z,v6g7267 

SI..".„12 

6 4 ' ..-, Al, ,er,.. , .. ,..••;i beco '. ,..,,,,, 

m md d y m d d 'y y 

RI 1:3 

41 

:.., :t11.1 

1;3111 

e.-e.-I5 ...r.,A2:1 t,,,,,,,,,i• A) ,..66• ..1.11r, bik,.:.•V ■:;141, ■&t.IF#1, 5) CIA,A-s re,..,'_4.4 ,,* ,,,ogn. VA: •.., .....• c.,* VI/1,a. 

0,00 C .00 

... ,... ,„,...:,.", ,,•?,:,,, R ,ri ■ •••:• ,liel.11.1K.,,i k.:C.N.,,It I..., ..1.,. g ,,,, h,€` ■ :.4 ;.1.rel t• o..,,,M.,.:• ,...1,..: 

1% :0 V.00 

c,..•,,,,,t, • • ,,,, •, ..: V.,71,• ,,I ,.., 1 ,,,, ,,,j: I ,anrr): ',",lfe,04,14' F ::^c.:, t:.u...1 

: a. Ian,. As ,f1 44..,,:,... ..." AftAwtt: ta.,: fie, :,.IIr VW' i. , C1,4'1 ;.,Ne ••.....,t9t...e ., I Airier, 

C.1., • 14 YA.14:1-7 5197ICES INC :9277E412 

•,..::1,...• 

■ ' 4,-,).4:•:. 1 

... ),...c. C,,.... 1A. 4.11. .110 Q.,4.1/4 

NI ,..'2' ' , :e .,.. NEXUS • ie... 

i, A:: .:,..1. req.I. • , ..1,::, :4•,..11t• , ;4. 1 ..• 

red d y y 

i. III IZOx •:t C. 11,.: ,y,:f •.;,;:,• 

md d y 

,._ 

....11.. 5 ■ ,.. •,...,1: , 7 b ..,4att t .., ,n,',11. e .. , 1 ,11,.. ....Stn.* :: ■ Alf....., j..:,,,..,1 1:1, •i 

1 

.00, 31171 -3 .00 

I I..' ',1,..•j•i• :::.^; ,41,:: . 

1.00. 

r1 Ir L I..dU , :d.,,, 

iv •4 c' 1C t' r.4 , Sors.:K1 ,0 :1:: II:, 

kirlt.1.1r11 11,114 I l

TX2I12 

Ver. 1.: 

11 

MI-code 13Z53 Xnriut.1 


191, 1':742:-.99 

NESTLE !ISA IN": AND AFF:::ATES 

N.E.T.., HEALTHCARE NUTRITION INC 

. An.,40,e' 1, t; 1‘,.. • . ,11,01 ..:.. 1,11, , t. • 

r: ....1;-‘,” W.-ICS : J, 

4,081.E,24 .illf ,4 

,5• 1.,:.] 

1 na:. NEXUS.: ,,... 

mend 

!..:16 , 65p. .:, 1.3I• 

_.,: 

it L..., 

'.."...,).11.1. 

i2311:: 

ti..p.e!:•rs ••-•e...,! .!!!!. •!..,,, . •!., wir. sAtres .;!!,!,!: re m e,rr-ri!!,,,s-r- . lig.. , r•;"• -, ,,,, ....r, 0. - E • .- 461,6i. 

-.1,:, -6,, v:- . - i , ri• 

.00 1 

" "P,' c5.4 .0 

3:; ,•• , t, ,,,.,,OS 1,) •.3. Vi :iT” , c, 0 ol .1,101VIS .: 

I l• , •.:)I,.: ..? .1V• 1,14, 

GERBER r•C:.UCTS OOM ANY 

s43 7 cg41 .00 

,-... 

C ,*:., t • ,n:A, .4 0,4. A F'.: l'. ,"!•!, .,-'' , Fi'lie•• . ..hlf..,,,,,i,. 

a 2 •A''!!ate!r4.[•••1s.r r.f:rier • e r,r• r 

13405582/0,, 

r . ,,,,,,,t,:fq' 

.,..., 110Ift NAIL'S 

4s1::, 141 , ,00 

:11.4f.,-.:, 

:r•i..i . ..,1 

, i6,.....1 rd :GAP 

;.:i*ri.. ts... I ,..:•-,,, 30:!.Th, 4:Its% 

• .no HEX US ,.. rina•r- 

a 

le 1 ..t ., - 1 

Mt re.r.C5,.V.,:i :.1.9.irt 1,3!e• 

..... mm d d•yy 

..i..50.-...riq.c.^.e..; qrsl 

m d 4 y y 

D1.7.t111 1 111 

6 3cns On,; TO 1,1; ,,,;., 1, :3,0...,1",‘ , S 59-0- 

•te ••:,e,r 1rirr,,,,,, h 

St.tle5 :' er: e•rour•rritr•rrns, Ces-r: reci., c,.!a ever •,,,,I ..• 

.00 I 

30-!!!3222.6 .00 

i.!5.751111 -.00 : 

'./.?121. .00 

4, , • r 

BERBER FINANCE .=MAJTY 

® Afil,w,, 3.1.; 5.,01 ",11,1 ■.• 1 , V 

SIC;:e3.551 

I 

W,i6,-- 

Nith:Tt 

, S.1112 

1 

Nexus . 1 ,.. , 

a X.1 

il e kt.,..., r.,. - . 3 1, ,...,i,o I. •, '.7.& , 450 , • :- !• ■ ,•, !! •s1. !rries rt.:e!!!;:v v:=-1,.!a',!r•rit,:l Cr,' 'cot-D's 

m 

m 

., II.," , r•.,1 0,:„..1, 03,- 

GIIi1"....1 

u 

. •Y. Y 

e.er,vo en .t•er,r, rr• cr. 

0 

4241C. C, .00 

c.00 

:....,,„,-; 

TXS012 

Ver. . 3,0 

0,5-102 

9-1 1 /301 

'Node i3)9 

Texas Franchise Tax Public information Report 

a 1, , CL,ovan:•[•••:. . 

This report MUST be signed andlited to satisfy franchise tax requirements 

PI - 414:4 1, 

You have certain rights , ■■ iv" "4`4:i 4•■ ••,,,r1.:511:4 

2C:2 

NEST:E USA INC 

NESTLE . 

HOLDMIS, INC. 

23 MAIN A"E 

••••'!";',1 44, , k 

N6RWALE 

25 551 

*•011‘.2 '0 

1 v.:: 

. ,•F t 

Rxm5 

5 IN •J: 04.. 4,•1 Ic.". • .,-11 as ; Sr ca l e 

Please sign below! 

1••••:,4•1! 

, 4 pau 

• 4 "•.: • 

L-51..: 

n 

s.1 ,••• .1.. a 

".1•"•...e..1 , 4 

, '• ...17'1,1'!. 

"5.",:,..4:4:',141'.1745! 

SECTION A Narhe. !Ale and memo address. of each offiner, director or morpber 

real 

;,,. 

/5I5;2209812 

RADI.E'r kl,FORE. E . RESIiENT 

NI .1: . 1, (; r1 Va , f, 

520 5 BRAN: listv:', 

'.`'• . 

.5r..rttn?..Lt . 

CA 

, 

m 

.. if 

a 

14.:CHAEL 5 VICE PRESIDENT 

:. .414on 

'.1 .4.4 01.5 .:‘,V:t4,41 

252 y.A.:14 7-..-,-E. 

Name 

1 i 

selltWX41t 

L, , ,,,, , 

'CO//F' 

851 

I.. d d 

ALAN 'A."IY 

VICE EltESS:ENT 

,.s.,.. 

353 KA:IA AVE NORWALK CT 85551 

sat. 4 •••..,1• ■ •1 • ......7,i11.4:4' r'' vo• :view ...:. '••••••1•••.+11..3{, 0,, -emsp.e. 4.4 SIA, 1. ,,eit. :,, ,,,• 

5 , 1' •_• ft?r ,f, '•1:•••..4 , • ni:rs r, tr •,;;;;., ...,-40 ., :.r 

SECTIONC 

,.'' ..rtjt 00:15 .11,1 ••••,5(11 5 555.. 15 :4 51 

4 . 4•...r.t: • 

..a• 

SG..1:Q a' t541,1157r. 

nil ••1 , 

Ager,:CI COEPOkATION SYS'I'EN 

•: 1 : 

.o mai," cPa•••j111; 

1,5•4 ta. 

Cf"P Nc7iT2i ST 1- .KJI. Sr 

:ALIAS 

4 ' ..:•te 

2•91..4 .. 1 1 111 A 1 0' , 'or 3 . 111, ..3 rt, • •..1••• ■ •!... 

■ ,•• ■ c"•0•., r•:1: !fey ,;•••, 311.1•4,, 41 •i 1,, • 157 !!'1, 1.04' 

• 1.-oe I,. .4 • 110 "l :"4 : . •••. !` '1, ••• 

541513, .7 ' 4 

••:5•1' •4. • ■••. • 4, Cr plc:n.4,1, •.-.0 

sign 

here 

VICE PRESIDIOU 

A:v 

all/h: $1441144554, ,4afr:"5., 

IIIt 15L - 7734 

Texas COMptf011er Official this Only 

1111 1 1111111 I 11 

"20

Naa.a 3 ! a'a ,, ad !...i1,111Z.Ife; .01; iii .,:,•.i• ..5 !,,,,..1,, 4 I ii • ., ..,,,. ,,,,,, Sta., :.33 f;vps:!•: 53'1 •• !•••11;• ■ '':•• 1:•••••,1,• 54/5;4• 1,5125• ,, ,,,of Vi 5 - . 

TX 12 

V6'. 3. 

iRev 9- 1)30, 

Tcodo 131.E.: 

Texas Franchise Tax Public Information Report 

, C.:1 11 , ph1 , 31 ...I 1; • I ,a7x...R• .im,!.,! 

This report MUST be signed and filed to satisfy franchise tax requirements 

You heVe e.tortain rights 

1:JrAl 

13!:3 67:2148 

T45:.1.1 ; ,` ••••1,4 

NESTLE TRI-J:SP(..,11T?.T:C•N C'.:4iPANY 

;0 2.2 1 

NESTLE KoLr:r.3.:, 

' 2 Id.;.:N AVE. 

CT 

0"IS44'24' 

c '' ,d-3 50 ,,, 3131., A ti *NJ': 

14 ,31RWA:.V,, CT )€fSi 

C. CA S1203. 

Please sign low! 

SECTION A Name, tit) anti r-raikrio addre cs 

N. > 

.j.•1 

aS "Jt !Ise Czi ..e 

• ,15lil; dr1 .15,31 pm , 

1,44...lemanttny. 

S . , 5 t.• 1,1 1•1'4, 45 ,,r;i•s1.5r• 1,151•i11:14,..5 .353535 

Imo 

ITS m d 

Li 

4 

'LET ALPCC 

COl FRS D 

ki411,•• :I; /51, 141, 

N aRAsz BLvD ENEALE CA .... 

ml 

• . 

51203 

—.311, :, DAV: S ASS T TREAS:MFE, t AXES ,.., 

3E1 NAZE AVE 

• 

EZEWALE 

1:!,e 

01•13 ■ !1•,, 

d'615 C'ewle 

0051 

ni ns d d y Y 

ALAS T'ASET2FY 

ASET 7REA5UREE', 'WEE 

• 9- 

t0'530" 

.) ALF CT 

4r,r1 •••341`n5•1 , ...1, 11, 13:10 52 hAr 15 5 .1:4- ....' c.•0,•,, •1...1t11; 'I ..„. 

z...5'•111'. ,•1) t!ler•uf f,-,...,..:!• ,r.r: le ,,,, 5S('Y'.; '.14 ,,,r,,i., • 1.:,— ,•! ,die , 

11• 313 "-5 0435 125 ff&t • • , 5:4•4 

255 535001 agarl 

4i4ert CT CCRPORATT:g.■ 

, 

SYSTEM' 

. n-ni• 1:51:11'), i 

NOR7E S7 PAUL S7 

Cd; :ALLAS 

.• i•11.• ..,1•1: lat 

!I 1.14 

• 5.,r,5■ 1 .5 

1 1.131,' 1, 1! 5::11t. 43• 5. 1'41 a 3.50, ; ■• 15: • 

; 

5 

1 1. 1.411:: 

ASST TXEASURER•TAXU 

Texas Ctunptroller Offic al Use Only 

D4'1' 

"!5...!-7.534

T2 12 

05-102 

■.fRev 9-11/30# 

Tcotte 1Y19t 

Texas . 

Franchise Tax Public Information Report 

i inth!-„•• ■ ••:, 


4'2t 

- ■ ;or;--;;;, 

"JITA1,LTT FOC,113781IV:C8 Titt: 

fi3:49 4:? Irfli 

1 Er ST1.3 liOLL1NC S CKAI A'.13, 

i i4oEwALE. 

YOU have certain rights ■ .hr,i, f‘-t s ;• 

it :AFC ;0,4 

; I `,.!::!•k. •.r7;;.?".;'. 4114• 4..41r14.,' 14 

clus 

:18851 

fl • 'la, I ;7: , •; ; ••V••• ■.••., yeis.; .•0 -i,rni-thr COW OK; 

MK. NO RWALR, CT 

SUIT F. 1501. TAMPA, 1? glO 

et the ;;SSe 4; 

4.1 ; 45 ; ;••• ; , ;;t; ..;;;;' ,;411, 1 :4 .4 -• 1 ,01;;: Vac! E4,44.; firm- , ..,ct 444 

Pik1880 Si 10'W! 

• try;;••• I 1 , 1•-•,, •• • 4; ;.;•V..;; 4.! ..crplAl• :4, AS 

,. ete 

SECTION A Name, title and mat1q address, of each :Yftcer: duecior or member 

12014783D2612 

. 

r 

fl a d 

-..; Y. V.14.30T.N PRE3IDENT 

P.....). 4,..: 4 

', 

r 7? ;;-;.: TP T . SUIT .. 4 FL 

M1: -..liALL -.7iAvI3 

SI ;sr cl 4C ,44 4454444 

.IA1I1 AVE 

4 e 

ASST TREASUREk, AX 3 

...O.,: 

4, 4.44 

08WALE 

1445514155' 

YE E, 

..; 

s; vp!r-ii4h:; , 

. • 

:Ii" , ...c10 

33E02 

sss d d y 1' 

0 ,1.651 

1,...,1.41 d 

.. 

4)4 

;;-,..1.:; 2-A:1 xlsity 

,.444(454 

t4 AVE 

ASST 

4.114 

tExitALE 

TREASURES, TAXES 

,..-1 ■ ;:,;c:, 

,„,..., 

i'iES51 

SECTION B he tor ear,h r . a; CC, 

an;•;, ,- +Nt;g: 01 L .e. -, t;;; ; 

:44 hro.. • cdc.44:4•4. c•••, c ;It, .7, :;;c1"; ;Ay' 

4 

4114 ! ; 

SECTION C r;;:r , r;":e ",ohr h;;;;;•1 444441(. 4; .1 44, 4, ' Cr. 

•,1 

CORP 

Srien 41 k:;;•1.3 , 11..,.; 

e-; 

-, •4444•j444)4444 4' ri N144"4414'441 

Cr, to , 

COF./4.!;1';■LATI 

ST ; A. ST 

DALLAS 

• 1 , 

C 14 

I r • 

;;•4;; ",.. /4'' lr .,.44141 5744 4.414 1.•,1 

v 4,4.. ;:c 54rt'.1C. , ..S•rci .4.44444 .1. •,..; 0441 '1 .1 44;•46 1)::;4•• • a:, r1•14..,1•,. 

sign I, 

here I 

ASSIsTmr: EASITRIP - TA 

Texas Comptroller Offic at Use Only 

'1444' -12 1A 

VE/DE I 

PIR INO 

11 It II II 111 

.;1" 1:;c;•

TX2)1.2 

, 


05-102 

1,71 ••:1.1": C... 1 4.1."1014015 1,4 441 I 5111401 tC. a.. 1- ■ ••at,,li :11511..1 ro, 

t.17ev 9., 11/310, This report MUST be signed and filed to satisfy franchise tax requirements . 

ElToode 

nave certain rightS 

•1 ;:•. 400.44,0'4 

• • 7,tt't 

NESTLE PREPAREL Foon-s COMPANY 

'71nS.V.A. 14,0 v;s flC 3E3 M.A:N AVE 

CT 

Ce.E5.1 

0 4 

' fro -, .'• p•,..r•: ;fa,. ,O•ortmataos t ■.te, aft: 14a: r 

19. 

AIL, 

S'fl PLOC, A, NORWALLK4 

Please sign below' 

SECTION A Nerne 

ROAL SOLC.N, 1.l 441.314 

, n no,, nv? U1e. r Parl,s 

115. •.1. :5 g;tir? 

Itate, 

'4 ITO'. 71 *it. S •t ett'ot,, 

rile and inalla address of eaci-..officr• director or niember. 

UM I 

3C 672 .20612 

't-,,n:' 

m m 

.Atw ,, G - NP, PRESIbZNT 

. 

L.-W. ROAD 

SC, LON 

, • 

Gil 441314 

0,77./AAEI. ahVIE, 'ST TRE.litt., MX TAX SS 

ri,=::: ,; .„.....,: J• ,i $.4. 

411,94 

" ,LEW.,,,.:,i,. 

AM ,, ASSTET,T leSii:. !AS R, TAMS 

3143 MADE AVE 

. 

:ii.Ntilkii. 

t 

1,c ,,, , d d 

i , 

1,1414 

T 

." 

91 

068.,...1 

SECTIONS Er'at 141:::(01:11.41• 14. .44 11, 45141' ..,:511,40 01.44 1.1 *44 1' th 4,...44 0,1410R1 1:1 1.7 44/0 

h ,sato .,,r,, t41111,011.41., • C.ill ,,,r. ,e. ,,,, , I., 1541 I 00,.11.1., .0.444.0,11. M414 tli 4414401100 4 - •w.. 14(1 1.1 '1.... -,4.7110.. 0 ,k, .. 

4 ..4 ,iw.051 • ,1.1101144 : . 41. VC' .0441 • e ..410o0 . il l.: . 0, • ,),,,,,,, Stale .:.■1 f3tr.....t,a,r a., ‘,..)1 , 

i l l : •t1,111. 4, .• ..e1•74 :44 11,' fIN•1..,..,1:., 

SEC TON C 1 .C 4 i41/7$, 14.41 77.......411 191 11114, 1.7 

.11114, 11400/1111, 

••1..:•• 

4,4 1.110 1, 1,411:015.?...4 

,pc•jr! 

Agnt CT CORPORATION SYSTEM 

'11, 1'4,4, 01140 1.: . 114,1. 111, 

.40 1441 7 '7,14.0 

r5) MORTA S7 PAUL ST 

LAS 

i • :,•,,£0 

''41 , 9)4'..7an;•rt, , ...• • 11.dry. 11..1 Cr 

7,0 /14.41' •• a,...•• 

5 17..'..1 4,. 11' 71, 1 1174. .V 7 !01••141 7'15 C 1.it 4444 cote..., t11 me, t*A+ •1‹,...,•.:49 4,0 

54••■ ••1 

1:0 7 ' 

..1 . •.1.171, 4114,4,41 44.0 

1.40,15, .1.701 

"sign 0. 

1here 

1,114 

SST ULM OR.P.R TA:CU 

55C. ' 1234 

111 


III II 

II 

iIIIII IIIL

TX2012 

Ver. 3.7 

Ct 102 

Rev 9- 1 1.'30i 

Tcode 1)15 


• ;10, T00 Vt• • I LC rtillr.fA! ■rsw. 


Pi.pnrt 

Y u hav* certain rights 

.;.r: 4 1 • 

NORWALE 

Ill'!,1, 

Of'851 

ti11,1. 4 

ficrr , .,. 4 eel r44re aIP 4 cli 

,04•: 0.4,0r41010 , 

A Ar, 

V ,DFNALK. 

CT 7f153 

4 .4 

OAKLAND, t'A 9 .4i1B 

Pleas 

.Its ifs :1' laSe 

,1e 01:1 I Iv: b, 11,141111 fr4, .Fe Si 

t0,1. 

Cl as 

•,:e,.., 

. 

m 

en 

MICHAEL MITCHELL 

1 .1! 40511 

::OLLEGE A*4 

::7.1trA1;I.: T.',A • IS 

.1 !r'2 , 00 5. 

7. t 

014 

C,Io 

OAK 1. AN D 4 

5 .00 

r- " es. , 

(1% III It If e 

ASST TREAS 1: RER ■ ": ES 

111110. 

r 

, ;Kr.fir 

7:, S3 MAT.N :•,' ,7. ti ,DRIIALK 

r %.• 

4.:■ Ift, c? .1 , 

1.11 

' rs 

:-. 

A:. Ali ' kSETSKY 

ASST. 7REASURER , i /MS 

2. a 3 MAI 1.; AVE N7,1RIVALK CT 

/ . 

06 R52 , 

SECTION r . . A '0 , eel,' i:..) , 11 .orzi ..1.• r 1 :W.. 

• ,,,, i ,,,i , F. .1, :',,, :111 t ',CAI .41: ,,.. ■ 110 1.011 ,41'!..3 ... 141001' 1"! 1011 ..,; r ...1 ,, r,1!•WA ..st, ".,.'' '.!It - .110,0..., . ■ IA ,,,.......A..7.0, rt,1' . 0...., .00 ,, 11 10 

'511.00 o' , , . , 1 € , •, ■,-;.::1.-1. I ',...1.1.;. ,,, Ar.t10. .... 1 ,. :1.. , 1 :?a ,..:( - 44 .:4 , ; , ..1? R , 

••. :0 t1ttf10',1;}.0. j,. 1./0 .'4`, - •., , '1,:trk:"..rt, ‘.trArtrt.1,...0,f.r 

S:ECTICIN.0 •..V 701101:11 

j 110 • . • 0 V,: .5..., 

..A .,•141) 111411114 4 

,• . ,;•it•.1,.. r, se,:t; , 

Yak. ,11. ■ 

•9.:71K, 

kperi. 

CCIWYRATION SYSTEM 

ICIffice• NOW' S7 PAUL . 37 

I. Irt 110111.4, f tx,i, 

r 

«ALIAS 

11 ■,,, I F. •.rt"..•• 

w.1:1 ,7,11 . 0 . it, :1 

CPU 1014:1 III ,rr• ,,A 

"•.1 

1,20. ; , ett 00 - 1 At, 0.1 ' 

Art 

. ■ 

:STN; TREASURE 

75(:-72?4 

Texas Comptroller Offic at Use Only 

ItI 

1if I1' II I

TX204.2 

Vex, 3.0 

05 - 102 

132SE 


Ird"e':1 1,11' I rf 

This report -MUST be signed and filed to satisfy franchise tax requirernente - 

p 1roody, •• ■24,444^. a 47r ■ 403' 

122 :02 8152 

2c:2 

THE MAA3EN TAGS SHOSPE CUMEARY 

You hove, certain rights +r-.1.e , 61,4 73 43.3.. :4,4434 . 

1 ■14 3 44 4.4 :1%44 410.04 3,4 34 ..3.• 64 4, 3, 414.3•E.,• 1 

S, ' 

NESTLE MOLDINGS INC 

ORWALE 

30s MA:N AVE 

SI 

3 • 4" . ■:.4, 14 4 :"44• .6 

• 4 :3. 9.7641‘,3?" 

LMOS5RO . 

4" 

4 ...:1V4zg4, il'IftInmg 41 A F 

,S! MAIN AVY„ ' T4.1 FLOOR, 44I,EwALY, CT 3 6 051 

P"it 344wf;-Th nnlie MINKSAFOLIS, MN ',D5415 

11 

SECTION A Name 1322442 '5142 

Please sign bel owl 

4.1443."4,4• .• ,4 44,4 A6`4/ ,14.1.19.1,4'r alfs4'44:44 4444, "4.4 .344 1 144 '.I41 1444 1 4J1,a, 

01 The: Ar.443 .1 .1 au71 114. ;35 ratt 

I: I 33, 34 4" 44 a1. 1• e144447 .4;111 'ci S 44,34391114641144144 44434 a, 14I4 It 444, 

4. , 3414 411,, 6 :y ,4444h4.'4 I1,4144 ' r3.341.34::4 lIe year 

and rha,ling address Of each officer three:or or merilber , 

41444'4 

• ti 

ro 

AWN 2REMCVICS: 

xr-,•: r ,1 a ,4.4 

Nrerra 

SOO WAsNINOTON FY EVYTI4 

MI CNAZ CAVIS 

6)1, , - ti a.'irims, 

3132VE 

ALAS 1..1.SETSEY 

SECTION B 

R SItZllT 

MINNEAPOLIS 

i'IQ 

ASST 7REAS13U 

4IOW,LI 

. 

383 MAIN AVE NDRMALF 

TAX 

ssT TRXAtURER, lues 

44'4.44414 1 41, 1 . : My 4, wa .,..1 1 1 4 4 .19 4. 1, 11. 444.0404! 

I 

53458,.1 , ,, 

:SI 

MN 

Iwo 

66 api:Waise 

a 

' 

,,..—. 

:4 ,11't 

i 

44' 6.4.4,464 

55415 

tin a, d d 

„ 

,, 

mdd y 

, . 

ll61351 

rsed 

iin,110 4 1 ' ad' 1 1 y 

fPror (4? 1440..a.,:alaa 

N1_10 1,14, 

..m.•1,4 

434, 3! 44 i :4411W7 ,44 ' " 44 43 36 0:344" 1644". 6.4 "1.4.1 1.1. 1ar1N41 , 44a• 4, • 44;1' 

SECTION C ,14,3 41.6 • it), 3, 34,4, 6.3,T6,401.31 .0 43. 6 • .2634. 444.34 1 :40 04,, 1 , 9 • • 4,44,ra t 44. 1 

. ■ •44 6 44.4 

63:4,64.4 : e t ..6:164:1 4444434444; 4,414 . 04 , 1,44,44. ; ;4:14j /69. 

01ala 44 

F.1,44 

1441 4 .-1 .P.1...04414:1,4 e . 4;1 

;Agent. (l'' CORPT.,RATION SYSTEM 

+1 rral, 

a 4414 1..94444 

0 

jeff' C° 

NW:1i S7 VAUL ST 

:ALIAS 

a al ■a14,4,44IC is. .14444 .1:0 

I:: 'IN A 3 :VW *4.41411,4 , 

r 

1 , .;.) 

•e, 414.• 1441 ... :4Eri:Sto4•a! di ; tP., 

..,' .4:104 41 . 4., .4.,....,••,., t ,,,,1 ,,,...,,,, , Itu.•••!• 

r 0,1 r9.14,1 

sign 

here 

• 

.clik 

:1' " 01, .1,1 ,1 Zar,a4.1 In Inc, 14..4 , . ' —, .11 4„,, 4•,1 4%; 4•4,.4 hay,' f .0 •441.• (..:41"a 4431,44.4 ,464 6 4' 444. a • dpor . 1 . ,s, 

1 ,,,,,.. 

IASST TREASURER TAISS 


1 .Iert,• 44 14.4 .:—: -1- 

20:0 7 1 2 4

TX27.12. 

Var . 


" : LV 4/1.:• '''ar.1:•:!1: !:•1 1.% 

■ Rev 9.11/30', This report MUST be signed and filed to satisfy franchise tax requirements 

Tcode . 

You have catetain rights 

(Th ver,Mi.r11 

10612:0266 -0 

.. . , . • . 

'ESC.: USA 7N: 

ra .,54.'r 

383 -MAIN AVE 

Srato 

ZIP •.!:ocuo 

CC851. 

1•1i1 • •1,,, L•r: 

ama• 1•4.1!•111. Cl• 17,1,:q1 ,•• 111•14(....! 11.41 :not . or, 4 rr.Tx,' .•'' 

383 MAIN AVE., "TN 71„, 

80: 

Please sign below' 

12 , - 1,ONG C1TY, NY 11101 

' 

:ane ner're, 5ary'a ,rts s. 5a5aa, lel as 5' ?IC Oats a 1- 4,1.! • ■■7;,;41.0,t01 

i:s ,'U'.:i'd':.. • ,a, 1•51• os•5er 000s 

■,i •To ..roo; loot, as 

, o'o

1720.'12 

Ver , 

05•10 -2 

Rev 9-11,30. 

Tcode 3339% 


r,' ',dd.% I,- , .1,1 aro I . , 324,11 1 


• 

1+171,41, 11,22< 

Yee have certain riots 5,2411

TX201.2 

ver. 

05 102 

(Rev 9-11/3c 

giTcode 13196 


;.%5041, c.o ■lo4o.a , rott. ;1,1 I inr,/,;1• 

This report MUST be signed and filed to satisfy franchise tax requirernenta 

1111.a•2o,,, , 

R,1•,,,•:. • 

Vg certain rights 

f'!1:41 

2i:255;3141 

PUE/NA7ABE INSURANCE SERVICES INC 

2. 

Cr/, ',10 

NESTLE SOLD/NGS TC 

NORWALK 

o6e51 

5.•;7••:;4/ 

•;:./2/4f /// ;1,, ;,,,;./..41), :•:•',/•••at •:•/ ••• • 

41, 7 ..• ■11, 

f.ta P,4490 

3 MA:N AVE.,T4 FLCOR, N2RWALE, CT 

'Tc0i 1 t6144EiVA-Kvr_ :E. 252 1 1.3 ANTTNIC., TX 7825e 

Please sign beleiv! 

• ' 

• 

'5q1u, •• 4-1 , , 

, 4s 1/1 / •ra, /' /,:(1. 

10/ 1,1/:4•/ ■111/./r hie,/ 1 ,1t• :1•1z4/43/..../ 

;:lf•C/:/' 

SECTION A Neme title and mailmc ecid rest of each orter. J;rector or member 

1250B503t.4312 

f/tary(, 

rAv:o .0 GccvluAr 

5.14,1 /IA /1.411.4/5, 

SONTERRA BLVD, EU: TE 15.0 

F BEMENT 

, f 

SAN AN.MNTO 

. ie 

.‘,/,-/ ;`, 

D ;. 

,I. 

.. p , Gil:::1 ,• 

IFèC1 

4, Y 

/0; Gook, 

At :. at 

MICHAEL DAVIS 

A ST TREASURER, TAXES 

t.4n1 

2E3 MAIN' AVE 0 AL 

/4'/1/71/1 - 

P 

De ot:V 

14! , 

, iflifi T it; ( AO 

-- c1,6P51 

rn rn 4 4 

ALAS PAESTSET 

3F3 MIN AVE 

ASST TREASURER, TAXES 

NeRsaLY 

t:1 

to. 

CT 

!Il• ;:toe 

SECTION B 4•..4;wra••.45. ;a' , 1o1et.: •.;a 

rq.a+,1c, 0' I•e,....,,ti i, A., ..i 71:. v I I: .0 .1.,,,r ,, i., , 0, 144 !.;n• A , /5,..,a4, 

btlilet• III 

ke'rn, 441 

,/1/. 

'.;f).r.• • 1./.• ,1,-...:/. 

Pe. , ,•of 'tbat, W 

14V,11 Qt ('WI •::1 I .44: .41::liy ' ,,,,,,,,: :r 1 

,' 1:1 I I 4:::: ,':!:: ...11 , 11 , : 

„sdi!e• OI 

,.' ,. .' 

■ 

•■ , 

$4,) 

, C. ,:i,,, < I,, ,, ,, :r4 . 

SECTION C 4141, , • /1//:• -•eit l'.. , ;•‘• •41:1

' 

TX2C12 

V4r, 3.0 

05-102 

(Rev 9-110.1 

Tcodo :11,“ 


(•.:1 .. ,-5 4.1•:; 'i•5. -15: , 1t! t ■.; 

This report MUST be signed and Wed to satisfy franchise tax requirements 

:1,1: • 31,;,t5r,r 

You have curtain right* 

I 

.4 • , v; 1 ,.• 

'• ,..5, tr:IV 

NESTLE HOLDINGS INC 

1. : PROcEssENG 

AV • 

555 

CT 

KiRWALY.: C1 6d51 

CS.:0V37 

^41:4154,1, 5 0,D, 

5;41 • 

7 

. . 

Ts 

SA! NHTNIC:. TX 76258 

FNeaso sign below' 

. •: •• ■ ; r 

-5 .+?5,5..,.•! 

,51..Itl.d1”.:•! 5 IA': :1 1 1,, 

c! , ■ —es,t•e' 11.1 ,e.5a: 

SECTION A N.:UM, title and mading address of each .afficer direacr or member 

FJ.9t55k 

I.' s..: 

DNIGIIT 

?RESIDENT 

'.." 

6 ;r7 E . .3OtTRRA ZINt , SUITE 25 C 

AR MTONrD 

!WC...A, m An d 

i,,,,-• 

...,,,,,,.... 

TX 

7 825e 

y. 

! , 

ICCIIAT.,L DAr:,.. T TkE • E. , TA.,x1:8 

- • 1 ,,,a ,,,;:ri 

1..i..,,........, t..: irv‘.. , 155 

D6351 

, , . 

ALA..% PAS ETSY.Y I' ASUREE , TA.It ES 

::.05.45 ,1 

•1 .11..,, S S. 

1 /5,I e 

3.e3 MA: N AVE' . A 

c, 63s1 

SECTION 

5551 S ,5,5 en. tv 5-1,065.,! 0 

St..V.c D . *,srryr,. or, :.,‘!..., ' .if,,,t ■ 015555.1014 155.:, 11 0 i • 1 ,5 i .,,, I fr5.4• 5•1 i.rst•IStl•,..'...mr, ,,, , ',Mc •047 Pe,.!.., 1 

■ .1 1 ,-1,1 :5...t55•11,:sf .,: :.••,/ ( .4••• :5, :•• te.,.! 1 •1t-olt y , '5:1 r, Iv:i". !, 1 ,s, '3i;151 .1. .rn 

SECTION C 

Agent. CT C ,..1.::ORATION SYSTEli 

(Ace 

' tet+ • rn• •■,,r, 555 .; 

55 

I' :51"0 41 5 1 ' , 1511.1155 gr 15550 .1 9:15 . 1., 1 - 

here 

11 

SUR a , TAXES 


-723. 4 

I U 

hi 

r II

TXn12 

'tee. 


c$-132 

t:e 1 °,1 kVA 4nd colan:out k3s1 3. 31tibs•o3' 

IRANg , 

Tootle 1, 19 


13256843914 

5 .3 1514345 , apc.r . • 

You !soy° t 111*Iii rights 51331.5: 

7.3.513 F. iteisd ,:37E4 • 5 :-• 5, it• SA, ,••: 3 

(,43I3 ,,5435 

3.4,35, , 5' 

0PEKATIONS TNZ 

isft,•: l• 

303 MA AVE 

1,3 

CT p-E85,1 0011275 .E.SE_ 

::3•341314e51 1 -3, 35*41. 3, .3$. vow Wti:sinalon• .1 5,51 ' 3 1 S A 

TN AVE.. FLOOR, WALc. CT 1685; 

CARL,38A,A 92028 

Piesse sign Ocor,i ! 

•nre .,5 •3,2. 1 rep1.5,1 ;. laiv 

:3. til,i41.41 411,,A1 

ri,;,;•I :Wr..••,rt, 1•1 .31 4.: 7.,,,,45451r15134455',/ 1!10 .151. as 

43 55 35-.1(13 S. .,um 4'..', 3,41o3g3 1517' 

, 

SECTION A Nc•:KI, title and rnado address of each office. dtrector Or Member 

Yr'6e635 412 

v7i 4fe.re 

1 .e 11 e I 4'3 ' 

PATRT .72A I.,.X.S f.'sr• 

.48 

67 FLEET STREati .:27a1.81.24., 

92006 

n in d 4 

r 

'3•1 s 

Y,.. ::413,434 ..AVJS A6 ' TitRASI:PP:•,', , TAXF.E. 

'',.4.i .1.1 451 3P, , s 

l',.. ' N 1 T3 AVE 

34 3'1' 

: 

kr 

I C 

ALP: 

35"" 

LI: ,....• t; 

- 65: 

m in d d y Y 

' TS1Y 

a'.Itaii. 

ASST TRZASUEEE. TAXES 

TX2C:2 

Ver. S.f, 

S 

Ob-102 

(Pe.; 9-1113 .0 

Tctutla 1.319i 


fi .",1•:.: f•-, :"• • • 1:9.rra,araet: ;. I ;:, 4'91 f 

This report MUST be signed and flied to satisfy franchise tax regetramentt 

Ii109920829 

)9!9TL1 ALTlir.!ARY NUTP,ITT.Z,N :112 

NESTLE 

1UC.9 INC 

•i +1, 9 , a, c.rfrar , 1,drajart 9,-.;91 oro...s In.r dorr iart,ora .1.. dr pia ) .-tra..dcroar:tr.t b ;:a,! 

P1.00R, NrJRWALX, 

CT 

ORI:AN PARR, NJ .27932 

.140-ria rar.a 0'a:oho; p, 1 ,.1 

Please sign below! 

d'l P Cad ire •1, 0,1.01•V1 

ar•IteWiy asPO at n, a, ?FEW:F., 

I :5 rt',,It,,11,11,11 SaVaier.efrling Via .1 - " - .1alarirdr. ear. 

OffOrara 11• ,r• [-Warta,. ....pp :9:e. vita, 

SECTION A Name, fltie and rnaiiirt address of each officer. director or reerribeir 

■ PP:ES:DENT 

F 

ri—,,,:• 

i ,...; 

t .., 

.1109910929 2 

m 

ri;?..1:1,,,....K7. 'i:04,,2 FLORilAA PMUt N •9932. 

1),...,....:.. , 

til r4 r.4 eti. • y y 

t • 

ii.1;7i.,..ki4, DAVIS SST TILE LIRE:R. 1*.A2C9Ig 

:,•:,,.; 4 ,,,stvs 

.v 

WAIN . 

NDRWALIC 

ALAN TS rt! ASST TREASURER. TAX19S 

.^ r 770101f,', 

put A - 14 AVE 

i 

t,NRWALK 

:.,r‘erCf(rf 

i, 74: f..:‘ ,.. 

06E51 

fn . 0 d 

Irmlo 

riar aria. 

1 

CT 

C.C..91 

SECTION a 1,O r7CO,napiers car•1 Oar., ...1 r r jr.1 IrrS. C., P. 7, :"Ii..7as ..:` I:) 

.•;..rat-'.aa(ar rrrr ii pr ,et I 3t,:11-1 .1 ■ I ;fa, 

Pal S(.IT. i•Pre 

0 , 0:•411 ■ •.. 1,10..0 I .11 . . 111 

h e 

SECTION C f • wit, ■■ 1‘,5 wae F . no , , isp. I',41 • mc.•:, a. '..••••,, '9 , vav - 

—t pPlte:I ".•• I 1! p i• • I r, .1 . e .4r.1-1-Pj 

Wit rPf Tiaaa" Clii Ply Ta,flItiP.l 

, 

Ctea, :1"Eke ‘1,, ar•Orr a' 

Aro, er! 

S te". 

e151 p1515 Pt °,4/•,./ Ii eflitha, 

y:•. ■ 

(Agent CcRPORAT 

SERy.ICS. (.73MP9NY 

ra,.• ro.;...aa 'pat , a'` • Fe HMe.- tr,.E .: :...•• 

:OffiCe 5 5 ! 

STREET. 

M.;ST:N 

..rfr.o ra, I'Pa 1,, 

"Y ,•J're • 

.• 

fsign 

ihere 

pa 

rPa 1< 

• rr9 r•ct ,,,,IDaga ;9,1 If a •- • 

F 

.t.idls,11 

ASST TREA,SU It-TAXES 

'7234 


PIR IND 

II 1 1 111 11 Ii Ii III ii

:x1:12 


05-102 

',Rev 1 r,30) 

el-code 1.1196 

This report MUST be signed and filed to satisfy franthise tax requirements 

• 

Veu hove certain rignts • . 

,•• 

131055 

. , 

(::41PANY 

KZZTLE FCLDINg,F, INC 

3 -83 MATt: AVit. 

CT 

' (.•••tie 

D663I 

,! !•,r9 4 

CU !;,(i.!..i • r:14: . 

• r . 

• 7.1WAIn pia.e•% 

41,r1 rrit 4 11: ,tr rf :rire 4 43!:".r• r. 49r4" . 1t:ri at c41,34. :994 4 a 3, 143i 4riar,•3-r- 

Picas() sign below! 

rr,r•tal a, Tr...i4f..;K: !!!4: r1r,e'191r, ar ,rirra!ly r, irt "nt, ta` 

re".91144r 1 4 1444re '41114artr. n14 41' Or A..rolf,rosirtlpa 

ro•S . . r..'s.e•••4cf •,aatt 

SECTION A Name title and mailing aatireSS of each cIficet, director or member 

!S 

t!'.:,..!..•.• 

"' ., 

'A 

e ',. nElr. f.:bSToLLEP 

, i.:P 

iii., 

,....;,,,,,,, 

I 

f,,,,, 

-LAY. ,,O41), - 2ND FLOOR 0 ,'..,AM PAR.$, a 

m 

, 

0932 

d 

.1" 

MI .,111,1.71 DAVIS 

MST TRE&SURES, TAXES 

ti ,,. !: 

•,4f3 '-':. •i r:41::?..tr•I 

3'il 4M4 MI! 

tiORWAL'i. 

r , 

CT 

(1. ,7,./..tk••• 

1 

m m 41 

ALAN PASE7grf ss', TREASSP Xx' 

Vt ,,,, .o. 

RA 7 5, A5'.1.' 

Cl 

NORWALK 

1. f.. 

1, 4' 

SECTION Li " -5: 31 ta.i r '4' : rr O• V:419' 

Warrt. , •, ,i • ••..i.•,...51...• ,•'. ...or; ,,...,,,, ,.• , 1 , ,,•,•• • ,,e1 . ,• , ; s ,fae. et !r9r,:4,..9F• ',.,r:r!,,:. 11 1 .. ■ ,..,1r, rr ,ir rt, .,..a ,:le :43 r4,4- ,4•9:4 r 

t 3. :,'' -5') ,." 

-- 

rt.; o.:. - 11,41 ,• Slate at) ......,.ttl,ar 4994 3 ,OS ti's r!ri,.:,4 , pe., 4:re..K.r4. -41 9,.rs' 443'91!• ■ • 

SECTION C ea•;s: • 3. 9, •. -3, ^490 

'45* 5 r.4 .:4k,rt4 5•4549•••rr r.:5)39 ■•4r3*r: 55 19•4•04., 9 WI, i 1r ,., 543, -.:r 1.1 . 1:,, .., IIIKAA ,, SOS ', r .t, t,r 

Ws": r3 ,49I:4433r 44.:9 • 3, 1 ))3f3f.1 if 

SZAVICF C:7 ,MTAN1 

'7 7T 

:CT, SL1 ITE 62C 

Coy 

VZSTIK 

,41, Ce ,—, 4•71 

;7,7 ties) 4,4 !...+Cr 43 1 99 

S 4 4 1."5::3-• 

ji 

ej.:1 at'4.3 

lihere 

TREAStISEM• ?Al 

31 • 7'2.".I4 

II 

1 1 

II 

VEIDE 

FIR IND 

1 1tH I I II 

II 

ii

1 Wages, tips, other compensation 

3 S I ages 

5 Medicare wages and lipa 

a Employee's SSA number 

327200.08 

106800.00 

337000.11 

2 Federal Income tax withheld 

4•Sotial security fax Withheld 

It Medicare twithheld 

EmPloyer use only 

75106,92 

4485.6¢ 

4886,50 

ages, tips, other mrraperisauori 

SoOial security. wages 

5 Medical* wages -and bps 


327200.08 

106800.00 

337000.11 

2 Fer6eral4ncOrne tare-wtttherld 

4 S security tax withheld 

It Medicare lax withheld 

Employer use only 

75106,92 

4485.60 

4886.50 

b employers o"t1:3 it/ Member 

26-0858354 

c Employer's name, address, and ZIP code 

PurinaCare Insurance Services, Inc 

607 E. Sonterra Blvd Suite 250 

San Antonio TX 78258 , 

d Control number 

10130343 

u employers bet/ iLi number 

26-0858354 

c Employer's name, address, and ZIP code 



San Antonio TX 78258 

Cl t.%untrol number 

10130343 

7 &octal secunly cps 3 Alfa:Mad trps 

it gli,,=, IX. ,,, ement trsety 

0 El CD 

14 Other 

12b 

12c 

124 

n care S 

a .3nstnu lwns ur ax 2 

n 

1347.06 

0 9800.03 

( Steal s 

-3 o d 

9 10 Dependent Care ballasts 

a rty 125 

13 170 Oi2 a all 1 

lr• 

14 Other - 120 

12a Se aesw aria forbo x 

d 

I 

1347.06 

9800.03 

a Employee's test nameand India 

Last: name 

e plovetes first name d initial east name 

f Emp ' d and ZIP code 

its Slate 

Employees slate ID 

141..ocal . to 

I Employee's address and ZIP coda 

16 State Employer's state ID 

16 Locai wages, tips, Mc 

lb btate Wages, 50. ern. 

19 Local income tax 

16 Stan wages, ups, etc. 

19 Lore, income lax 

1/ Mete intometaY 20 Locaat/ name 

VV- 

Farm CMS. Ne, 1645-0006 Dept. or ma Treasury - Internal Revenue 

Wane and Tax 2011 ttlkg. -ft Allierblaltclar4ts 'gm furnished 

Statement 

Copy C for Em toyee's records 

r,noVE,4g,,,Msarggi.r.ingt11,946" 

you fat lo report it. 

f.btate income tax 

20 Locality name 

Form OMB. No. 1o45-0000 Dept, of the T ry - Internal Revenue 

Wage and Tax 2011 Service 

Statement 

Copy 2 To Be Filed With Employee's STATE Income Tax Return 

. 

- 

I Wages, Ups, ether co a 

2 Federal Income lax withheld 

.t boost security wages 

327200.08. 

Sochi security- tax•wahheld 

106800.00 

5 Medicare wages 'and tips 6,Medtcaris taw* Id 


7510 2 

.60 

337000.11 -4 50 - 

Employer tile only 

1 Wages, ups, other co nsatian 

3 Social seburIty wages 

5 Medicaid wages and'tips 


2 Federal Income Withheld 

3.272 .08 

75106.92 

.t Social security twrtwtthhald 

106800.00 

44 0 

t -Medicare lax wittatgd 

337000.11 4886.50 

Employer use only 

6 trr,pioyercrtolu nul}S611r 

a eontrol number 

26-0858354 10130343 

0 Employees name, address, and VP code 

.PurinaCare Insurance Services, Inc. 

607 E. Sonterra Blvd Suite 250 . 


b thipirayera FED117170Mer 

d i-ontraT nuMber 

26-0858354 10130343 

c Employer's name. address, and ZIP code 




Sooat sacunty bps 

il r7Ontiallnillillillit 

li gtAtottigqe m.,,rament 31,10 ,1,::,tt.I:i 

El 

141bthOir 

a Employee's-Nat rattle an d I. ttial • ame• 

I 

3 AlloCited tips . 

aspen . 

. . a be I rr.,ona 5r ooh i 

1417 

12c 

I 

.1347.06 

9800.03 

7 Social security tips 

B Atlocated tips 

'11 Perl - 

121See instructiona 107 1)0x 1 1347,06 

I 

is er i ry Lz 

r.„.„ gri4rty 

; 14) 

9800.03 

n 

D I 

14 (be' 

12c 

e Employee' s first name and Initial L name 

G 

1211 

I. 

Cud, 

- 

• 

isrp n loWee and.ZIP 

15 State mployees state ID - 

16 St te aues, tips, 

1x1 Local income tax 

• 1/ State mobrne tax 

catty name 

( Ernployee's address and ZIP coda 

15 State employer's state ID 

lb State wages. tips. etc, 

If 'State income tax 

wages, tips, etc 

18-Lac4l income tax 

25 Locally name 

Form .... .LIMB. No. 1b41r-U693 Dept of the Tres - Into IA Liv 

W-2 , S 

W t a f 

g e e rggt. 

Tax • 2011 - se," 

Cppy B. To.Se Filed WM-Employee's FEDERAL Tax Return 

ii. Form A , 

V V - 

Ureb. Na , 1645-1.2itle 

Wage and Tax 

2011 Ser'Ace 

Statement 

Copy 2 To Be Filed With Employee's CITY or LOCAL Income Tax Return 

Dept of the Treasury - Internal Revenue 

Attachment B

PAYER'S name, street address, city, state, ZIP code, and telephone no. 

C CORRECTED (if checked) 

1 Rents 

OMB No, 1545-0115 

Nestle Transportation Company 

800 Nestle Court 

Dekalb, IL 60115 

815-754-2653 

2 Royalties 

Form 1099-1VIISC 

3 Other income 4 Federal income lax withheld 

Miscellaneous 

Income 

PAYER'S federal identification 

number 

95-3671194 

RECIPIENT'S name 

MARK A. KNIGHT 

Street address (including apt. no.) 

2560 SW 142ND COURT 

City, state, and ZIP code 

OCALA, FL 34481 

Account number (see instructions) 

022548678 

RECIPIENT'S identification 

number 

022-54-8678 

11 

5 Fishing boat proceeds 

7 Nonemployee compensation 

197,489.90 

9 Payer made direct sales of 

$5,000 or more of consumer 

products to a buyer 

(recipient) for resale b. 

13 Excess golden parachute 

payments 

6 Medical and health sate payments 

8 Substitute payments in lieu of 

dividends or interest 

10 Crop insurance proceeds 

$ 

12 

14 Gross proceeds paid to 

an attorney 

Copy 2 

To be filed 

with 

recipient's 

state income 

tax return, 

when 

required. 

$ 

15a Section 409A deferrals 15b Section 409A income 18 State tax withheld 17 State/Payer's state no. 18 Slate income 

$ $ 

Form 1099-MISC 

Department of the Treasury - Internal Revenue Service 

PAYER'S name, street address, clty, state, ZIP code, and telephone no. 


800 Nestle Court 

Dekalb, XL 60115 

815-754-2653 

PAYER'S federal identification 

number 

95-3671194 

RECIPIENT'S identification 

number 

022-54-8678 

E CORRECTED (if checked) 

1 Rents 

2 Royalties 

OMB Na. 1545-0115 

©1i 

Miscellaneous 

Income 

$ 

Form 1099-MISC 

3 Other income 4 Federal income tax wilhheld 

Copy B 

For Recipient 

5 Fishing boat proceeds 6 Medical and health care payments 

RECIPIENT'S name 

MARK A. KNIGHT 

Street address (including apt. no.) 

2560 SW 142ND COURT 

City, state, and ZIP code 

OCALA, FL 3 4 4 81 

Account number (see instructions) 

022 5 48 6 78 

11 

7 Nonemployee compensation 

197,489.90 

9 Payer made direct sales of 

$5,000 or more of consumer 

products to a buyer 

(recipient) for resale 

13 Excess golden parachute 

payments 

6 Substitute payments in lied 01 

dividends or Interest 

$ 

10 Crop insurance proceeds 

$ 

12 

14 Gross proceeds paid to 

an attorney 

This is Important tax 

information and is 

being furnished to 

the Internal Revenue 

Service If you are 

required to file a 

return, a negligence 

penalty or other 

sanction may be 

imposed on you if 

this income is 

taxable and the IRS 

determines that it 

has not been 

reported. 

15e Section 409A deferrals 

J 

15b Section 409A income 

16 State tax withheld 

$ 

$ 

17 State/Payer's state no. 

Attachment C 

18 State income

Appendix 7 

Nestle's Letter of Protest

WINSTEAD 

Austin Dallas Fort Worth Houston San Antonio The Woodlands Washington, D.C. 


512.370.2875 DIRECT 


May 11, 2012 

401 Congress Avenue 

Suite 2100 


512.370.2800 OFFICE 

512.370.2850 Fax 

winstead.corn 

Via Facsimile (512) 463-3353 


Attention: Ms. Leonore Monroy 

111 East 17th Street 


Re: 

Nestle USA, Inc. & Affiliates 

Taxpayer Identification No. 19515722098 

Protest Payment of 2012 Franchise Tax 

Dear Sir or Madam: 

Pursuant to Section 112.051, Texas Tax Code, Nestle USA, Inc. and the affiliated 

entities listed in Exhibit A (collectively, "Nestle"), hereby submit this written statement of protest 

with respect to $8,682,998.99 (the "Protest Payment") of the following electronic payment made 

by Nestle USA, Inc. today, May 11, 2012: 

Settlement Date: May 11, 2012 

Texas Taxpayer ID: 19515722098 

Tax Type: Franchise Tax 

Amount: $8,682,998.99 

The Protest Payment is payment of Texas franchise taxes assessed by the Comptroller 

for report year 2012. Nestle merits recovery of the Protest Payment because the Texas 

franchise tax violates both the Texas and United States Constitutions, as explained below, 

1. The Margin Tax Violates the Equal and Uniform Clause of the Texas Constitution. 



relationship to the value of the privilege of doing business in Texas. 


within a franchise tax to be reasonably related to the value being taxed. 

Article VIII, Section 1(a) of the Texas Constitution provides that "taxation shall be equal 

and uniform." Generally, the Equal and Uniform Clause requires that any classifications among 

11 I 

Dist., 922 S.W.2d 931, 936 (Tex. 1996); Hurt v. Cooper, 110 S.W.2d 896, 901 (Tex. 1937). 

With respect to an occupation tax, Texas courts have held that this standard merely requires 

that a classification be rationally related to a legitimate state purpose. Hurt, 110 S.W.2d at 900- 

01; Tex. Co. v. Stephens, 103 S.W. 481, 484-85 (Tex. 1907). However, the standard of 

reasonableness for a franchise tax is different. 

AUSTIN 1 1661403 vl 52275-1 

WINSTEAD PC • ATTORNEYS


May 11,2012 

Page 2 

The Texas franchise tax is a tax on the value of the privilege of doing business in Texas 

(the "Privilege") and is intended to exact a tax commensurate with the value of the Privilege. 

Bullock v. Nat'l Bancshares Corp., 584 S.W.2d 268, 270 (Tex. 1979); Gen. Dynamics Corp. v. 

Bullock, 547 S.W.2d 255, 257 (Tex. 1976). The franchise tax is imposed on entities that are 

created by state law and that enjoy the Privilege, such as corporations and limited partnerships, 

and is not imposed on entities that are not creatures of state law and that do not enjoy the 

Privilege, such as sole proprietorships and general partnerships. See TEX. TAX CODE ANN. §§ 

171.0002 and 171.001(a). The State of Texas will revoke the Privilege from a state law entity 

that does not pay the franchise tax. Id. §§ 171.251-.2515 and 171.301-.3015. 

Because the franchise tax is imposed in exchange for the Privilege and is intended to be 

commensurate with the value of the Privilege, the Equal and Uniform Clause requires any tax 

classifications within the franchise tax to be reasonably related to that value, and not merely to 

any conceivable state purpose. In order for the tax to be commensurate with the value of the 

Privilege, the value must generally be ascertained by the same standard for all taxpayers. See 

Bullock v. Sage Energy Co., 728 S.W.2d 465, 468 (Tex. App.—Austin 1987, writ ref'd n.r.e.) 

(citing Lively v. Mo., K & T Ry. Co. of Texas, 120 S.W. 852, 856 (Tex. 1909)). Any 

classifications among taxpayers must reasonably relate to the value of the Privilege. 

B. Classifications within the Margin Tax calculation do not reasonably relate 

to the value of the Privilege. 

The calculations of total revenue, cost of goods sold ("COGS"), and compensation, the 

application of the COGS and compensation deductions, and the determination of the tax rate, 

contain classifications that bear no relationship to the value of the Privilege exercised and, 

accordingly, are unreasonable, arbitrary, and capricious. The Margin Tax calculation begins 

with a baseline concocted by the Legislature called "Total Revenue." TEX. TAX CODE ANN. § 

171.101(a), The calculation of Total Revenue begins with the gross income of all taxpayers 

(this is equal and uniform), but then allows only certain income and expense deductions to 

some taxpayers engaged in certain lines of business (this is neither equal nor uniform). Id. § 

171.1011. Section 171,1011 allows deductions for various income or expense items of lending 

institutions, legal services providers, pharmacy cooperatives, destination management 

companies, staff leasing companies, management companies, health care providers, health 

care institutions, and operators of facilities for the federal government that are not available to 

all other taxpayers. Id. § 171.1011 (g-1)-(q). 


expense deductions from Total Revenue only to certain taxpayers. While the resulting value for 

Total Revenue includes all gross income of some taxpayers, it includes only a portion of gross 

income for other taxpayers. Consequently, the calculation of Total Revenue does not actually 

determine the amount of gross income that all taxpayers derive from exercising the Privilege 

but, instead, departs from such a calculation in an unreasonable, arbitrary, and capricious 

manner unrelated to the value of the Privilege. 

The calculation of COGS under Section 171.1012 similarly allows certain deductions 

only to certain taxpayers. A COGS deduction generally is allowed only to taxpayers that sell 

goods, but lending institutions are uniquely allowed to deduct interest expense as COGS and 

lessors of motor vehicles, heavy construction equipment, and railcar rolling stock are expressly 

allowed to deduct costs associated with the leased property as COGS. Id. § 171.1012(k), (k-1). 

AUSTENl \661403 vl 52275-1


May 11, 2012 

Page 3 

Other taxpayers that exercise the same Privilege as these favored businesses, and that incur 

interest expense and expenses of leasing, are not allowed the same deductions. Consequently, 

the calculation of COGS results in a amount of COGS that is unreasonable, arbitrary, and 

capricious among taxpayers exercising the Privilege. 

The calculation of compensation under Section 171.1013 allows deductions for 

expenses associated with employees but not expenses associated with independent 

contractors. However, taxpayers whose workers are employees enjoy the same Privilege as 

taxpayers whose workers are independent contractors, and the value of that Privilege is not 

changed by a worker's status as an employee or an independent contractor. Also, Section 

171.1013(c) limits the deduction of wages and cash compensation to $300,000 1 per individual. 

The value of the Privilege is not changed according to the amount of compensation paid to an 

individual. Consequently, the calculation of compensation results in an amount of 

compensation that is unreasonable, arbitrary, and capricious among taxpayers exercising the 

Privilege. 

Finally, Section 171.1014(d) requires all taxpayers within a combined group to elect the 

same deduction—either COGS or compensation—in calculating margin. This requirement 

results in an arbitrarily low deduction for some taxpayers within the combined group and results 

in a margin that bears no relation to the value of the Privilege for that taxpayer. Consequently, 

the uniform deduction requirement within a combined group results in an amount of margin that 

is unreasonable, arbitrary, and capricious among taxpayers exercising the Privilege. 

As a result of the differences in Total Revenue, COGS, compensation, and deductions, 

the Margin Tax calculation does not ascertain the value of the privilege of doing business in 

Texas the same way for all taxpayers—it is not uniform. A dollar of income earned from 


taxpayers. A dollar of expense incurred in exercising the Privilege, regardless of the nature of 

the expense, has the same value to all taxpayers. See Bullock v. Sage Energy Co., 728 S.W.2d 

465, 468 (Tex. App.—Austin 1987, writ ref'd n.r.e.). In calculating a franchise tax that is 

commensurate with the value of that Privilege, it is not reasonable to restrict some deductions 

for income and expense items only to some taxpayers who exercise that Privilege. To the 

extent the Legislature does allow exclusions and deductions from the franchise tax base, those 

exclusions and deductions must be available to all taxpayers in order for the franchise tax 

calculation to bear a reasonable relationship to the value of the Privilege. 

The assignment of a tax rate of 0.5% to retailers and wholesalers, and 1.0% to all other 

taxpayers, is unreasonable in the same respect. See id. § 171.002. Retailers and wholesalers 

exercise the same Privilege, and not one-half of the Privilege, as all other taxpayers. The 

imposition of a tax rate for certain taxpayers that is one-half the tax rate for other taxpayers, in 

exchange for the same Privilege, fails to exact a tax commensurate with the value of the 

Privilege. 

The $300,000 limitation is adjusted annually according to the Consumer Price Index under Section 

171.006. 

AUSTIN1 \661403 vl 52275-1


May 11,2012 

Page 4 

II. 

The Margin Tax Violates the Equal Protection Clause of the United States 

Constitution. 

The Equal Protection Clause commands that no state shall "deny to any person within its 

jurisdiction the equal protection of the laws." U.S. CONST. amend. XIV, § 1. It forbids a state 

from treating differently persons who are in all relevant respects alike. Nordlinger v. Hahn, 505 

U.S. 1, 10 (1992). With regard to state taxation, the Equal Protection Clause forbids disparate 

treatment of taxpayers that has no rational basis or that is palpably arbitrary. Allied Stores of 

Ohio v. Bowers, 358 U.S. 522, 527 (1959). Any disparate treatment must rest upon some 

ground or difference having a fair and substantial relation to the object of the legislation. Id. 

The relationship of the classification to its goal must not be so attenuated as to render the 

distinction arbitrary or irrational. Nordlinger, 505 U.S. at 11. 

Thus, pursuant to the Equal Protection Clause, the Margin Tax may not treat differently 

persons who are in all relevant respects alike. Any classifications imposed by the Margin Tax 

must have a rational basis and must be fairly and substantially related to the object of the 

tax—to tax the value of the Privilege. See Nat'l Bancshares Corp, 584 S.W.2d at 270; Gen. 

Dynamics Corp., 547 S.W.2d at 257-58; Rylander v. Fisher Controls Intl, 45 S.W.3d 291, 293 

(Tex. App.—Austin 2001, no pet.). 

As detailed above, each step of the Margin Tax calculation is fraught with arbitrary 

disparities among similarly-situated taxpayers. First, the calculation of Total Revenue permits 

certain arbitrary exclusions for taxpayers in certain industries but not for other taxpayers in other 

industries. There does not appear to be any rational basis for treating these taxpayers 

differently from one another, and the disparate treatment certainly does not have a fair or 

substantial relation to the Privilege being taxed. 

Further, the different types of deductions subtracted from Total Revenue—COGS, 

compensation, or 30% of Total Revenue—and the uniform deduction requirement for all 

taxpayers within a combined group create arbitrary distinctions among taxpayers, and the 

differences within the calculations of these deductions exacerbate the disparities between 

similarly-situated taxpayers. The COGS deduction allows only certain taxpayers to deduct 

certain costs of business. For example, a taxpayer that sells tangible personal property may 

deduct the direct costs of acquiring or producing the goods, some indirect costs, and up to 4% 

of overhead and administrative costs; however a taxpayer that leases the same tangible 

personal property may not deduct any such costs unless one of four narrow exceptions applies. 

See id. § 171.1012. Not only are sellers treated differently than lessors, but lessors are treated 

differently than similarly-situated lessors via four narrow exceptions for lending institutions, 

lessors of motor vehicles, lessors of heavy construction equipment, and lessors of rolling stock. 

See id. § 171.1012(k), (k-1). 

The calculation of compensation also creates distinctions with no rational basis. For no 

apparent reason related to the value of the Privilege, the Margin Tax allows a company to 

O - • O • • • TY . • - s pal• o an emp oyee, •u •oes no a ow a semi arty-situated 

company to deduct amounts paid to an independent contractor. See id. § 171.1013. It also 

arbitrarily distinguishes between employee salaries of $300,000 or less and employee salaries 

in excess of $300,000 because the salary amount is unrelated to the value of the Privilege. See 

id. § 171.1013(c) 

AUSTIN I \661403 vl 52275-1


May 11,2012 

Page 5 

The numerous disparities within the calculation of Margin lead to an arbitrary number, 

called Margin, which has no relation to the value of a taxpayer's Privilege. A taxpayer may have 

a tax base that is twice that of another taxpayer that receives the same Privilege due to a COGS 

deduction or compensation deduction that is arbitrarily conferred on the latter. This disparate 

treatment of similarly-situated taxpayers does not end with the calculation of Margin, but is 

compounded by the arbitrary application of tax rates, 

The Margin Tax imposes two tax rates on two classes of taxpayers — 0.5% to 

wholesalers and retailers and 1.0% to manufacturers. Id. § 171.002(a), (b). Whether or not a 

taxpayer is subject to the higher or lower tax rate depends on the taxpayer's activities 

throughout the United States, not just in Texas. Accordingly, a taxpayer such as Nestle who 

only wholesales in Texas, but manufactures in other states is treated differently than other 

taxpayers who only wholesale in Texas. These taxpayers enjoy the same Privilege in Texas, 

but the taxpayer who manufacturers elsewhere is subject to twice the tax rate. There is no 

rational basis related to the value of the Privilege for taxing these similarly-situated taxpayers 

differently. 

The Margin Tax violates the Equal Protection Clause on multiple levels by treating 

differently similarly-situated taxpayers in the calculation of the tax base and in the application of 

the tax rate. These differences in treatment have no rational basis and are not fairly and 

substantially related to the taxation of the value of the privilege of doing business in Texas. 

The Margin Tax Violates the Due Process Clause of the United States Constitution. 

In the context of a state tax, the Due Process Clause of the U.S. Constitution "requires 

some definite link, some minimum connection, between a state and the person, property, or 

transaction it seeks to tax." Quill Corp. v. North Dakota, 504 U.S. 298, 312 (1992) (quoting 

Miller Bros. v. Maryland, 347 U.S. 340, 344-45 (1954)); see U.S. CONST. Amend XIV, § 1. In the 

case of a tax on an activity, there must be a connection to the activity itself, rather than a 

connection only to the entity the State seeks to tax. Allied-Signal, Inc. v. Director, Div, of 

Taxation, 504 U.S. 768 (1992). The test is whether the ,taxing power exerted by a state bears 

fiscal relation to protection, opportunities, and benefits given by the state. Wisconsin v. J.C. 

Penney Co., 311 U.S. 435, 444 (1940); Norfolk & W. Ry. v. Mo. State Tax Comm'n, 390 U,S, 

317, 326 n.5 (1968). The simple but controlling question is whether the State has given 

anything for which it can ask a return. J.C. Penney, 311 U.S, at 444. 

The Margin Tax imposes a 0.5% tax on wholesalers and retailers and a 1.0% tax on 

manufacturers. Pursuant to the Due Process Clause, this significant difference in tax rate must 

be based on a difference in the protections, opportunities, and benefits conferred by Texas on 

the entities. In other words, manufacturers must receive greater benefits from Texas than 

wholesalers and retailers receive. This is not the case with entities, such as Nestle, that 

manufacture outside of Texas, but only wholesale and/or retail within Texas. Such entities do 

not receive any additional benefits from Texas with respect to their manufacturing operations. 

- • . • • - 

as CO ers o •ene e argin ax 

violates the Due Process Clause of the United States Constitution. 

AUSTIN 1 \661403 vl 52275-1

5124750237 TEXAS COMPTROLLER 

May-11-2012 01:57em 

From-Winstead PC 

02:06:38 p.m. 05-11-2012 2 /2 

5124574265 1-740 P,007/008 F-418 


May 1 1, 2012 

Page 6 

IV. 

The Margin Tax Violates the Commerce Clause of the United States Constitution. 

The Commerce Clause prohibits discrimination against interstate commerce and bars 

state regulation that unduly burdens interstate commerce. Quill, 504 U.S. at 312; see U.S 

CONST. art. 1, § 8. Specifically, the Commerce Clause requires that a state tax (1) be applied to 

an activity with a substantial nexus with the taxing state, (2) be fairly apportioned. (3) not 

discriminate against interstate commerce, and (4) fairly relate to the services provided by the 

state. Complete Auto Transit, Inc. v. Brady, 430 U.S 274, 279 (1977). A valid tax must treat 

similarly situated in-state and out-of-state taxpayers equally. Tyler Pipe Indus. v. Wash. State 

Dep't of Revenue, 483 U.S, 232, 246 (1987) (citing Hailiburton Oil Well Cementing Co v. 

373 U.S. 64, 70 (1963)). Further, the measure of the tax must be reasonably related to the 

extent of the taxpayers presence or activities within the taxing state and to the taxpayer's 

consequent enjoyment of the opportunities that the state has afforded. Rylander v. 3 Been 

Bros. 3, Inc., 2 S.W.3d 562, 571 (Tex. App.—Austin 1999, pet. denied) (citing Commonwealth 

Edison Co. v. Montana, 453 U.S. 609, 629 (1981)). 

The Margin Tax imposes a tax rate that is often dependent on a taxpayers activities 

outside of Texas For example. Nestle is subject to a tax rate of 1,0% rather than 0.5% based 

solely on the fact that it manufactures in other states. The Margin Tax discriminates against 

interstate commerce by subjecting entities to a higher tax rate based solely on the fact that they 

conduct certain activities in interstate activities. The Margin Tax also is not fairly related to the 

services provided by Texas because it imposes different tax rates on similarly-situated 

wholesalers based on their operations in other states, which operations have no relation to the 

services provided by Texas. Because it discnminates against interstate commerce and does 

not fairly relate to the services provided ey Texas, the Margin Tax violates the Commerce 

Clause of the United States Constitution. 

For the foregoing reasons, Nestle merits recovery of the Protest Payment. By your 

signature at the bottom of this letter, you acknowledge receipt of this written statement of 

protest. 

Thank you very much for your assistance. 

Sincerely, 

RECEIVED: 


AUSTIN-, 1 \661403 vi 52275-1

Exhibit A 



NFC Services Company, Inc. 

NDC Services, Inc. 

Vitality Foodservice Holding Corp. 


Nestle Holdings, Inc. 

Nestle Capital Corporation 

TSC Holdings, Inc, 

The Stouffer Corporation 


Dreyers Grand Ice Cream Holdings, Inc. 

Nestle Dreyers Ice Cream Company 

The Haagen Dazs Shoppe Company, Inc. 

Nespresso USA, Inc. 


Checkerboard Holding Company, Inc. 

Lasalle Park Redevelopment Corporation 

Nestle Purina Child Development Center, Inc. 

Nestle Purina Government Affairs, Inc. 

Purinacare Insurance Services, Inc. 

Nestle Purina Claims Processing, Inc. 

Jenny Craig Holdings, Inc. 

Jenny Craig, Inc. 

Jenny Craig Weight Loss Centres, Inc. 

Jenny Craig ANZ Franchising, Inc. 

Jenny Craig Operations, Inc. 

Jenny Craig NA Franchising, Inc. 

Nestle Insurance Holdings, Inc. 

Gerber Family Services, Inc, 



Gerber Finance Company 

AUSTIN _1 \661403 vl 52275-1

Appendix 8 

Receipt for Nestle's Payment 

of Margin Tax

11E Co 

May 15, 2012 


P.O. BOX 13528 

AUSTIN, TX 78711-3528 

RECEIVED 

MAY 1 8 2012 


Winstead 

401 Congress Ave Ste 2100 

Austin TX 78701 

RE: PAYMENT UNDER PROTEST 

Nestle USA Inc 

Taxpayer No. 19515722098 

Franchise Tax — 2012 

Dear Ms Rabb: 

This letter acknowledges receipt of your payment of $8,682,998.99 which is being paid under protest and 

a protest letter faxed on May 11, 2012. This amount is being deposited according to Section 112.058 of 

the Texas Tax Code. 

If you have any questions, please contact me by e-mail at nancy.elton@cpa.state.tx.us , by phone at (800) 

531-5441, ext. 3-3427, or in Austin at 463-3427. My mailing address is Comptroller of Public Accounts, 

Post Office Box 13528, Austin TX 78711-3528. Please address your letter to my attention. 

Sincerely, 

Nancy Elton 

Fund and Payment Reconciliations Section 

Revenue Accounting Division 

cc: Donald Neal Jr. 

General Counsel, Litigation

Appendix 9 

Affidavit of Donald Deere

AFFIDAVIT OF DONALD DEERE 

1. My name is Donald Deere. I hold a Ph.D. in economics from the 

Massachusetts Institute of Technology. I served as an economics professor at Texas 

A&M University for more than 20 years, and have been engaged full-time as a consulting 

economist for six years. 

2. I am over the age of 18 years and am competent and not otherwise 

disqualified to make this affidavit. I am personally familiar with the matters stated 

herein, and to my personal knowledge, they are true and correct. 

3. I prepared the table attached hereto, entitled "Economic Analysis of 

Comptroller Business Tax Advisory Committee Report" (the "Table"). The Table 

summarizes data taken exclusively from the BUSINESS TAX ADVISORY COMMITTEE 

REPORT TO THE 82ND LEGISLATURE, December 2010, prepared by the office of Susan 

Combs, Texas Comptroller of Public Accounts (the "Comptroller Report"). Each column 

in the Table is accurately described as follows: 

(a) "Business Tax Paid ($1000s)" displays the amount of Texas franchise tax 

paid by the referenced industry as taken from the Comptroller Report ("Business 

Tax Paid") 

(b) "Estimated Taxable Margin ($ Millions)" displays the estimated taxable 

margin derived by dividing Business Tax Paid by the tax rate (1% or 0.5% 

depending on the industry) generally applicable to the referenced industry 

("Taxable Margin"). 

(c) "2008 GSP ($ Millions)" displays the Gross State Product for 2008 for the 

referenced industry, as taken from the Comptroller Report ("GSP"). 

(d) "Tax Paid as % of GSP" displays the referenced industry's Tax Paid as a 

percentage of GSP. 

(e) "Estimated Taxable Margin as % of GSP" displays the referenced 

industry's estimated Taxable Margin as a percentage of GSP 

(f) "Texas Receipts ($ Millions)" displays the Texas receipts of the referenced 

industry, as taken from the Comptroller Report ("Texas Receipts"). 

(g) "Tax Paid as % of Texas Receipts" displays the referenced industry's Tax 

Paid as a percentage of Texas Receipts. 

(h) "Est. Taxable Margin as % of Texas Receipts" displays the referenced 

industry's estimated Taxable Margin as a percentage of Texas Receipts.

' Ai 

(i) "Net Profit Percent of Receipts" displays net profits of the referenced 

industry as a percent of Receipts, as taken from the Comptroller Report ("Texas 

Profit Margin"). 

(j) "Estimated Texas Profit ($ Millions)" displays the referenced industry's 

estimated Texas profits derived by multiplying Texas Receipts by Texas Profit 

Margin ("Texas Profits"). 

(k) "Tax Paid as % of Est. Texas Profit" displays the referenced industry's Tax 

Paid as percentage of estimated Texas Profits. 

(I) "Est. Taxable Margin as % of Est. Texas Profit" displays the referenced 

industry's estimated Taxable Margin as a percentage of estimated Texas Profits. 

SIGNED this /rday of October, 2011. 

2 C7\c-ge 

Donald Deere 

STATE OF f ex a 5 

COUNTY OF ''24_ z-o,5 

Before me the above individual executed this Affidavit upon oath, being first duly 

sworn this /914ḏay of October, 2011. 

[SEAL] 

BARBARA B. CHARLTON 

MY COMMISSION EXPIRES 

August 20, 2013 

Name: 

Commission Expires: /3 

AUSTIN _1 \645839 v2 10/19/2011

Revised Draft 10/19/2011 

Economic Analysis of Comptroller Business Tax Advisory Committee Report 

Tax and Margin Gross State Product Texas Receipts Estimated Texas Profit 

Estimated 2008 

Business Tax Taxable Margin GSP Tax Paid as 

Industry Paid ($ 1000s) ($ Millions) ($ Millions) % of GSP 

Agriculture $13,499 $1,350 $9,779 0.14% 

Mining (Oil & Gas) 437,928 $43,793 138,435 0.32% 

Utilities 159,512 $15,951 41,738 0.313% 

Construction 190,913 $19,091 58,853 0.32% 

Manufacturing 742,410 $74,241 158,803 0.47% 

Wholesale Thule 335,815 $67,163 76,378 0.44% 

Retail Trade* 351,654 $70,331 71,988 0.49% 

Air Transportation 9,733 $973 7,603 0.13% 

Truck Transportation 35,546 $3,555 11,296 0.31% 

Rail Transportation 4,706 $471 3,361 0.14% 

Water and Other Transportation 72,915 $7,292 15,805 0.46% 

Warehousing and Storage 12,112 $1,211 3,149 0.38% 

Publishing, Software, Data Processing 102,548 $10,255 15,080 0.68% 

Telecommunications 165,271 $16,527 31,254 0.53% 

Financial Activities 222,613 $22,261 47,058 0.47% 

Real Estate 284,987 $28,499 104,649 0.27% 

Professional Services 396,768 $39,677 83,341 0.48% 

Management of Companies 251,518 $25,152 19,163 1.31% 

Administrative and Support Services 88,309 $8,831 35,453 0.25% 

Waste Management Services 18,637 $1,864 2,827 0.66% 

Educational Services 14,567 $1,457 6,468 0.23% 

Health Services 170,098 $17,010 69,458 0.24% 

Arts, Entertainment and Recreation 27,954 $2,795 7,331 0.38% 

Acconunodation 41557 $4,156 7,019 0.59% 

Food Services (includes restaurants)* 61,480 $12,296 22,424 0.27% 

Other Services 73,807 $7,381 25,113 0.29% 

Estimated 

Est. Taxable 

Taxable Texas Tax Paid as Est. Taxable Net Profit Estimated Tax Paid as Margin as % of 

Margin as % Receipts % of Texas Margin as % of Percent of Texas Profit % of Est. Est. Texas 

of GSP ($ Millions) Receipts Texas Receipts Receipts ($ Millions) Texas Profit Profit 

13.80% 

31.63% 

38.22% 

32.44% 

46.75% 

87.94% 

97.70% 

12.80% 

31.47% 

14.00% 

46.13% 

38.46% 

68.00% 

52.88% 

47.31% 

27.23% 

47.61% 

131.25% 

24.91% 

65.93% 

22.52% 

24.49% 

38.13% 

59.21% 

54.83% 

29.39% 

$11,770 0.11% 11.47% 8.65% $1,018.11 

397,042 0.11% 11.03% 19.83% $78,733.43 

89,595 0.18% 17.80% 8.00% $7,187.60 

123,179 0.15% 15.50% 6.53% $8,043.59 

440,038 0.17% 16.67% 8.68% $38,195.30 

352,026 0.10% 19.08% 4.21% $14,820.29 

319,509 0.11% 22.01% 4.33% $13,834.74 

1,650 0.59% 58.99% 3.53% $58.25 

9,345 0.38% 38.04% 4.98% $465.38 

709 0.66% 66.38% 13.28% 4.16 

37,781 0.19% 19.30% 729% $2,7 4.23 

4,972 0.24% 24.36% 9.44% $4 9.36 

20,722 0.49% 49.49% 13.37% $2,770.53 

28,395 0.58% 5820% 13.31% $3,779.37 

73,872 0.30% 30.13% 19.34% $14,286.84 

63,099 0.45% 45.17% 16.06% $10,133.70 

117,577 0.34% 33.75% 9.65% $11,346.18 

133,392 0.19% 18.86% 15.17% $20,235.57 

31,597 0.28% 27.95% 6.37% $2,012.73 

4,122 0.45% 45.21% 8.19% $337.59 

2,891 0.50% 50.39% 11.88% $39.45 

46,655 0.36% 36.46% 9.50% $4,432.23 

6,570 0.43% 42.55% 13.46% $884.32 

7,294 0.57% 

56.97% 8.98% $655.00 

34,273 0.18% 

35.88% 723% $2,477.94 

26,459 028% 

27.89% 729% $1,928.86 

1.33% 

0.56% 

2.23% 

2.37% 

1.94% 

2.27% 

2.54% 

16.71% 

7.64% 

5.00% 

2.65% 

2.58% 

3.70% 

4.37% 

1.56% 

2.81% 

3.50% 

1.24% 

4.39% 

5.52% 

424% 

3.84% 

3.16% 

6.34% 

2.48% 

3.83% 

132.6% 

55.6% 

222,5% 

237.3% 

194.4% 

453.2% 

508.4% 

1671.0% 

763.8% 

499.8% 

264.7% 

258.1% 

370.1% 

437.3% 

155.8% 

281.2% 

349.7% 

124.3% 

438.8% 

552.1% 

424.1% 

383.8% 

316.1% 

634,5% 

4962% 

382.6% 

Minimum % 0.13% 

Maximum % 1.31% 

Average % 0.41% 

Standard Deviation of %s 0.24% 

12.80% 

131.25% 

45.58% 

27.50% 

0.10% 

0.66% 

0.32% 

0.17% 

11.03% 

66.38% 

33.84% 

16.21% 

0.56% 

16.71% 

3.80% 

3.09% 

55.6% 

1671.0% 

408.0% 

306.7% 

Source: The Business Tax Advisory Committee Report to the 82nd Legislature, Table 4 

Mies: Most firms in this sector use COGS 

*Most firms in this sector pay half rate 

"Estimated Taxable Margin" equals Business Tax Paid divided by the rate most commonly paid by firms in the sector 

"Estimated Texas Profit" equals Net Profit Percent of Receipts multiplied by Texas Receipts

Appendix 10 

Nestle's District Court Petition

CAUSE NO. 

Filed 

12 June 15 P3:17 

Amelia Rodriguez-Mendoza 

District Clerk 

Travis District 

D-1-GN-12-001818 

NESTLE USA, INC., § IN THE DISTRICT COURT OF 

Plaintiffs, 

v. § TRAVIS COUNTY, TEXAS 

SUSAN COMBS, COMPTROLLER OF § 

PUBLIC ACCOUNTS OF THE STATE § 

OF TEXAS, and GREG ABBOTT, 

ATTORNEY GENERAL OF TEXAS, § r.) 

Defendants. § ,9`-rp —JUDICIAL DISTRICT 

PLAINTIFF'S ORIGINAL PETITION 

COMES NOW Plaintiff NESTLE USA, INC., on behalf of itself and the affiliated 

entities listed in Exhibit A, ("Plaintiff') complaining of and against Susan Combs, the 

Comptroller of Public Accounts of the State of Texas, and Greg Abbott, the Attorney General of 

the State of Texas ("Defendants"), and for its cause of action would show the Court the 

following; 

I. DISCOVERY CONTROL PLAN 

1. Plaintiff intends to conduct discovery under Level 2 of Texas Rule of Civil 

Procedure 190.3 and affirmatively plead that they seek monetary relief aggregating more than 

$50,000. 

II. PARTIES AND SERVICE OF PROCESS 

2. Plaintiff is a corporation organized under the laws of the State of Delaware. 

Plaintiffs main office is located at 383 Main Avenue, Norwalk, Connecticut 06851-1543. 

Plaintiffs registered agent in Texas is CT Corporation System located at 350 North St. Paul 

- • I. 

3. Defendants Susan Combs, the Comptroller of Public Accounts of the State of 

Texas (the "Comptroller"), and Greg Abbott, the Attorney General of the State of Texas (the 

AUSTIT\II \667363 vl 06/15/2012 

1

"Attorney General"), are sued in their respective official capacities and service of process may 

be made on Defendants in Travis County, Texas. The Comptroller may be served at 111 E. 17th 

Street, Austin, Texas 78774. The Attorney General may be served at 300 W. 15th Street, 

Austin, Texas 78701. 

III. JURISDICTION AND VENUE 

4. This suit is brought pursuant to the terms, provisions, and requirements of Texas 

Tax Code Section 112.051 et seq. to recover from the Comptroller $8,682,998.99 in franchise tax 

that Plaintiff paid under protest for report year 2012 (the "Protest Payment"). The Protest 

Payment was electronically delivered to the Comptroller on May 11, 2012. On the same day, 

Plaintiff hand-delivered to the Comptroller a letter explaining the basis for the protest ("Protest 

Letter"), as required by Texas Tax Code Section 112.051. A file-stamped copy of the Protest 

Letter is attached as Exhibit B. A copy of the Comptroller's receipt for the Protest Payment and 

Protest Letter is attached as Exhibit C. This Original Petition is filed before the ninety-first (91) 

day after the Protest Payment was made. The district courts of Travis County have jurisdiction 

of a taxpayer suit brought under Chapter 112 of the Tax Code. TEX. TAX. CODE ANN. § 112.001 

(West 2008 & Supp. 2011). 

5. All other jurisdictional requirements for the filing of this suit have been met. 

IV. FACTS 

6. Plaintiff and its affiliates listed in Exhibit A are included in a combined group for 

purposes of reporting Texas franchise tax (collectively, the "Nestle Combined Group" or the 

"Group"). The Nestle Combined Group manufactures and distributes food and beverages and 

performs related services in the United States. The Group owns and operates 25 manufacturing 

facilities in the United States, all outside of Texas. The Group conducts exclusively wholesale 

and retail activities in Texas. Although the Nestle Combined Group engages only in wholesale 

- 2 -

activities in Texas, it is subject to the higher 1.0% franchise tax rate applicable to Texas 

manufacturers. 

7. On May 11, 2012, Plaintiff electronically submitted to the Comptroller, on behalf 

of the Nestle Combined Group, the Protest Payment as complete payment of franchise tax for 

report year 2012. On the same day, Plaintiff hand-delivered to the Comptroller a Protest Letter 

stating fully and in detail its reasons for recovering the Protest Payment. 

8. Plaintiff and each member of the Nestle Combined Group is jointly and severally 

liable for the franchise tax of the entire Nestle Combined Group. TEX, TAX. CODE ANN. 

§ 171.1014(i). 

V. CAUSE OF ACTION 

9. Plaintiff seeks recovery of the Protest Payment pursuant to Texas Tax Code 

Section 117.052 because the Texas franchise tax violates both the Texas Constitution and the 

United States Constitution. 

A. The Margin Tax Violates the Equal and Uniform Clause of the Texas Constitution. 

10, The Margin Tax violates the Equal and Uniform Clause of the Texas Constitution 


relationship to the value of the privilege of doing business in Texas. The Equal and Uniform 

Clause requires classifications among taxpayers within a franchise tax to be reasonably related to 

the value being taxed. 

11. Article VIII, Section 1(a) of the Texas Constitution provides that "taxation shall 

be equal and uniform." Generally, the Equal and Uniform Clause requires that any 

classifications among taxpayers must not be unreasonable, arbitrary, or capricious. Enron Corp, 

v, Spring Indep, Sch. Dist., 922 S.W,2d 931, 936 (Tex. 1996); Hurt v. Cooper, 110 S.W.2d 896, 

901 (Tex. 1937), With respect to an occupation tax, Texas courts have held that this standard 

3

merely requires that a classification be rationally related to a legitimate state purpose. Hurt, 110 

S.W.2d at 900-01; Tex. Co. v. Stephens, 103 S.W. 481, 484-85 (Tex. 1907). However, the 

standard of reasonableness for a franchise tax is different. 

12. The Texas franchise tax is a tax on the value of the privilege of doing business in 

Texas (the "Privilege") and is intended to exact a tax commensurate with the value of the 

Privilege. Bullock v. Nat'l Bancshares Corp„ 584 S.W.2d 268, 270 (Tex. 1979); Gen. Dynamics 

Corp. v. Bullock, 547 S.W.2d 255, 257 (Tex. 1976). The franchise tax is imposed on entities that 

are created by state law and that enjoy the Privilege, such as corporations and limited 

partnerships, and is not imposed on entities that are not creatures of state law and that do not 

enjoy the Privilege, such as sole proprietorships and general partnerships. 

See TEX. TAX CODE 

ANN. §§ 171.0002 and 171.001(a). The State of Texas will revoke the Privilege from a state law 

entity that does not pay the franchise tax. Id, §§ 171.251-.2515 and 171.301-.3015. 

13, Because the franchise tax is imposed in exchange for the Privilege and is intended 

to be commensurate with the value of the Privilege, the Equal and Uniform Clause requires any 

tax classifications within the franchise tax to be reasonably related to that value, and not merely 

to any conceivable state purpose. In order for the tax to be commensurate with the value of the 

Privilege, the value must generally be ascertained by the same standard for all taxpayers. 

See 

Bullock v. Sage Energy Co., 728 S.W.2d 465, 468 (Tex. App.—Austin 1987, writ ref d n.r.e.) 

(citing Lively v, Mo,, K & T Ry, Co, of Texas, 

120 S.W. 852, 856 (Tex. 1909)). Any 


14. Classifications within the Margin Tax calculation do not reasonably relate to the 

value of the Privilege. 

15. The calculations of total revenue, COGS, and compensation, and the 

- 4 -

determination of the tax rate, contain classifications that bear no relationship to the value of the 

Privilege exercised and, accordingly, are unreasonable, arbitrary, and capricious. The Margin 

Tax calculation begins with a baseline concocted by the Legislature called "Total Revenue." 

TEX. TAX CODE ANN. § 171.101(a). The calculation of total revenue begins with the gross 

income of all taxpayers (this is equal and uniform), but then allows only certain income and 

expense deductions to some taxpayers engaged in certain lines of business (this is neither equal 

nor uniform). 

Id. § 171.1011. Section 171.1011 allows deductions for various income or 

expense items of lending institutions, legal services providers, pharmacy cooperatives, live event 

promotion companies, destination management companies, courier and logistics companies, staff 

leasing companies, management companies, health care providers, health care institutions, and 

operators of facilities for the federal government. Id. § 171.1011 (g-1)-(q). 

16, These deductions plainly, randomly, and unreasonably allow certain income and 

expense deductions from total revenue only to certain taxpayers. While the resulting value for 

total revenue includes all gross income of some taxpayers, it includes only a portion of gross 

income for other taxpayers. Consequently, the calculation of total revenue does not actually 

determine the amount of gross income that all taxpayers derive from exercising the Privilege but, 

instead, departs from such a calculation in an unreasonable, arbitrary, and capricious manner 

unrelated to the value of the Privilege. 

17, The calculation of COGS under Section 171.1012 similarly allows certain 

deductions only to certain taxpayers. A COGS deduction generally is allowed only to taxpayers 

that sell goods, but lending institutions are uniquely allowed to deduct interest expense as COGS 

and lessors of motor vehicles, heavy construction equipment, and railcar rolling stock are 

expressly allowed to deduct costs associated with the leased property as COGS. 

Id. 

5

§ 171.1012(k), (k-1). Other taxpayers that exercise the same Privilege as these favored 

businesses, and that incur interest expense and expenses of leasing, are not allowed the same 

deductions. Consequently, the calculation of COGS results in an amount of COGS that is 

unreasonable, arbitrary, and capricious among taxpayers exercising the Privilege, 

18. Finally, the calculation of compensation under Section 171.1013 allows 

deductions for expenses associated with employees but not expenses associated with independent 

contractors and limits the amount of the compensation deduction for employees. However, 

taxpayers whose workers are employees enjoy the same Privilege as taxpayers whose workers 

are independent contractors, and the value of that Privilege is not changed by a worker's status as 

an employee or an independent contractor or the amount of an employee's compensation. 

Consequently, the calculation of compensation results in an amount of compensation that is 

unreasonable, arbitrary, and capricious among taxpayers exercising the Privilege. 

19. As a result of the differences in total revenue, COGS, and compensation, the 

Margin Tax calculation does not ascertain the value of the privilege of doing business in Texas 

the same way for all taxpayers—it is not uniform. A dollar of income earned from exercising the 

Privilege, regardless of the source of the income, has the same value to all taxpayers. A dollar of 

expense incurred in exercising the Privilege, regardless of the nature of the expense, has the 

same value to all taxpayers. See Bullock v. Sage Energy Co., 728 S.W.2d 465, 468 (Tex. App.— 

Austin 1987, writ red n.r.e.). In calculating a franchise tax that is commensurate with the value 

of that Privilege, it is not reasonable to restrict some deductions for income and expense items 

only to some taxpayers who exercise that Privilege. To the extent the Legislature does allow 

exclusions and deductions from the franchise tax base, those exclusions and deductions must be 

available to all taxpayers in order for the franchise tax calculation to bear a reasonable 

- 6 -

elationship to the value of the Privilege. 

20. The assignment of a tax rate of 0.5% to retailers and wholesalers, and 1.0% to all 

other taxpayers, is unreasonable in the same respect. 

See id, § 171,002. Retailers and 

wholesalers exercise the same Privilege, and not one-half of the Privilege, as all other taxpayers. 

The imposition of a tax rate for certain taxpayers that is one-half the tax rate for other taxpayers, 

in exchange for the same Privilege, fails to exact a tax commensurate with the value of the 

Privilege. 

B. The Margin Tax Violates the Equal Protection Clause of the United States 

Constitution 

21. The Equal Protection Clause commands that no state shall "deny to any person 

within its jurisdiction the equal protection of the laws." U.S. CONST. amend. XIV, § 1. It forbids 

a state from treating differently persons who are in all relevant respects alike. Nordlinger v. 

Hahn, 505 U.S. 1, 10 (1992). With regard to state taxation, the Equal Protection Clause forbids 

disparate treatment of taxpayers that has no rational basis or that is palpably arbitrary. 

Allied 

Stores of Ohio v. Bowers, 358 U.S. 522, 527 (1959). Any disparate treatment must rest upon 

some ground or difference having a fair and substantial relation to the object of the legislation. 

Id. The relationship of the classification to its goal must not be so attenuated as to render the 

distinction arbitrary or irrational. Nordlinger, 505 U.S. at 11. 

22. Thus, pursuant to the Equal Protection Clause, the Margin Tax may not treat 

differently persons who are in all relevant respects alike. Any classifications imposed by the 

Margin Tax must have a rational basis and must be fairly and substantially related to the object 

of the tax—to tax the value of the Privilege. See Nat'l Bancshares Corp, 584 S.W.2d at 270; 

Gen. Dynamics Corp., 547 S.W.2d at 257-58; Rylander v. Fisher Controls Intl, 45 S.W.3d 291, 

293 (Tex. App.—Austin 2001, no pet.). 

7

23. As detailed above, each step of the Margin Tax calculation is fraught with 

arbitrary disparities among similarly-situated taxpayers. First, the calculation of Total Revenue 

permits certain arbitrary exclusions for taxpayers in certain industries but not for other taxpayer 

in other industries. There does not appear to be any rational basis for treating these taxpayers 



24. Further, the different types of deductions subtracted from Total Revenue — COGS, 

Compensation, or 30% of Total Revenue — create arbitrary distinctions among taxpayers, and the 




deduct the direct costs of acquiring or producing the goods, some indirect costs, and up to 4% of 

overhead and administrative costs; however a taxpayer that leases the same tangible personal 

property may not deduct any such costs unless one of four narrow exceptions applies. See id. 

§ 171.1012. Not only are sellers treated differently from lessors, but lessors are treated 

differently from similarly-situated lessors via four narrow exceptions for lending institutions, 


See id, § 171.1012(k), (k-1). 

25. The calculation of Compensation also creates distinctions with no rational basis. 

For no apparent reason related to the value of the Privilege, the Margin Tax allows a company to 

deduct as Compensation wages paid to an employee, but does not allow a similarly-situated 

company to deduct amounts paid to an independent contractor. 

See id, § 171.1013. It also 

arbitrarily distinguishes between employee salaries of $330,000 or less and employee salaries in 

- 8 -

excess of $330,000. See id. §§ 171.006, 171.1013(c).' 

26. The numerous disparities within the calculation of Margin lead to an arbitrary 

number, called Margin, which has no relation to the value of a taxpayer's Privilege. A taxpayer 

may have a tax base that is twice that of another taxpayer that receives the same Privilege due to 

a COGS deduction or Compensation deduction that is arbitrarily conferred on the latter. This 

disparate treatment of similarly-situated taxpayers does not end with the calculation of Margin, 

but is compounded by the arbitrary application of tax rates. 

27. The Margin Tax imposes two tax rates on two classes of taxpayers — 0.5% to 


taxpayer is subject to the higher or lower tax rate depends on the taxpayers' activities throughout 

the United States, not just in Texas. Accordingly, a taxpayer such as Nestle who only wholesales 

in Texas, but manufactures in other states is treated differently from other taxpayers who only 

wholesale in Texas. These taxpayers enjoy the same Privilege in Texas, but the taxpayer who 

manufacturers elsewhere is subject to twice the tax rate. There is no rational basis related to the 

value of the Privilege for taxing these similarly-situated taxpayers differently. 

28. The Margin Tax violates the Equal Protection Clause on multiple levels by 

treating differently similarly-situated taxpayers in the calculation of the tax base and in the 

application of the tax rate. These differences in treatment have no rational basis and are not 

fairly and substantially related to the taxation of the value of the privilege of doing business in 

Texas. 

C. The Margin Tax Violates the Due Process Clause of the United States Constitution. 

29. In the context of a state tax, the Due Process Clause of the U.S. Constitution 

The $330,000 limit was published by the Comptroller on page 1 of the 2012 Texas Franchise 

Tax Report Information and Instructions which is publicly available at 

http://www.cpa.state.tx.us/taxinfo/taxforms/05-396.pdf. 

9

"requires some definite link, some minimum connection, between a state and the person, 

property, or transaction it seeks to tax." Quill Corp. v. North Dakota, 504 U.S. 298, 312 (1992) 

(quoting Miller Bros. v, Maryland, 347 U.S. 340, 344-45 (1954)); see U.S. CONST. Amend XIV, 

§ 1. In the case of a tax on an activity, there must be a connection to the activity itself, rather 

than a connection only to the entity the State seeks to tax. Allied-Signal, Inc. v. Director, Div. of 

Taxation, 504 U.S. 768 (1992). The test is whether the taxing power exerted by a state bears 

fiscal relation to protection, opportunities, and benefits given by the state, Wisconsin v, J. C. 

Penney Co., 311 U.S. 435, 444 (1940); Norfolk & W Ry. v. Mo. State Tax Comm'n, 

390 U.S. 

317, 326 n.5 (1968). The simple but controlling question is whether the State has given anything 

for which it can ask a return. J.C. Penney, 311 U.S. at 444. 

30, The Margin Tax imposes a 0.5% tax on wholesalers and retailers and a 1% tax on 

manufacturers, Pursuant to the Due Process Clause, this significant difference in tax rate must 

be based on a difference in the protections, opportunities, and benefits conferred by Texas on the 

entities. In other words, manufacturers must receive greater benefits from Texas than 




By taxing these entities based on activities for which Texas confers no benefit, the Margin Tax 

violates the Due Process Clause of the United States Constitution, 

D. The Margin Tax Violates the Commerce Clause of the United States Constitution. 

31. The Commerce Clause prohibits discrimination against interstate commerce and 

bars state regulation that unduly burdens interstate commerce. Quill, 504 U.S. at 312; see U.S. 


an activity with a substantial nexus with the taxing state, (2) be fairly apportioned, (3) not 

-10-


state. 

Complete Auto Transit, Inc, v. Brady, 430 U.S. 274, 279 (1977). A valid tax must treat 

similarly situated in-state and out-of-state taxpayers equally. 

Tyler Pipe Indus. v. Wash, State 

Dep't of Revenue, 483 U.S. 232, 246 (1987) (citing Halliburton Oil Well Cementing Co, v. Reily, 

373 U.S. 64, 70 (1963)), Further, the measure of the tax must be reasonably related to the extent 

of the taxpayer's presence or activities within the taxing state and to the taxpayer's consequent 

enjoyment of the opportunities that the state has afforded. Rylander v. 3 Beall Bros. 3, Inc., 2 

S.W.3d 562, 571 (Tex. App.—Austin 1999, pet. denied) (citing Commonwealth Edison Co. v. 

Montana, 453 U.S. 609, 629 (1981)). 

32. The Margin Tax imposes a tax rate that is often dependent on a taxpayer's 

activities outside of Texas. For example, Nestle is subject to a tax rate of 1.0% rather than 0.5% 

based solely on the fact that it manufactures in other states. The Margin Tax discriminates 

against interstate commerce by subjecting entities to a higher tax rate based solely on the fact 

that they conduct certain activities in interstate activities. The Margin Tax also is not fairly 

related to the services provided by Texas because it imposes different tax rates on similarlysituated 

wholesalers based on their operations in other states, which operations have no relation 

to the services provided by Texas. Because it discriminates against interstate commerce and 

does not fairly relate to the services provided by Texas, the Margin Tax violates the Commerce 


VI. REQUEST FOR RELIEF 

WHEREFORE, Plaintiffs requests that Defendants Susan Combs, the Comptroller of 

Public Accounts of the State of Texas, and Greg Abbott, the Attorney General of the State of 

Texas, be cited to appear and answer herein and on final hearing Plaintiff have a judgment:

(i) 

for the refund of the $8,682,998.99 paid under protest, together with interest 

thereon as provided by law; 

(ii) 

(iii) 

for court costs; and 

for such other and further relief to which Plaintiff may be justly entitled. 

Respectfully submitted, 



SBN 15062600 


SBN 00795469 

WINSTEAD PC 



[Tel.] (512) 370-2800 

[Fax] (512) 370-2850 

pnolan@winstead.corn 

-12-

Exhibit A 




NDC Services, Inc. 


Vitality Foodservice, Inc, 



TSC Holdings, Inc. 





















Gerber Family Services, Inc. 




EXHIBIT 

a 

AUSTIN_1\667353v1 

52275-1 06/15/2012

WINSTEAD Austin Dallas Fort Worth Houston San Antonio The Woodlands Washington, D.C. 


512.370.2875 DIRECT 


May 11, 2012 

401 Congress Avenue 

Suite 2100 


512,370.2800 OFFICE 

512,370.2850 FAX 

winstead.com 

Via Facsimile (512) 463-3353 


Attention: Ms. Leonore Monroy 

111 East 17th Street 


Re; 

Nestle USA, Inc. & Affiliates 

Taxpayer Identification No. 19515722098 

Protest Payment of 2012 Franchise Tax 

Dear Sir or Madam: 

Pursuant to Section 112.051, Texas Tax Code, Nestle USA, Inc, and the affiliated 

entities listed in Exhibit A (collectively, "Nestle"), hereby submit this written statement of protest 

with respect to '$8,682,998.99 (the "Protest Payment") of the following electronic payment made 

by Nestle USA, Inc, today, May 11, 2012; . 

Settlement Date: May 11, 2012 

Texas Taxpayer ID: 19515722098 

Tax Type; Franchise Tax 

Amount: $8,682,998.99 

The Protest Payment is payment of Texas franchise taxes assessed by the Comptroller 

for report year 2012, Nestle merits recovery of the Protest Payment beCause the Texas 

franchise tax violates both the Texas and United States Constitutions, as explained below, 

I. The Margin Tax Violates the Equal and Uniform Clause of the Texas Constitution: 


because it taxes taxpayers disparately based on classifications 'that have no reasonable 

relationship to the value of the privilege of doing business In Texas. 


within a franchise tax to,be reasonably related to the value being taxed. 

Article VIII, Section 1(a) of. the Texas Constitution provides that "taxation shall be equal 

and uniform•" Generally, the Equal and Uniform Clause requires that any classifications among 

taxpayers must not be unreasonable, arbitrary, or capricious,. Enron Corp. v. Spring lndep. Sch. 

Dist., 922 S W.2d 931, 936 (Tex, 1996); Hurt v, Coo 

With respect to an occupation tax, Texas courts have held that this standard merely requires 

that a classification be rationally related to a legitimate state purpose. Hurt, 110 S.W.2d at 900- 

01; Tex. Co. v. Stephens, 103 S.W. 481, 484-85 (Tex, 1907), However, the standard of 

reasonableness for a franchise tax is different. 

AUSTIN_1 1661403 v1 52275-1


May 11, 2012 

Page 2 

The Texas franchise tax is a tax on the value of the privilege of doing business in Texas 

(the "Privilege") and Is intended to exact a tax commensurate with the value of the Privilege. 

Bullock v. Nat'l Bancshares Corp., 584 S.W.2d 268, 270 (Tex, 1979); Gen. Dynamics Corp, v. 

Bullock, 547 S,W,2d 255, 257 (Tex. 1976), The franchise tax Is imposed on entities that are 

created by state law and that enjoy the Privilege, such as corporations and limited partnerships, 

and is not imposed on entities that are not creatures of state law and that do not enjoy the 

Privilege, such as sole proprietorships and general partnerships. See TEX. TAX CODE ANN, §§ 

171,0002 and 171.001(a). The State of Texas will revoke the Privilege from a state law entity 

that does not pay the franchise tax, Id. §§ 171.251-.2515 and 171.301-.3015. 

Because the franchise tax is imposed in exchange for the Privilege and is intended to be 

commensurate with the value of the Privilege, the Equal and Uniform Clause requires any tax 

classifications within the franchise tax to be reasonably related to that value, and not merely to 

any conceivable state purpose, In order for the tax to be commensurate with the value of the 

Privilege, the value must generally be ascertained by the same standard for all taxpayers, See 

Bullock v. Sage Energy Co., 728 SA.2d 465, 468 (Tex. App.—Austin 1987, writ ref d n.r.e.) 

(citing Lively v. Mo., K & T Ry. Co. of Texas, 120 S.W, 852, 856 (Tex. 1909)). Any 


B. Classifications within the Margin Tax calculation do not reasonably relate 

to the value of the Privilege. 

The calculations of total revenue, cost of goods sold ("COGS"), and compensation, the 

application of the COGS and compensation deductions, and the determination of the tax rate, 

contain classifications that bear no relationship to the value of the Privilege exercised and, 

accordingly, are unreasonable, arbitrary, and capricious. The Margin Tax calculation begins 

with a baseline concocted by the Legislature called "Total Revenue." TEX. TAX CODE ANN, § 

171.101(a), The calculation of Total Revenue begins with the gross income of all taxpayers 

(this is equal and uniform), but then allows only certain income and expense deductions to 

some taxpayers engaged in certain lines of business (this is neither equal nor uniform). Id. § 

171.1011, Section 171.1011 allows deductions for various income or expense Items of lending 

institutions, legal services providers, pharmacy cooperatives, destination management 

companies, staff leasing companies, management companies, health care providers, health 

care institutions, and operators of facilities for the federal government that are not available to 

all other taxpayers. Id, § 171.1011 (g-1)-(q). 


expense deductions from Total Revenue only to certain taxpayers. While the resulting value for 

Total Revenue includes all gross income of some taxpayers, it includes only a portion of gross 

income for other taxpayers. Consequently, the calculation of Total Revenue does not actually 

determine the amount of gross income that all taxpayers derive from exercising the Privilege 

but, instead, departs from such a calculation in an unreasonable, arbitrary, and capricious 

manner unrelated to the value of the Privilege, 

- r v.. • • 8 - • • - 

r y a • s ce ain deductions 

only to certain taxpayers. A COGS deduction generally is allowed only to taxpayers that sell 

goods, but lending institutions are uniquely allowed to deduct interest expense as COGS and 

lessors of motor vehicles, heavy construction equipment, and railcar rolling stock are expressly 

allowed to deduct costs associated with the leased property as COGS. Id, § 171.1012(k), (k-1). 

AUST1N_l \661403 vl 52275-1


May 11,2012 

Page 3 

Other taxpayers that exercise the same Privilege as these favored businesses, and that incur 

interest expense and expenses of leasing, are not allowed the same deductions. Consequently, 

the calculation of COGS results in a amount of COGS that is unreasonable, arbitrary, and 

capricious among taxpayers exercising the Privilege, 

The calculation of compensation under Section 171.1013 allows deductions for 

expenses associated with employees but not expenses associated with independent 

contractors. However, taxpayers whose workers are employees enjoy the same Privilege as 

taxpayers whose workers are independent contractors, and the value of that Privilege is not 

changed by a worker's status as an employee or an independent contractor. Also, Section 

171,1013(c) limits the deduction of wages and cash compensation to $300,000 1 per individual. 

The value of the Privilege is not changed according to the amount of compensation paid to an 

individual. Consequently, the calculation of compensation results in an amount of 

compensation that is unreasonable, arbitrary, and capricious among taxpayers exercising the 

Privilege. 

Finally, Section 171.1014(d) requires all taxpayers within a combined group to elect the. 

same deduction—either COGS or compensation—in calculating margin. This requirement 

results in an arbitrarily low deduction for some taxpayers within the combined group and results 

in a margin that bears no relation to the value of the Privilege for that taxpayer. Consequently, 

the uniform deduction requirement within a combined group results in an amount of margin that 

is unreasonable, arbitrary, and capricious among taxpayers exercising the Privilege. 

As a result of the differences in Total Revenue, COGS, compensation, and deductions, 

the Margin Tax calculation does not ascertain the value of the privilege of doing business in 

Texas the same way for all taxpayers—it is not uniform, A dollar of income earned from 


taxpayers. A dollar of expense incurred in exercising the Privilege, regardless of the nature of 

the expense, has the same value to all taxpayers. See Bullock v. Sage Energy Co., 728 S,W.2d 

465, 468 (Tex. App.—Austin 1987, writ ref'd n,r.e.). In calculating a franchise tax that is 

commensurate with the value of that Privilege, it is not reasonable to restrict some deductions 

for income and expense items only to some taxpayers who exercise that Privilege. To the 

extent the Legislature does allow exclusions and deductions from the franchise tax base, those 

exclusions and deductions must be available to all taxpayers in order for the franchise tax 

calculation to bear a reasonable relationship to the value of the Privilege. 

The assignment of a tax rate of 0.5% to retailers and wholesalers, and 1.0% to all other 

taxpayers, is unreasonable in the same respect, See id. § 171,002. Retailers and wholesalers 

exercise the same Privilege, and not one-half of the Privilege, as all other taxpayers. The 

imposition of a tax rate for certain taxpayers that is one-half the tax rate for other taxpayers, in 

exchange for the same Privilege, fails to exact a tax commensurate with the value of the 

Privilege. 

The $300,000 limitation Is adjusted annually according to the Consumer Price Index under Section 

171,006, 

AUSTIN _l \661403 vl 52275-1


May 11, 2012 

Page 4 

II. 

The Margin Tax Violates the Equal Protection Clause of the United States 

Constitution. 

The Equal Protection Clause commands that no state shall "deny to any person within its 

jurisdiction the equal protection of the laws." U.S. CONST. amend. XIV, § 1, It forbids a state 

from treating differently persons who are in all relevant respects alike. Nordlinger v. Hahn, 505 

U.S. 1, 10 (1992). With regard to state taxation, the Equal Protection Clause forbids disparate 

treatment of taxpayers that has no rational basis or that is palpably arbitrary, Allied Stores of 

Ohio v. Bowers, 358 U.S. 522, 527 (1959). Any disparate treatment must rest upon some 

ground or difference having a fair and substantial relation to the object of the legislation. Id. 

The relationship of the classification to its goal must not be so attenuated as to render the 

distinction arbitrary or Irrational, Nordlinger, 505 U.S, at 11. 

Thus, pursuant to the Equal Protection Clause, the Margin Tax may not treat differently 

persons who are in all relevant respects alike, Any classifications imposed by the Margin Tax 

must have a rational basis and must be fairly and substantially related to the object of the 

tax—to tax the value of the Privilege. See Nat'l Bancshares Corp, 584 S,W.2d at 270; Gen, 

Dynamics Corp., 547 S.W,2d at 257-58; Rylander v. Fisher Controls Intl, 45 S.W.3d 291, 293 

(Tex, App.—Austin 2001, no pet.). 

As detailed above, each step of the Margin Tax calculation is fraught with arbitrary 

disparities among similarly-situated taxpayers. First, the calculation of Total Revenue permits 

certain arbitrary exclusions for taxpayers in certain industries but not for other taxpayers in other 

industries. There does not appear to be any rational basis for treating these taxpayers 



Further, the different types of deductions subtracted from Total Revenue—COGS, 

compensation, or 30% of Total Revenue—and the uniform deduction requirethent for all 

taxpayers within a combined group create arbitrary distinctions among taxpayers, and the 




deduct the direct costs of acquiring or producing the goods, some indirect costs, and up to 4% 

of overhead and administrative costs; however a taxpayer that leases the same tangible 

personal property may not deduct any such costs unless one of four narrow exceptions applies. 

See id. § 171.1012. Not only are sellers treated differently than lessors, but lessors are treated 

differently than similarly-situated lessors via four narrow exceptions for lending institutions, 


See id, § 171,1012(k), (k-1). 

The calculation of compensation also creates distinctions with no rational basis, For no 

apparent reason related to the value of the Privilege, the Margin Tax allows a company to 

deduct as compensation wages paid to an employee, but does not allow a similarly-situated 

company to deduct amounts paid to an independent contractor. See id. § 171,1013, It also 

arbitrarily distinguishes between employee salaries of $300,000 or less and employee salaries 

in excess of $300,000 because the salary amount is unrelated to the value of the Privilege. See 

id. § 171.1013(c) 

AUSTIN _1 \661403 vi 52275-1


May 11, 2012 

Page 5 

The numerous disparities within the calculation of Margin lead to an arbitrary number, 

called Margin, which has no relation to the value of a taxpayer's Privilege. A taxpayer may have 

a tax base that is twice that of another taxpayer that receives the same Privilege due to a COGS 

deduction or compensation deduction that Is arbitrarily conferred on the latter. This disparate 

treatment of similarly-situated taxpayers does not end with the calculation of Margin, but Is 

compounded by the arbitrary application of tax rates. 

The Margin Tax imposes two tax rates on two classes of taxpayers — 0.5% to 


taxpayer is subject to the higher or lower tax rate depends on the taxpayer's activities 

throughout the United States, not just in Texas. Accordingly, a taxpayer such as Nestle who 

only wholesales in Texas, but manufactures in other states is treated differently than other 

taxpayers who only wholesale in Texas. These taxpayers enjoy the same Privilege in Texas, 

but the taxpayer who manufacturers elsewhere is subject to twice the tax rate. There is no 

rational basis related to the value of the Privilege for taxing these similarly-situated taxpayers 

differently. 

The Margin Tax violates the Equal Protection Clause on multiple levels by treating 

differently similarly-situated taxpayers in the calculation of the tax base and in the application of 

the tax rate. These differences in treatment have no rational basis and are not fairly and 

substantially related to the taxation of the value of the privilege of doing business in Texas. 

Ill. 

The Margin Tax Violates the Due Process Clause of the United States Constitution. 

In the context of a state tax, the Due Process Clause of the U.S. Constitution "requires 

some definite link, some minimum connection, between a state and the person, property, or 

transaction it seeks to tax." Quill Corp. v. North Dakota, 504 U.S. 298, 312 (1992) (quoting 

Miller Bros. v. Maryland, 347 U.S. 340, 344-45 (1954)); see U.S. CONsT, Amend XIV, § 1. In the 

case of a tax on an activity, there must be a connection to the activity itself, rather than a 

connection only to the entity the State seeks to tax. Allied-Signal, Inc. v. Director, Div. of 

Taxation, 504 U.S. 768 (1992). The test is whether the taxing power exerted by a state bears 

fiscal relation to protection, opportunities, and benefits given by the state. Wisconsin v. J.C. 

Penney Co., 311 U.S. 435, 444 (1940); Norfolk & W Ry. v, Mo. State Tax Comm'n, 390 U,S. 

317, 326 n.5 (1968). The simple but controlling question is whether the State has given 

anything for which It can ask a return, J.C. Penney, 311 U.S. at 444, 

The Margin Tax imposes a 0.5% tax on wholesalers and retailers and a 1.0% tax on 

manufacturers. Pursuant to the Due Process Clause, this significant difference in tax rate must 

be based on a difference in the protections, opportunities, and benefits conferred by Texas on 

the entities. In other words, manufacturers must receive greater benefits from Texas than 




By taxing these entities based on activities for which Texas confers no benefit, the Margin Tax 

violates the Due Process Clause of the United States Constitution, 

AUSTIN I \661403 vl 52275-1


May 11,2012 

Page 6 

IV, 

The Margin Tax Violates the Commerce Clause of the United States Constitution. 


state regulation that unduly burdens interstate commerce, Quill, 504 U,S, at 312; see U.S. 




state. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977), A valid tax must treat 

similarly situated in-state and out-of-state taxpayers equally, Tyler Pipe Indus, v. Wash, State 

Dep't of Revenue, 483 U.S. 232, 246 (1987) (citing Halliburton Oil Well Cementing Co, v. Reify, 


extent of the taxpayer's presence or activities within the taxing state and to the taxpayer's 

consequent enjoyment of the opportunities that the state has afforded. Rylander v. 3 Beall 

Bros. 3, Inc., 2 S.W.3d 562, 571 (Tex. App.—Austin 1999, pet. denied) (citing Commonwealth 

Edison Co. v, Montana, 453 U.S. 609, 629 (1981)). 

The Margin Tax imposes a tax rate that is often dependent on a taxpayer's activities 

outside of Texas. For example, Nestle is subject to a tax rate of 1,0% rather than 0,5% based 

solely on the fact that it manufactures in other states. The Margin Tax discriminates against 

interstate commerce by subjecting entitles to a higher tax rate based solely on the fact that they 


services provided by Texas because it imposes different tax rates on similarly-situated 


services provided by Texas. Because it discriminates against interstate commerce and does 

not fairly relate to the services provided by Texas, the Margin Tax violates the Commerce 


For the foregoing reasons, Nestle merits recovery of the Protest Payment, By your 


protest. 


Sincerely, 

RECEIVED; 


Printed Name 

Signature 

Date: 

AUSTIN J \661403 vl 52275-1

DIda i DV[al 

I CAN.] t..t.nvIr 11VLLtn 

May-II-2012 01;57pe From-Winstead PC 

uc uo:zo p,m, 

51245T4265 T-741 P.007/008 F-4I8 


May 11, 2012 

Page 6 

IV, 

The Margin Tax Violates the Commerce Clause of the United States Constitution, 


state regulation that unduly burdens interstate commerce. Quill, 504 U.S. at 312; see U,S 

Cot'ST. art. 1, § 8. Specifically, the Commerce Clause requires that a state tax (1) be applied to 



state, Complete Auto Transit, Inc, v. Brady, 430 U.S 274, 279 (1977). A valid tax must treat 

similarly situated in-state and out-of•state taxpayers equally. Tyler Pipe inclus. v. Wash. State 

Dap? of Revenue, 483 U,S, 232, 246 (1987) (citing Halhburton Oil Well Cementing Co v, Roily, 


extent of the taxpayers presence or activities within the taxing state and to the taxpayers 

consequent enjoyment of the opportunities that the state has afforded. Rylancler v. 3 Seats 

Bros, 3, Inc., 2 S.W.3d 562, 571 (Tex. App.—Austin 1999, pet. denied) (citing Commonwealth 

Edison Co, v, Montana, 453 U.S. 609, 629 (1981)). 

The Margin Tax imposes a tax rate that is often dependent on a taxpayers activities 

outside of Texas For example. Nestle is subject to a tax rate of 1,0% rather than 0.5% based 

solely on the fact that it manufactures in other states. The Margin Tax disenminates against 

interstate commerce by subjecting entities to a higher tax rate based solely on the fact that they 


services provided by Texas becauSe it imposes different tax rates on similarly-situated 


services provided by Texas. Because it •discnm ►nates against interstate commerce and does 

not fairly relate to the services provided by Texas, the Margin Tax violates the Commerce 

Clause of the united States Constitution. 

For the foregoing reasons, Nestle merits recovery of the Protest Payment. By your 


protest. 


Sincerely, 

RECEIVED: 


ilicTINJ 1 1kod4111 v 1 52275-1

Exhibit A 




NDC Services, Inc, 





TSC Holdings, Inc. 





















Gerber Family Services, Inc, 




AUSTIN _l 1661403 vl 52275-1

May 15, 2012 


P.O. BOX 13528 

AUSTIN, TX 78711-3528 

RECENED 

MAY 1 8 2012 


Winstead 

401 Congress Ave Ste 2100 

Austin TX 78701 

RE: PAYMENT UNDER PROTEST 

Nestle USA inc 

Taxpayer No. 19515722098 

Franchise Tax — 2012 

Dear Ms Rabb: 

This letter acknowledges receipt of your payment of $8,682,998.99 which is being paid under protest and 

a protest letter faxed on May 11, 2012. This amount is being deposited according to Section 112.058 of 

the Texas Tax Code. 

If you have any questions, please contact me by e-mail at nancy.elton@cpa.state.tx.us , by phone at (800) 

531-5441, ext. 3-3427, or in Austin at 463-3427. My mailing address is Comptroller of Public Accounts, 

Post Office Box 13528, Austin TX 78711-3528. Please address your letter to my attention. 

Sincerely, 

a4361/ 

Nancy Elton 

Fund and Payment Reconciliations Section 

Revenue Accounting Division 

cc: Donald Neal Jr. 

General Counsel, Litigation 

EXHIBIT

Petition for Writ of Mandamus - Filed - Supreme Court of Texas

Create successful ePaper yourself

Delete template?

Save as template?