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| September 23, 2010
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Audits of 2008 and 2009 reports filed under the revised franchise tax, the so-called "margin tax," "in full swing" for a while in the edition July 2010 Tax Policy News were the electronic tax return policy newsletter of the Texas Comptroller of public accounts (it is available the window on State Government agency visit). These tests are started a follow up of the Comptroller franchise tax "Desk audit" project, in 2009 and discussed in a previous post on this Web site labeled "upcoming franchise tax desk audits and more in the March issue of tax policy news."
As in the recent Tax Policy News-articles labeled "Service industry of entities generally qualify for the cost of goods sold deduction" explains, have revealed the latest audits that "…many wrong choice are entities in the service of industry cost of goods sold (COGS) deduction to use, the margin determine." A representative of the Comptroller Office in testimony before a August 17th provisional underlined consultation from Texas House ways and means Committee's Comptroller concern about the incorrect use of bulk storage consumption method. In fact the Comptroller representative of the Agency belief expressed, that such erroneous reporting a major reason why was the revised franchise tax of significantly less revenue for the years 2008 and 2009 report expected produced. As a result, it is not surprising to learn that the Comptroller audit process to generate is carefully provided service industry tax reports in an attempt to additional tax by.
What's more, produces a particularly hard result for many companies that incorrectly uses the COGS method for calculating the margin tested during these audits, since you can now switch to the compensation method may not (a taxable entity can only choose between the bulk storage consumption and compensation methods for calculating the margin at the time when a tax report is originally stored). That is how the Tax Policy News-article pointed out,
If an entity that selected the cost of the sold deduction to use this method for earlier years reports were eligible, the entity must change the reports. The compensation deduction but available reports for the previous years. Choice language in tax code section 171.101(d) allows no change in the method of computing margin at the cost of goods sold or compensation deduction after the due date of the report.
These entities that elected the costs were originally, to use sold method must change and use the 70 percent method to determine margin or revenue is not more than $10 million, may use the E-Z computation to determine tax due. E Z computation a cost of goods sold or compensation does not allow deduction in computing margin but instead apply a lower rate of 0.575 percent directly to dispositive total revenue.
In other words, if an entity the COGS method chosen, the margin on its original 2008 or his 2009 calculate report and should not, it must now use the "70% of the revenue method" (or, if authorized "E-Z Computation" method). This will almost certainly result in a higher tax as if the entity now only select, could the compensation method for the tested years use. This is another example of the Comptroller's strict interpretation of the calculation methods and options under the revised franchise tax described in the recent post on this site labeled "Select the 70% of revenue method of calculating the margin is irrevocable for the year."
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