PART 1. COMPTROLLER OF PUBLIC ACCOUNTS
SUBCHAPTER V. FRANCHISE TAX
The Comptroller of Public Accounts adopts an amendment to §3.588, concerning margin: cost of goods sold, without changes to the proposed text as published in the November 7, 2008, issue of the Texas Register (33 TexReg 9061).
Subsection (c)(2) is amended to add language to clarify that an election must be made to capitalize or expense allowable costs for the cost of goods sold. This paragraph is also amended to allow a beginning inventory only to taxable entities that elect to capitalize costs. A new paragraph (3) is added to clarify how a taxable entity elects to deduct the cost of goods sold to determine margin and what restrictions apply when amending that election. Subsequent paragraphs have been renumbered. Paragraph (4), regarding exclusions from total revenue, is amended to more narrowly interpret Tax Code, §171.1011(j). Only expenses excluded from total revenue may not be included in the determination of the cost of goods sold. Language that did not allow costs related to excluded revenue to be included in the determination of the cost of goods sold is deleted. Paragraph (11), is amended to include bars (drinking places) and beverages in this paragraph regarding the cost of goods sold allowed for restaurants.
Subsection (d)(5) regarding storage costs is amended to include language from the statute that disallows as storage costs those costs specifically disallowed in subsection (g).
We received a comment from Texas Taxpayers and Research Association (TTARA). Following is a summary of the comment and the response.
TTARA recommends the proposed language added to §3.588(c)(2) be withdrawn, as the additional language, which restricts taxpayers from amending a report to change the election regarding the capitalization or expensing of certain costs, has no statutory basis. The comptroller declined to delete the language. The statute does provide that the taxpayer must make an election to either capitalize or expense certain costs. Comptroller policy allows amendments for the correction of mathematical or other errors; however, the revision of an election does not constitute an error and, therefore, is not allowed.
This amendment is adopted under Tax Code, §111.002, which provides the comptroller with the authority to prescribe, adopt and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.
The amendment implements Tax Code, §§171.101, 171.1011(j) and 171.1012.
This agency hereby certifies that the adoption has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority.
Filed with the Office of the Secretary of State on May 1, 2009.
TRD-200901638
Martin Cherry
General Counsel
Comptroller of Public Accounts
Effective date: May 21, 2009
Proposal publication date: November 7, 2008
For further information, please call: (512) 475-0387