Adopted Sections An agency may take final action on a section 30 days after a proposal has been published in the Texas Register. The section becomes effective 20 days after the agency files the correct document with the Texas Register, unless a later date is specified or unless a federal statute or regulation requires implementation of the action on shorter notice. If an agency adopts the section without any changes to the proposed text, only the preamble of the notice and statement of legal authority will be published. If an agency adopts the section with changes to the proposed text, the proposal will be republished with the changes. TITLE 16. ECONOMIC REGULATION Part IV. Texas Department of Licensing and Regulation Chapter 66. Registration of Property Tax Consultants 16 TAC sec.sec.66.10, 66.20, 66.81, 66.85 The Texas Department of Licensing and Regulation adopts amendments to sec.sec.66.10, 66.20, 66.81, and new 66.85, concerning the registration of property tax consultants. Section 66.10 is adopted with changes to the proposed text as published in the August 7, 1992, issue of the Texas Register (17 TexReg 5499). Sections 66.20, 66.81, and 66.85 are adopted without changes and will not be republished. The sections clarify Texas Civil Statutes, Article 8886, sec.2(f), regarding property tax consultants who qualified and registered under this section. In sec.66.10, the definition of "real estate property tax consultant" was amended for final adoption. The sections will allow registered real estate property tax consultants to continue consulting on real estate taxes only after February 1, 1995. All correspondence was favorable to the proposed changes, although some indicated a possible need for further liberalization. Most comments referenced Texas Civil Statutes, Article 8886, sec.2(f), believing the section automatically allows registrants under this section to work after February 1, 1995, without being employed by or associated with a senior property tax consultant. The name of a group or association making comments for the section was as follows: Texas Association of Property Tax Professionals. The department agrees with comments received. The amendments and new section are adopted under Texas Civil Statutes, Article 8886, which provide the Department of Licensing and Regulation with the authority to promulgate and enforce a code of rules and take action necessary to assure compliance with the intent and purposes of the Act. sec.66.10. Definitions. The following words and terms, when used in this chapter, shall have the following meanings, unless the context clearly indicates otherwise. Real estate property tax consultant-An individual who performs property tax consulting services in connection with property that is real property only and who has registered under Texas Civil Statutes, Article 8886, sec.2(f). This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on October 19, 1992. TRD-9214261 Jack W. Garison Executive Director Texas Department of Licensing and Regulation Effective date: November 11, 1992 Proposal publication date: August 7, 1992 For further information, please call: (512) 463-3127 TITLE 31. NATURAL RESOURCES AND CONSERVATION Part IX. Texas Water Commission Chapter 307. Texas Surface Water Quality Standards 31 TAC sec.307.10 The Texas Water Commission (TWC or commission) adopts an amendment to sec.307.10, Appendices A-C, concerning the North Bosque River Segment 1226 and the Upper Oyster Creek Segment 1245, without changes to the proposed text as published in the May 15, 1992, issue of the Texas Register (17 TexReg 3546) and will not be republished. The Texas Water Commission has the sole and exclusive authority to establish and revise water quality standards for the State of Texas. These standards are established and reviewed on a periodic basis pursuant to the Texas Water Code, sec.26.023, as amended, and pursuant to the Clean Water Act, sec.303(c), as amended. The proposed revisions to the standards as published in the May 15, 1992, issue of the Texas Register (17 TexReg 3546) were substantive changes. As the result of a use attainability analysis, the Texas Water Commission proposed to designate new Segment 1255 from the upper portion of existing Segment 1226. The commission has determined that a high quality aquatic life use does not exist in the upper reaches of the North Bosque River, and that the five mg/L dissolved oxygen criterion for Segment 1226 cannot be attained during low-flow conditions, even with advanced treatment. Dissolved oxygen simulations indicate that a four mg/L criteria can be met by advanced treatment (nitrification) of the Stephenville discharge; therefore, an intermediate aquatic life use should be attainable for the proposed Upper North Bosque River Segment 1255. Based on the analysis, the commission proposed that new Segment 1255 will have designated uses of intermediate aquatic life and contact recreation, and will extend from the confluence of Indian Creek in Erath County up to the confluence of the North Fork North Bosque River and the South Fork North Bosque River in Erath County. The adopted uses and dissolved oxygen criteria for new Segment 1255 are reflected in Appendix A to sec.307.10. Appendix B contains the adopted changes to the statewide monitoring stations for Segment 1226 and the new station for Segment 1255 with a low flow of 0.1 ft adopted changes to Appendix C reflect the revised description for Segment 1226 and for new Segment 1255. No changes have been made to Appendix A with regard to the remaining lower portion of the North Bosque River, Segment 1226, which will retain the existing designated uses of high aquatic life, contact recreation, and public water supply. When a water body is not capable of attaining all the uses designated in the water quality standards, federal regulations direct a state to conduct a use attainability analysis. United States EPA approval is necessary for modifications to segment-specific use criteria. The regulations allow for modifications to designated uses in the water quality standards when uses are not attainable because: natural, ephemeral, intermittent, or low flow conditions or water levels prevent the attainment of the use, unless these conditions may be compensated for by the discharge of a sufficient volume of effluent without violating state water conservation requirements to enable uses to be met; and human caused conditions or sources of pollutants prevent the attainment of the use and cannot be remedied or would cause more environmental damage to correct than to leave in place; as is the case with the new Upper North Bosque River. The use attainability analysis for the North Bosque River was submitted to the United States EPA in September 1991 for review and the United States EPA provided tentative approval in October 1991, subject to state adoption of the standards change. As a result of a use attainability analysis, the Texas Water Commission proposed to change the aquatic life use designation for Upper Oyster Creek Segment 1245 from high quality to intermediate, and the associated dissolved oxygen criterion from five mg/L to four mg/L. The commission has determined that high quality aquatic life use does not exist in Upper Oyster Creek, and that the five mg/L dissolved oxygen criterion cannot be attained due to extensive hydrological modifications. The adopted changes to the uses and the dissolved oxygen criterion for Segment 1245 are reflected in Appendix A to sec.307.10. A draft waste load evaluation for the segment indicates that the dissolved oxygen criterion supportive of an intermediate aquatic life uses should be attainable at the recommended effluent limits (advanced treatment with nitrification). When a water body is not capable of attaining all the uses designated in the water quality standards, federal regulations direct a state to conduct a use attainability analysis. United States EPA approval is necessary for modifications to segment-specific use criteria. The regulations allow for modifications to designated uses in the water quality standards when uses are not attainable because: human caused conditions or sources of pollutants prevent the attainment of the use and cannot be remedied or would cause more environmental damage to correct than to leave in place; and dams, diversions, or other types of hydrologic modifications preclude the attainment of the use, and it is not feasible to restore the water body to its original condition or to operate such modification in a way that would result in the attainment of the use; and physical conditions related to the natural features of the water body, such as the lack of proper substrate, cover, flow, depth, pools, riffles, and other factors, unrelated to water quality, preclude attainment of aquatic life protection uses; as is the case with Upper Oyster Creek. The use attainability analysis for the Upper Oyster Creek was submitted to the United States EPA in October 1991 for review and the United States EPA provided tentative approval in November 1991, subject to state adoption of the standards change. A public hearing on the use attainability analysis and proposed change to aquatic life use for proposed Segment 1255-Upper North Bosque River was conducted by the commission on June 29, 1992, in the City of Stephenville. Forty-three persons attended the hearing; of these, seven registered their support for the proposed revision and 21 persons were against it. A petition opposing the revision was presented at the public hearing and approximately 400 signatures were included. In general, those persons opposed to the revision expressed concerns that the commission was lowering water quality and allowing less stringent effluent limits for dischargers. The commission responds that existing water quality will not be lowered and that more stringent effluent limits will be required of dischargers which will actually result in improved water quality. No testimony was received relating to new technical or scientific data which could be used to modify the commission conclusions regarding the proposed water quality standards change. Those commenters supporting the revision agreed with the conclusions in the use attainability analysis. A public hearing on the use attainability analysis and the proposed change to the designated aquatic life use for Segment 1245-Upper Oyster Creek was conducted by the commission on July 16, 1992, in the City of Sugar Land. Approximately 60 persons attended the hearing with five persons registering support for the proposed amendment and 36 persons in opposition. Many of the persons submitted written comments in addition to or in lieu of their oral statements. Most of the commenters opposed to the revision expressed concern that the commission was lowering water quality in the creek. One commenter stated that the use attainability analysis was based on inadequate data that was over two years old and some commenters added that more recent data collected through the community monitoring program showed that higher dissolved oxygen concentrations existed. The commission responds that existing water quality will not be lowered and water quality should be improved since dischargers were being required to achieve more stringent limits than now exist. The commission also believes that the water quality data base used in the use attainability analysis was adequate; however, if more comprehensive data becomes available the results may be reevaluated in the future. The data provided by the community monitoring program was reviewed and several values less than five and even four mg/L dissolved oxygen were recorded. Although the data may be useful in determining standards compliance, for example, a dissolved oxygen concentration less than three mg/L at any time for high and intermediate quality aquatic life use indicates noncompliance, the achievement of the dissolved oxygen criterion is based on a 24-hour average during critical low flow periods and summer temperatures. One commenter agreeing with the use attainability analysis conclusion that a high quality aquatic life use was not existing stated that the data actually indicated a use less than intermediate aquatic life use was more appropriate. The commission responds that the overall characteristics from the least impacted sites on the creek were indicative of an intermediate use and water quality modeling simulations support the attainment of the dissolved oxygen criterion of four mg/L. One commenter also objected to the allegation in the use attainability report that a large fish kill in the creek was directly attributable to an Imperial Holly discharge. The commission acknowledges that the fish kill report prepared by commission staff concluded that the samples taken of the unauthorized discharge did not conclusively prove that the discharge caused the fish kill; however, the report did state that the results suggested that the discharges did seriously degrade the water quality and aquatic life in Oyster Creek. Many comments were received regarding issues that are broader than just the water quality standards or did not actually pertain to the standards. These comments included matters such as not relying on data provided by dischargers, more frequent or continuous monitoring of effluent, unauthorized discharges, and stricter enforcement of permits. The commission responds that these issues may be considered in those programs as appropriate. The amendment is adopted under the Texas Water Code, sec.26.023, which provides the Texas Water Commission with the authority to make rules setting water quality standards for all water in the state; and under the Texas Water Code, sec.5.103, which authorizes the commission to adopt any rules necessary to carry out its powers and duties under the Water Code and other laws of this state. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on October 23, 1992. TRD-9214416 Mary Ruth Holder Director, Legal Services Texas Water Commission Effective date: November 13, 1992 Proposal publication date: May 15, 1992 For further information, please call: (512) 463-8069 Title 34. Public Finance Part I. Comptroller of Public Accounts Chapter 3. Tax Administration Subchapter Q. Franchise Tax 34 TAC sec.3.396 The Comptroller of Public Accounts adopts the repeal of sec.3.396, concerning changes in corporate organization, without changes to the proposed text as published in the September 25, 1992, issue of the Texas Register (17 TexReg 6593). This section is being repealed in order that it can be adopted under 34 Texas Administrative Code, Part I, Chapter 3, Subchapter V. The section will be replaced with a new 34 TAC sec.3.568, concerning changes in corporate organization. No comments were received regarding adoption of the repeal. The repeal is adopted under the Tax Code, sec.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 the Tax Code, Title 2. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on October 22, 1992. TRD-9214318 Martin Cherry Chief, General Law Section Comptroller of Public Accounts Effective date: November 12, 1992 Proposal publication date: September 25, 1992 For further information, please call: (512) 463-4028 34 TAC sec.3.403 The Comptroller of Public Accounts adopts the repeal of sec.3.403, concerning gross receipts: determining percent of Texas business, without changes to the proposed text as published in the June 19, 1992, issue of the Texas Register (17 TexReg 4432). This section is being repealed in order that it can be adopted under the Texas Administrative Code, Title 34, Part I, Chapter 3, Subchapter V. The section will be replaced with a new 34 TAC sec.3.549, concerning Taxable Capital: Apportionment. No comments were received regarding adoption of the repeal. The repeal is adopted under the Tax Code, sec.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 the Tax Code, Title 2. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on October 23, 1992. TRD-9214363 Martin Cherry Chief, General Law Section Comptroller of Public Accounts Effective date: November 13, 1992 Proposal publication date: June 19, 1992 For further information, please call: (512) 463-4028 Subchapter V. Franchise Tax 34 TAC sec.3.549 The Comptroller of Public Accounts adopts new sec.3.549, concerning taxable capital: apportionment, with changes to the proposed text as published in the May 26, 1992, issue of the Texas Register (17 TexReg 3826). This new section replaces 34 TAC sec.3.403, concerning the same subject matter, which is being repealed in order that it can be adopted under Texas 34 Administrative Code, Part I, Chapter 3, Subchapter V. This new section provides guidelines for the apportionment of gross receipts under the taxable capital component of the franchise tax. No comments were received regarding adoption of the new section. Two changes were made for clarity. Subsection (b)(1) was changed to clarify the definition of the term "capital asset." In subsection (e)(27), unnecessary punctuation was removed. The new section is adopted under the Tax Code, sec.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 the Tax Code, Title 2. sec.3.549. Taxable Capital: Apportionment. (a) Effective date. The provisions of this section apply to franchise tax reports originally due on or after January 1, 1988. (b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Capital asset-Any asset, other than an investment, which is held for use in the production of income, and is subject to depreciation, depletion, or amortization. (2) Commercial domicile-The principal place from which the trade or business of the entity is directed. (3) Investment-Any non-cash asset not a capital asset and not held as inventory or proceeds from the sale of inventory. (4) Generally accepted accounting principles (GAAP) method of accounting-That method of accounting defined under sec.3.547 of this title (relating to Accounting Methods for Computing Taxable Capital). (5) Gross receipts-All revenues that would be recognized annually under a generally accepted accounting principles method of accounting, without deduction for the cost of property sold, materials used, labor performed, or other costs incurred, unless otherwise specifically provided for in this section or the Tax Code, Chapter 171. (6) Revenue-Except as otherwise specifically provided for in this section or the Tax Code, Chapter 171, revenue means the value of inflows of economic resources from separate legal entities for delivering or producing goods, rendering services, or carrying out other activities that constitute the entity's operations. (c) Apportionment formula. Unless otherwise required under the Tax Code, this section, or the rules applicable under the Tax Code, Chapter 171, a corporation's taxable capital is apportioned to this state to determine the amount of franchise tax due by multiplying the corporation's taxable capital by a fraction, the numerator of which is the corporation's gross receipts from business done in this state and the denominator of which is the corporation's gross receipts from its entire business. Corporations whose taxable capital is derived, directly or indirectly, from the sale of services to or on behalf of a regulated investment company as defined by the Internal Revenue Code, sec.851(a), should refer to the Tax Code, sec.171.106(c), relating to the apportionment of gross receipts from services for regulated investment companies. (d) General rules for reporting gross receipts. (1) A corporation filing an annual report must report 12 months of gross receipts based on the business done by the corporation during its last accounting period that ends in the year before the year in which the tax is due or, if there is no such accounting period then, for the accounting period ending December 31 of the previous calendar year. (2) When a corporation changes its accounting period ending date, gross receipts for the 12-month period ending with the new accounting period end must be used in calculating the percentage of business done in this state. (3) A corporation filing an initial report must report gross receipts based on its activities beginning on the day the corporation files its Texas charter or is granted a certificate of authority to do business in Texas or the date that a foreign corporation begins doing business in Texas, whichever is earlier, and ending on the last accounting period ending date that is at least six months after the beginning date and at least 60 days before the original due date of the initial report; or if there is no such date, then ending on the last day of a calendar month that is nearest to the corporation's first year of business in Texas. (4) A corporation must report gross receipts based solely on its own financial condition. Consolidated reporting is prohibited. (5) A corporation whose taxable capital is less than $1 million, may report its gross receipts according to the method used in the corporation's most recent federal income tax return originally due on or before the date the franchise tax report is originally due. To determine if taxable capital is less than $1 million, the corporation must apply the accounting methods used in computing that federal income tax return unless another method is required under a specific provision of this title or the Tax Code, Chapter 171. See sec.3.547 of this title (relating to Taxable Capital: Accounting Methods) for information on accounting methods or changes in accounting methods. (6) Close and S corporations should see sec.3.548 of this title (relating to Taxable Capital: Close and S Corportations) for information on using the accounting methods used on the corporation's federal income tax return. (7) A corporation may not change its accounting methods used to calculate gross receipts more often than once every four years without express written consent of the comptroller, unless the provisions of the Tax Code, sec.171.111, apply due to an election under that section. (8) Survivors of mergers occurring between the day on which the tax is based and January 1 of the year the report is due should refer to sec.3.565 of this title (relating to Survivors of Mergers) for information on reporting gross receipts for survivors of mergers. (9) Revenues coming into the hands of a receiver of a corporation in receivership are gross receipts of the corporation. (e) Treatment of specific items in computing gross receipts. (1) Agency reimbursements. Reimbursements from the principal to a corporation acting as its agent for charges incurred by the agent on behalf of the principal, if the reimbursement does not exceed actual expenses paid to a third party, are not gross receipts. (2) Bad debt recoveries. Bad debt recoveries are not gross receipts. (3) Capital assets and investments. Net gains and losses from sales of investments and capital assets must be added together to determine the total receipts from such transactions. (A) If the combination of net gains and losses results in a net loss, the corporation must report zero gross receipts from such transactions. (B) If the combination of net gains and losses results in a net gain and both Texas and out-of-state sales have occurred, a separate calculation of net gains and losses on Texas sales must be made. If the Texas net gain is greater than the total net gain, the Texas net gain to report equals the total net gain. Net gain on sale 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, stocks, bonds, commodities, futures contracts, patents, copyrights, licenses, trademarks, franchises, goodwill, and general receivable rights. (4) Cash or trade discounts. Cash or trade discounts are not gross receipts. (5) Club membership fees. Club membership fees are Texas receipts if the place where the club's employees or agents perform the service of providing access to the club benefits is in Texas. (6) Commissions of stockbrokers. Commissions of a stockbroker for services performed in buying and selling on the stock exchanges are apportioned on the basis of the percentage of such services performed in Texas and the percentage performed in other states. (7) Computer services and programs. Receipts from the sale of computer software services are apportioned to the location of where the services are performed. Receipts from the sale of a computer program (as the term "computer program" is defined in sec.3.308 of this title (relating to Computers-Hardware, Software, Services, and Sales) are receipts from the sale of an intangible asset and are apportioned to the legal domicile of the payor. (8) Condemnation proceeds. Condemnation proceeds resulting from the taking of property, except to the extent the proceeds exceed the net book value of the property, are not gross receipts. Amounts exceeding the net book value of the property are gross receipts apportioned based on the location of the property condemned. (9) Debt forgiveness. Revenues realized by the debtor when the creditor releases the debtor from indebtedness is a gross receipt apportioned to the legal domicile of the creditor. (10) Debt retirement. Gains on the retirement of a corporation's own indebtedness, such as the purchase by a corporation of its own bonds at a discount, are gross receipts and are apportioned to the corporation's state of incorporation. (11) Demurrage charges. Demurrage charges for the detention or storage of equipment used in the transportation of goods and merchandise in interstate commerce are Texas receipts to the extent that the detention or storage occurs within Texas. (12) DISC/FSC. A DISC (domestic international sales corporation) or a FSC (foreign sales corporation) is treated the same as any other corporation doing business in Texas, except that a commission DISC or FSC may elect to use the percentage of Texas business of its parent which does business in Texas. Receipts from the sale of tangible personal property by a corporation to a DISC or FSC located in Texas are not Texas receipts if the tangible personal property flows uninterrupted from the selling corporation to a foreign purchaser outside of Texas. If a DISC or FSC assembles, packages, repackages, modifies, stores, or otherwise takes physical delivery of tangible personal property in Texas, the receipts from the sale of the tangible personal property are Texas receipts to the selling corporation. (13) Dividends and interest. (A) Dividends and/or interest received from a corporation are apportioned to the state of incorporation of the payor. (B) Dividends and/or interest received from a national bank are apportioned to Texas if the bank's principal place of business is in Texas. See the Tax Code, sec.171.1031, concerning apportionment of dividends and/or interest received by banking corporations and savings and loan associations. (C) Dividends and/or interest received from the United States Treasury on United States government debt instruments are not Texas receipts, but are receipts everywhere. (D) Dividends and/or interest received from Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA), and Federal Home Loan Mortgage Corporation (FHLMC) mortgage-backed securities or certificates are apportioned based on the location of the payor. When the payor cannot be determined, 15.78% of the interest or dividend will be considered a Texas receipt. (E) Dividends and/or interest from any other source are apportioned to the legal domicile of the payor. (F) Dividends in excess of the payor's accumulated earnings since acquisition or origination (liquidating dividends) are considered a return of capital and are not gross receipts to the receiving corporation. (14) Equity earnings. Equity earnings of a subsidiary or investee corporation are not gross receipts to the receiving corporation. (15) Exchanges of property. Exchange agreements for the exchange of real or personal property held for sale in the ordinary course of business for similar property to be held for the same purpose do not constitute gross receipts. (16) Purchase discounts and allowances. Returns, discounts, and allowances granted to a purchaser are not gross receipts to the purchaser even if refunds are given in cash. (17) Federal enclave. All receipts from a corporation's sales, services, leases, or other business activities transacted on a federal enclave located in Texas are Texas receipts unless otherwise excepted. (18) Foreign dividend gross-ups. Foreign dividend gross-ups permitted under the Internal Revenue Code are not gross receipts. (19) Freight charges. Reimbursements to the seller from the customer for freight charges paid to a third party for goods and merchandise shipped to a customer are not gross receipts when the charges are entered as a separate item on the sales invoice, if the reimbursement does not exceed actual expenses paid to a third party. (20) Health care supplies and food. Deductions from Texas receipts for sales of health care supplies and food exempted from sales and use tax by the Tax Code, sec.151.313 or sec.151.314(a), will be allowed only for the initial sale of items shipped from a location outside Texas directly to a purchaser in Texas. The deduction does not apply when the manufacturer ships the items from outside Texas to an outlet or storage facility in Texas and later sells them. (21) Insurance proceeds. (A) Business interruption insurance proceeds are gross receipts when the proceeds are to replace lost net profits, and are apportioned based on the actual location of the interrupted business operations for which the proceeds are being paid. (B) Fire and casualty insurance proceeds in excess of the net book value of the damaged or destroyed property are gross receipts and are apportioned to the location of the damaged or destroyed property. (C) Any gain resulting from life insurance proceeds paid on the death of a corporate officer or other key personnel are gross receipts and are apportioned to the corporation's commercial domicile. (22) Intercorporate expense allocations. Expense allocations by a corporation among one or more related corporations (other than allocations of income taxes for consolidated return purposes), whether labeled as management fees, administrative overhead, interest, or accounting and legal services, are gross receipts to the parent corporation regardless of whether cash is actually received from the subsidiaries or related corporations, unless an agency relationship exists. (23) Intercorporate receipts. Receipts from intercorporate sales, leases, and charges for services rendered between a parent and subsidiary, or between related corporations are gross receipts to the corporation which makes the sale, lease, or renders the service. (24) Intercorporate tax allocations. Allocations by a parent or holding company among its subsidiaries of income tax liability for the purposes of filing a consolidated return are not gross receipts to the parent or holding company. (25) Leases and subleases. (A) Receipts from the lease or sublease of real property are apportioned to the location of the property. (B) Receipts from the lease or sublease of tangible personal property are apportioned to the location of the property. If the property is in Texas only part of the year, lease payments are apportioned based on the number of days spent at the respective locations. If the amount of receipts due under the lease is based on mileage, then the apportionment is based on the number of miles in Texas divided by the number of miles everywhere. (C) When a lump sum is charged for property leased or subleased but only a portion of which is in Texas, the apportionment of receipts is based on the rental value of each item of property. If the rental value of each item cannot be determined, the apportionment is based on the cost of each item to the lessor (or sublessor). (D) Receipts from the lease or sublease of a vessel engaging in commerce are apportioned to Texas based on the number of days engaged in commerce in Texas waters divided by the number of days engaged in commerce everywhere. (E) If a lease, sublease, or rental of real or tangible personal property is treated as a sale under GAAP, the receipts from the transaction are apportioned in the same manner as a sale. Any portion of the payments designated as interest by the contracting parties is interest receipts. (26) Litigation awards. All litigation awards are gross receipts with the following exception. Those litigation awards consisting of a recovery of compensatory damages for fire or other casualty losses on property are gross receipts to the extent the recovery exceeds the net book value of the property. Litigation awards are apportioned to the commercial domicile of the recipient corporation. (27) Loan principal. The principal of a loan received or repaid is not a gross receipt. (28) Newspapers. All revenues, including out-of-state advertisements, of a newspaper transacting its primary business activities within Texas constitute Texas receipts, except revenues from the sale of newspapers outside Texas. (29) Partnerships and joint ventures. (A) Receipts reflecting the corporation's share of the net profit from a partnership or joint venture, for partnership or joint venture periods ending during the 12 months ending on the date upon which the tax is based, are apportioned to the principal place of business of the partnership or joint venture. A partnership's principal place of business is the location of its day- to-day operations. Effective for reports originally due on or after January 1, 1992, where a partnership's day-to-day operations are conducted equally or fairly evenly in more than one state, then its principal place of business is its commercial domicile. If the corporation's share is a loss, there are zero receipts from the partnership or joint venture. (B) The corporation's share of the gross receipts of a partnership or joint venture may be used as gross receipts if allowed as revenue under GAAP. The receipts must be apportioned based on normal apportionment rules (e.g., location of payor for dividends and interest, place where service is performed, etc.) as though the partnership did not exist and the receipts passed through it directly to the corporation. This method is not allowed for corporations using the federal income tax method. (30) Patents, copyrights, and other intangibles. (A) Receipts from the use of intangible rights. (i) Revenues from a patent are included in Texas receipts to the extent the patent is utilized in production, fabrication, manufacturing, or other processing in Texas. (ii) Revenues from a copyright are included in Texas receipts to the extent the copyright is utilized in printing or other publication in Texas. (iii) Revenues received by the owner of a trademark, franchise, and license are included in Texas receipts to the extent used in Texas; however, in regard to the sale/licensing of computer programs, paragraph (7) of this subsection is controlling. (B) Sales. Sales of intangibles are allocated based on the location of payor. (31) Radio/television. All revenues of a radio or television operation which broadcasts or transmits from stations in Texas constitute Texas receipts, even though some of the listening or viewing audiences are outside Texas, except revenues from programs filmed or otherwise developed by a station in Texas which are sold or leased to the national media for broadcasting or transmitting by the national media. (32) Real property. Receipts from the sale, lease, or sublease of real property are apportioned to the location of the property. (33) Regulatory agency. Temporary or bonded rate increases of a public utility corporation are gross receipts. (34) Sales and services. When a transaction involves elements of both a sale of tangible personal property and a service, but there is no documentation showing separate charges for the sale and service elements, the comptroller may determine the amounts allocable to each based on fair values or on the basis of any available evidence. (35) Sales returns and allowances. Sales returns and allowances allowed by a seller are not gross receipts. They are allowed as a reduction of gross receipts. (36) Sales taxes. State or local sales taxes collected by a seller are not gross receipts when the tax is imposed on the customer. However, discounts on sales taxes allowed a seller do constitute gross receipts to the seller. (37) Service procurement. Receipts for the procurement of services are apportioned to the place where the service procurement is performed. (38) Services. Service receipts are apportioned to the location where the service is performed. (39) Stocks. Receipts from the sale of securities are apportioned based on the location of payor. When securities are sold over a stock exchange and the buyer cannot be determined, 6.5% of the net gain (or gross sales price, if the securities were inventory) is a Texas receipt. Receipts from the issuance by a corporation of its capital stock, are not gross receipts. (40) Subsidies/grants. Subsidies or grants received by a corporation from a governmental agency are gross receipts, except when the funds are required to be expended dollar for dollar (i.e., passed through) to third parties on behalf of the agency. Receipts from a governmental subsidy or grant are apportioned to the location where the activity which qualified for the subsidy or grant is performed. (41) Tangible personal property. Examples of transactions involving the sale of tangible personal property and which result in Texas receipts include, but are not limited to, the following: (A) the sale of tangible personal property which is delivered in Texas to a purchaser. Delivery is complete upon transfer of possession or control of the property to the purchaser, an employee of the purchaser, or to transportation vehicles leased or owned by the purchaser. F.O.B. point, location of title passage, or other conditions of the sale are not relevant to the determination of Texas gross receipts; (B) the sale of tangible personal property delivered in Texas to an employee or transportation agent of an out-of-state purchaser. A carrier is an employee or agent of the purchaser if the carrier is under the supervision and control of the purchaser with respect to the manner in which goods are transported; (C) the sale and delivery in Texas of tangible personal property which is loaded into a barge, truck, airplane, vessel, tanker, or any other means of conveyance leased and controlled or owned by the purchaser of the property. The sale of tangible personal property which is delivered in Texas to an independent contract carrier, common carrier, or freight forwarder hired by a purchaser of the property results only in gross receipts everywhere if the carrier transports or forwards the property to the purchaser outside this state; (D) the sale of tangible personal property with delivery to a common carrier outside Texas and shipment by that common carrier to a purchaser in Texas; (E) the sale of oil or gas to an interstate pipeline company, with delivery in Texas; (F) the sale of tangible personal property which is delivered in Texas to a warehouse or other storage facility owned or leased by the purchaser; (G) the sale of tangible personal property which is delivered to and stored in a warehouse or other storage facility in Texas at the purchaser's request, as opposed to a necessary delay in transit, even though the property is subsequently shipped outside Texas; (H) the drop shipment of tangible personal property in Texas. A drop shipment is a shipment of tangible personal property from a seller directly to a purchaser's customer, at the request of the purchaser, without passing through the hands of the purchaser. This results in Texas gross receipts for the seller and the purchaser; (I) sales to which the throwback rule applies. For reports due on or after October 2, 1984, each sale of tangible personal property shipped from this state to a purchaser in another state in which the seller is not subject to taxation (i.e., the throwback rule). This subparagraph will control if it conflicts with any other provision of this section. Another state means a state of the United States, the District of Columbia, Puerto Rico, or any territory or possession of the United States. Subject to taxation means constitutional nexus. The seller need not pay tax to the other state; it only has to have enough contact with the other state that the other state could tax the seller. If the seller is doing business, has a certificate of authority, or is incorporated in the other state, the seller is subject to taxation in that state. Voluntarily collecting or paying tax to another state, by itself, is not enough contact to make sales to the other state non-Texas receipts. A corporation which performs any of the activities listed in sec.3.546(c) of this title (relating to Taxable Capital: Nexus) for taxation of taxable capital in the other state will be considered subject to taxation in the other state. The selling corporation must have nexus in the other state during the accounting year upon which the tax is based. The corporation has the burden of proving it is subject to taxation in the other state. (42) Tax refunds. Tax refunds are not gross receipts. However, interest awarded on tax refunds are gross receipts. (43) Telephone company receipts. All receipts for calls of a telephone company in Texas are Texas receipts, except for receipts from interstate calls. (44) Transactions in Texas waters. Receipts from transactions occurring in Texas waters are Texas receipts. The dividing line between Texas waters and international waters is established at 10.359 statute miles or nine nautical miles from the Texas coastline. (45) Transportation companies. Transportation companies must report Texas receipts from transportation services by: (A) including receipts derived from the transportation of goods or passengers in intrastate commerce; or (B) multiplying total transportation receipts by total mileage in transporting goods and passengers picked up and delivered within Texas (in intrastate commerce) divided by total mileage everywhere. (46) Unrealized gains and losses. Unrealized gains and losses recorded on foreign currency transactions or translations, marketable security investments or reclassification of marketable security investments, are not gross receipts. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on October 23, 1992. TRD-9214364 Martin Cherry Chief, General Law Section Comptroller of Public Accounts Effective date: November 13, 1992 Proposal publication date: May 26, 1992 For further information, please call: (512) 463-4028 Subchapter V. Franchise Tax 34 TAC sec.3.557 The Comptroller of Public Accounts adopts new sec.3.557, concerning earned surplus: apportionment, with changes to the proposed text as published in the June 16, 1992, issue of the Texas Register (17 TexReg 4332). The new section sets out guidelines for determining gross receipts from business done in Texas and gross receipts from the entire business for earned surplus pursuant to the Tax Code, sec.171.1032 and sec.171.1051. Comments were received from Nationsbank of Texas, N.A., NationsBanc Capital Corporation, and KBLCOM Incorporated. These entities suggested that subsection (e)(24) be changed to require that a partner's gross receipts from a partnership be based on the partner's share of partnership net income. Nationsbank of Texas, N.A. and NationsBanc Capital Corporation further suggested that the partner's share of net income be apportioned based on the partnership's principal place of business. Alternatively, NationsBanc Capital Corporation suggested that either a partner's share of partnership gross receipts be apportioned based on the partnership's principal place of business in all cases or be based on the partnership's place of business if the partnership interest is 25% or less. The comptroller declined to make the suggested changes. Comments were received from the firm of Gardere & Wynne which suggested changes in subsection (e)(37)(I) of the proposed rule. The firm suggested that language be added indicating that a corporation or limited liability company should be presumed to be subject to taxation in another state where taxes are paid if the rate of tax is higher in the other state unless there is proof of connivance or fraud. The firm also suggested that language be added to indicate that a corporation or limited liability company is subject to taxation in another state if gross receipts or similar taxes are paid to that state. The comptroller declined to make the suggested changes. Subsection (b)(1) of the proposed rule was changed to clarify the definition of the term capital asset. Subsection (e)(10) of the proposed rule was changed to clarify that the purchaser of the target's stock in a deemed sale under Internal Revenue Code sec.338 will be considered the purchaser of the assets. Subsection (e)(20)(E) of the proposed rule was clarified to indicate that leases, subleases, rentals, or subrentals of tangible personal property will be apportioned as sales if treated as sales for federal income tax purposes. Subsection (e)(25)(A)(iii) of the proposed rule was changed to clarify the treatment of revenues from trademarks, franchises, or licenses. Subsection (e)(35) of the proposed rule was changed to clarify and correct the reference to sales of securities which qualify as investments. Subsection (e)(37)(I) was changed to indicate that companies with a certificate of authority in another state will not be considered subject to taxation for purposes of the throwback rule for earned surplus apportionment except for reports originally due prior to January 1, 1993. The new section is adopted under the Tax Code, sec.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 the Tax Code, Title 2. sec.3.557. Earned Surplus: Apportionment. (a) Section provisions. The provisions of this section apply to franchise tax reports originally due after January 1, 1992. (b) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise. (1) Capital asset-Any asset, other than an investment, which is held for use in the production of income, and is subject to depreciation, depletion, or amortization. (2) Commercial domicile-The principal place from which the trade or business of the entity is directed. (3) Corporation-Any entity upon which tax is imposed under the Tax Code, sec.171.001. (4) Gross receipts-All revenues that are recognized under the methods used for federal income tax purposes for the tax reporting period without deduction for the cost of property sold, materials used, labor performed, or other costs incurred, unless otherwise specifically provided for in this section or the Tax Code, Chapter 171. (5) Internal Revenue Code-The Internal Revenue Code of 1986 in effect for the tax year beginning on or after January 1, 1990, and before January 1, 1991. (6) Investment-Any non-cash asset not a capital asset and not held as inventory or proceeds from the sale of inventory. (7) Revenue-Except as otherwise specifically provided for in this section or the Tax Code, Chapter 171, revenue means the value of inflows of economic resources from separate legal entities for delivering or producing goods, rendering services, or carrying out other activities in the entity's operations to the extent included in computing federal taxable income under the method used for federal income tax purposes during the tax reporting period. (8) Tax reporting period-For the purposes of this section, the period upon which the tax is based under the Tax Code, sec.171.1532 or sec.171.0011. (c) Apportionment formula. Unless otherwise required under the Tax Code, this section, or the rules applicable under the Tax Code, sec.171, a corporation's earned surplus is apportioned to this state to determine the amount of franchise tax due by multiplying the corporation's earned surplus by a fraction, the numerator of which is the corporation's gross receipts from business done in this state and the denominator of which is the corporation's gross receipts from its entire business. (d) General rules for reporting gross receipts. (1) A corporation filing an annual report must report gross receipts based on the business done by the corporation beginning with the day after the date upon which the previous report was based and ending with the most recent accounting period ending in the year before the year in which the report is originally due. (2) A corporation filing an initial report must report gross receipts based on its activities beginning on the day the corporation begins doing business in Texas as described in sec.3.554 of this title (relating to Earned Surplus: Nexus), files its Texas charter, or is granted a certificate of authority to do business in Texas, whichever is earlier, and ending on the last accounting period ending date that is at least 60 days before the original due date of the initial report; or if there is no such date, then ending on last day of a calendar month that is nearest to the corporation's first year of business in Texas. (3) A corporation must report gross receipts based solely on its own earned surplus because consolidated reporting of related corporations is prohibited. For example, a corporation which joins in filing a consolidated federal income tax return must report taxable income deferred on sales to other members of the consolidated group based on the consolidated federal income tax provisions as though no consolidated federal income tax return had been filed. (4) In computing gross receipts for apportionment, a corporation is deemed to have made an election to use the same methods used in filing its federal income tax return. (5) Any item of revenue which is excluded from net taxable earned surplus under Texas law or United States law is not included in gross receipts everywhere or gross receipts in Texas. For example, any amount excluded from earned surplus under the Internal Revenue Code, sec.78 or sec.sec.951-964, is not included in gross receipts. (6) Taxpayers reporting federal taxable income using a long-term contract method, must report revenues recognized for federal income tax purposes without reduction for the cost of property sold, materials used, labor performed, or other costs incurred. For example, a contractor using the percentage-of- completion method to report a construction contract for federal income tax purposes would recognize the portion of the total contract price used in computing gross income on the appropriate federal income tax return. (7) If the installment method is used to report sales of property, the seller should include the revenues recognized for federal income tax purposes unless the property sold is a capital asset or investment. If the property sold is a capital asset or investment, the net gain included in federal taxable income must be used in computing receipts. (8) Revenues coming into the hands of the receiver of a corporation in receivership are gross receipts of the corporation. (9) If the comptroller determines that transactions between commonly controlled affiliated corporations are not entered into on an arm's length basis, the comptroller may distribute or allocate income and deductions as necessary to prevent franchise tax avoidance provided such adjustments are authorized by applying principles in the Internal Revenue Code, sec.482, and regulations thereunder. (e) Treatment of specific items in computing receipts. (1) Agency reimbursements. Reimbursements from the principal to a corporation acting as its agent for charges incurred by the agent on behalf of the principal, if the reimbursement does not exceed actual expenses paid to a third party are not gross receipts. (2) Bad debt recoveries. Bad debt recoveries are not gross receipts. (3) Capital assets and investments. Net gains and losses from sales of investments and capital assets must be added together to determine the total receipts from such transactions. (A) If the combination of net gains and losses results in a net loss, the corporation must report zero gross receipts from such transactions. (B) If the combination of net gains and losses results in a net gain and both Texas and out-of-state sales have occurred, a separate calculation of net gains and losses on Texas sales must be made. If the Texas net gain is greater than the total net gain, the Texas net gain to report equals the total net gain. Net gain on sale of intangibles held as capital assets or investments is allocated to the location of the payor. Examples of intangibles include, but are not limited to, stocks, bonds, commodities, futures contracts, patents, copyrights, licenses, trademarks, franchises, goodwill, and general receivable rights. (4) Capital loss carrybacks and carryforwards. The excess of capital losses over capital gains which are carried back or carried forward for federal income tax purposes must be used in computing receipts in the year of the actual loss, not in the year to which such loss is actually used as a carryback or carryforward. (5) Club membership fees. Club membership fees are Texas receipts if the place where the club's employees or agents perform the service of providing access to the club benefits are in Texas. (6) Computer services and programs. Receipts from the sale of computer software services are apportioned to the location where the services are performed. Receipts from the sale of a computer program (as the term "computer program" is defined in sec.3.308 of this title (relating to Computers-Hardware, Software, Services and Sales)) are receipts from the sale of an intangible asset and are apportioned to the legal domicile of the payor. (7) Condemnation. Revenues from condemnation resulting from the taking of property are gross receipts apportioned based on the location of the property condemned. (8) Debt forgiveness. Revenues to a debtor when the creditor releases the debtor from indebtedness is a gross receipt apportioned to the legal domicile of the creditor. (9) Debt retirement. Revenues from the retirement of a corporation's own indebtedness, such as the purchase by a corporation of its own bonds at a discount, are gross receipts apportioned to the corporation's state of incorporation. The indebtedness is treated as an investment in determining the amount of gross receipts. (10) Deemed sales of assets under Internal Revenue Code, sec.338. Amounts deemed received by the target corporation are treated as sales of assets by the target corporation and are apportioned according to rules otherwise applicable to sales of such assets under the Tax Code, sec.171, or this section. For the purposes of this paragraph, the purchaser of the target's stock will be considered the purchaser of the assets. (11) Demurrage charges. Demurrage charges for the detention or storage of equipment used in the transportation of goods and merchandise in interstate commerce are Texas receipts to the extent that the detention or storage occurs in Texas. (12) DISC/FSC. A DISC (domestic international sales corporation) or FSC (foreign sales corporation) is treated the same as any other corporation except that a commission DISC or FSC may elect to use the earned surplus apportionment factor of its parent if the parent is doing business in Texas under the guidelines outlined in sec.3.554 of this title (relating to Earned Surplus: Nexus). Receipts from the sale of tangible personal property by a corporation to a DISC or FSC located in Texas are not Texas receipts if the tangible personal property flows uninterrupted from the selling corporation to a foreign purchaser located outside of Texas. If a DISC or FSC assembles, packages, repackages, modifies, stores, or otherwise takes physical delivery of tangible personal property in Texas, the receipts from the sale of the tangible personal property are Texas receipts to the selling corporation. (13) Dividends and/or interest. (A) Dividends which are recognized as a reduction of the taxpayer's basis in stock of a corporation for federal income tax purposes are not gross receipts. Dividends in excess of the taxpayer's basis for federal income tax purposes which are recognized as a capital gain are treated as dividends for apportionment purposes. (B) Unless otherwise excluded from receipts, the following are excluded from Texas receipts and receipts everywhere: (i) dividends from a subsidiary, associate, or affiliated corporation that does not transact a substantial portion of its business or regularly maintain a substantial portion of its assets in the United States; (ii) Schedule C special deductions excluded from taxable earned surplus; (iii) dividends and/or interest on federal obligations that are excluded from earned surplus under sec.3.555(k) of this title (relating to Earned Surplus: Computation); (iv) interest which is exempt from federal income tax. (C) Dividends and/or interest received from a corporation are apportioned to the state of incorporation of the payor. (D) Dividends and/or interest received from a national bank are apportioned to Texas if the bank's principal place of business is in Texas. Dividends and/or interest received from a bank organized under the Texas Banking Code are apportioned to Texas. (E) Dividends and interest from other sources are apportioned to the legal domicile of the payor unless otherwise required under the Tax Code, sec.171, this section, or other rules issued pursuant to the Tax Code, sec.171. (F) See the Tax Code, sec.171.1031, concerning apportionment of dividends and/or interest received by banking corporations and savings and loan associations. (14) Exchanges of property. Exchanges of property are included in gross receipts to the extent that the exchange is recognized as a taxable transaction for federal income tax purposes. Such exchange must be included in receipts based on the gross exchange value unless otherwise required under this section. (15) Federal enclave. All revenues from a corporation's sales, services, leases, or other business activities transacted on a federal enclave located in Texas are Texas receipts unless otherwise excepted. (16) Freight charges. Reimbursements to the seller from the customer for freight charges paid to a third party for goods and merchandise shipped to a customer are not gross receipts when the charges are entered as a separate item on the sales invoice, if the reimbursement does not exceed actual expenses paid to a third party. (17) Health care supplies and food. Revenues from sales of health care supplies and food are included in computing receipts everywhere and Texas receipts like any other sale of tangible personal property. (18) Insurance proceeds. (A) Business interruption insurance proceeds are gross receipts when the proceeds are to replace lost profits. Such proceeds are apportioned based on the actual location of the business operations where the interruption occurred which resulted in the receipt of such proceeds. (B) Revenues from fire and casualty insurance proceeds are apportioned to the location of the damaged or destroyed property. (19) Intercorporate expense allocations. Expense allocations by a corporation among one or more related corporations (other than income taxes allocable to the applicable corporation) whether recorded as management fees, administrative overhead, interest, accounting services, legal services, or other designations are gross receipts to the corporation allocating the expenses, unless an agency relationship exists. (20) Leases and subleases. (A) Revenues from the lease or sublease (or rental or subrental) of real property are apportioned to the location of the property. (B) Revenues from the lease or sublease (or rental or subrental) of tangible personal property are apportioned to the location of the property. If the property is used inside and outside Texas, lease payments are apportioned based on the number of days spent at the respective locations. If the amount of revenue due under the lease is based on mileage, the lease payments are apportioned based on the number of miles in Texas divided by the number of miles everywhere. (C) If a lump sum is charged for leased or subleased (or rented or subrented) property which is located inside and outside Texas, the allocation of such revenue is based on the rental value of each item of property. (D) Revenues from the lease or sublease (or rental or subrental) of a vessel engaging in commerce are apportioned to Texas based on the number of days engaged in commerce in Texas waters divided by the number of days engaged in commerce everywhere. (E) If a lease, sublease, rental, or subrental of real property or tangible personal property is treated as a sale for federal income tax purposes, the receipts from the transaction are apportioned in the same manner as a sale. Any portion of the payments designated as interest by the contracting parties is interest receipts. (21) Litigation awards. Revenues from litigation awards are gross receipts which are apportioned to the commercial domicile of the recipient corporation. (22) Loan principal. The principal of a loan received or repaid is not a gross receipt even if the seller is a dealer in loans under the Internal Revenue Code. (23) Newspapers. All revenues, including out-of-state advertisements, of a newspaper transacting its primary business activities within Texas constitute Texas receipts, except revenues from the sale of newspapers outside Texas (unless the corporation is not doing business in the state where such newspapers are sold). (24) Partnership/joint venture. The corporation's share of the gross receipts of a partnership or joint venture included in federal taxable income must be used in calculating gross receipts. The receipts must be apportioned as though the corporation directly earned such receipts. (25) Patents, copyrights, and other intangible rights. (A) Receipts from the use of intangibles. (i) Revenues from a patent royalty are included in Texas receipts to the extent the patent is utilized in production, fabrication, manufacturing, or other processing in Texas. (ii) Revenues from a copyright royalty are included in Texas receipts to the extent the copyright is utilized in printing or other publication in Texas. (iii) Revenues received by the owner of a trademark, franchise, and license are included in Texas receipts to the extent used in Texas; however, in regard to the sale/licensing of computer programs, paragraph (6) of this subsection is controlling. (B) Sales. Sales of intangibles are apportioned based on the location of payor. (26) Purchase discounts and allowances. Returns, discounts, and allowances granted to a purchaser are not gross receipts to the purchaser even if refunds are given in cash. (27) Radio/television. All revenues of a radio or television operation which broadcasts or transmits from stations in Texas constitute Texas receipts even though some of the listening or viewing audiences are outside Texas. Revenues from programs filmed or otherwise developed by a station in Texas which are sold or leased to the national media for broadcasting or transmitting are not Texas receipts. (28) Real property. Revenues from the sale, lease, rental, sublease, or subrental of real property are apportioned to the location of the property. (29) Sales and services. When a transaction involves elements of both a sale of tangible personal property and a service but there is no documentation showing separate charges for the sale and service elements, the comptroller may determine the amounts allocable to each based on fair values or on the basis of any available evidence. (30) Sales discounts. Cash or trade discounts allowed by a seller reduce gross sales of the seller in computing gross receipts. (31) Sales returns and allowances. Sales returns and allowances allowed by a seller reduce gross sales of the seller in computing gross receipts. (32) Sales taxes. State or local sales taxes collected by a seller are not gross receipts when the tax is imposed on the customer. However, discounts on sales taxes allowed a seller do constitute gross receipts to the seller. (33) Services. Service receipts are apportioned to the location where the service is performed. If services are performed inside and outside Texas, such receipts are Texas receipts on the basis of the fair value of the services rendered in Texas. Corporations that have taxable earned surplus that is derived, directly or indirectly, from the sale of services to or on behalf of a regulated investment company should refer to the Tax Code, sec.171.106(c), for information on apportionment of such taxable earned surplus. (34) Services procurement. Revenues for the procurement of services are apportioned to the place where the service procurement is performed. (35) Stocks. Receipts from the sale of securities are apportioned based on the location of the payor. When securities are sold through a stock exchange and the buyer can not be identified, 6.5% of the net gain (or gross sales price, if securities are inventory) is a Texas receipt. If the securities are investments, see paragraph (3) of this subsection regarding the computation of receipts. (36) Subsidies/grants. Subsidies or grants received by a corporation from a governmental agency are gross receipts unless the funds are required to be expended dollar-for-dollar (i.e., passed through) to third parties on behalf of the agency. Receipts from a governmental subsidy or grant are apportioned to the location where the activity which qualified for the subsidy or grant is performed. (37) Tangible personal property. Examples of transactions involving the sale of tangible personal property and which result in Texas receipts include, but are not limited to, the following: (A) the sale of tangible personal property which is delivered in Texas to a purchaser. Delivery is complete upon transfer of possession or control of the property to the purchaser, an employee of the purchaser, or to transportation vehicles leased or owned by the purchaser. F.O.B. point, location of title passage, or other conditions of the sale are not relevant to the determination of Texas gross receipts; (B) the sale of tangible personal property delivered in Texas to an employee or transportation agent of an out-of-state purchaser. A carrier is an employee or agent of the purchaser if the carrier is under the supervision and control of the purchaser with respect to the manner in which goods are transported; (C) the sale and delivery in Texas of tangible personal property which is loaded into a barge, truck, airplane, vessel, tanker, or any other means of conveyance leased and controlled or owned by the purchaser of the property. The sale of tangible personal property which is delivered in Texas to an independent contract carrier, common carrier, or freight forwarder hired by a purchaser of the property results only in gross receipts everywhere if the carrier transports or forwards the property to the purchaser outside this state; (D) the sale of tangible personal property with delivery to a common carrier outside Texas and shipment by that common carrier to a purchaser in Texas; (E) the sale of oil or gas to an interstate pipeline company, with delivery in Texas; (F) the sale of tangible personal property which is delivered in Texas to a warehouse or other storage facility owned or leased by the purchaser; (G) the sale of tangible personal property which is delivered to and stored in a warehouse or other storage facility in Texas at the purchaser's request, as opposed to a necessary delay in transit, even though the property is subsequently shipped outside Texas; (H) the drop shipment of tangible personal property in Texas. A drop shipment is a shipment of tangible personal property from a seller directly to a purchaser's customer, at the request of the purchaser, without passing through the hands of the purchaser. This results in Texas gross receipts for the seller and the purchaser; (I) sales to which the throwback rule applies. Each sale of tangible personal property shipped from this state to a purchaser in another state in which the seller is not subject to taxation (i.e., the throwback rule). This subparagraph will control if it conflicts with any other provision of this section. Another state means a state of the United States, the District of Columbia, Puerto Rico, or any territory or possession of the United States. A corporation or limited liability company is subject to taxation in another state if the corporation or limited liability company is chartered or organized in that state or has sufficient contact with that state so that a tax on net income could be imposed on the corporation or limited liability company without violating 15 United States Code, sec.381 (i.e., Public Law 86-272). For reports originally due before January 1, 1993, the mere holding of a certificate of authority will establish that a corporation or limited liability company was subject to taxation in another state. Sales into another state where the seller merely holds a certificate of authority will be treated as sales to which the throwback rule applies, effective for reports originally due on or after January 1, 1993. Voluntary payment of tax to another state or the inclusion of a corporation or limited liability company in another entity's state combined or consolidated income tax return does not, by itself, cause the corporation or limited liability company to be subject to taxation in another state. The selling corporation or limited liability company must be subject to taxation in the other state during the accounting year upon which the tax is based. The corporation or limited liability company has the burden of proving that it is subject to taxation in the other state (see sec.3.554 of this title). (38) Tax refunds. Tax refunds are not gross receipts. However, interest awarded on tax refunds are gross receipts. (39) Telephone companies. All revenues for telephone calls in Texas are Texas receipts except for revenues from calls in interstate commerce. (40) Texas waters. Revenues from transactions occurring in Texas waters are Texas receipts. Texas waters are established at 10.359 statute miles or nine nautical miles from the Texas coastline. (41) Transportation companies. Transportation companies must report Texas receipts from transportation services in intrastate commerce by: (A) including revenues derived from the transportation of goods or passengers in intrastate commerce; or (B) multiplying total transportation receipts by total mileage in transporting goods and passengers that are moving in intrastate commerce within Texas divided by total mileage everywhere. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on October 23, 1992. TRD-9214365 Martin Cherry Chief, General Law Section Comptroller of Public Accounts Effective date: November 13, 1992 Proposal publication date: June 16, 1992 For further information, please call: (512) 463-4028 34 TAC sec.3.568 The Comptroller of Public Accounts adopts new sec.3.568, concerning changes in corporate organization, without changes to the proposed text as published in the September 18, 1992, issue of the Texas Register (17 TexReg 6429). This new section replaces sec.3.396, concerning the same subject matter, which is being repealed in order that it can be adopted under the Texas Administrative Code, Title 34, Part I, Chapter 3, Subchapter V. This new section explains the effects a dissolution, merger, or withdrawal has on franchise tax. No comments were received regarding adoption of the new section. The new section is adopted under the Tax Code, sec.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 the Tax Code, Title 2. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on October 22, 1992. TRD-9214319 Martin Cherry Chief, General Law Section Comptroller of Public Accounts Effective date: November 12, 1992 Proposal publication date: September 18, 1992 For further information, please call: (512) 463-4028 TITLE 37. PUBLIC SAFETY AND CORRECTIONS Part I. Texas Department of Public Safety Chapter 13. Controlled Substances and Precursor/Apparatus Rules and Regulations Subchapter H. Summary Forfeiture and Destruction of Controlled Substances Property, Plants, and other Miscellaneous Items 37 TAC sec.sec.13.161-13.174 The Texas Department of Public Safety adopts new sec. sec.13.161-13.174, concerning summary forfeiture and destruction of controlled substances property, plants, and other miscellaneous items, without changes to the proposed text as published in the September 18, 1992, issue of the Texas Register (17 TexReg 6430). The adoption of these sections will ensure that court-ordered destruction of controlled substances, property, plants, and miscellaneous items are destroyed as required by statute, which prevents diversion to the illicit market. These sections will establish definitions and promulgate a uniform standard operating procedure to dispose of court-ordered destruction of controlled substances, property, plants, and miscellaneous items to comply with legislative intent as mandated by the Health and Safety Code, sec.481.160. No comments were received regarding adoption of the new sections. The new sections are adopted under the Health and Safety Code, sec.481.154, which provides the Texas Department of Public Safety with the authority to adopt reasonable rules and procedures, not inconsistent with the provisions of this chapter, concerning summary forfeiture and destruction of controlled substances, property, plants, and miscellaneous items. This agency hereby certifies that the rule as adopted has been reviewed by legal counsel and found to be a valid exercise of the agency's legal authority. Issued in Austin, Texas, on October 20, 1992. TRD-9214394 James R. Wilson Director Texas Department of Public Safety Effective date: November 13, 1992 Proposal publication date: September 18, 1992 For further information, please call: (512) 465-2000