Steve Moore Discusses Texas Franchise Tax on Bloomberg BNA’s Salt Talk Blog


jackson-walker-attorney-thumb-MooreSteveTax attorney Steve Moore was recently quoted on the Texas franchise tax in an article by Bloomberg BNA’s Salt Talk Blog. The article explores the Texas franchise tax (aka margin tax) in relation to the ongoing Graphic Packaging Corp. v. Hegar case, in which Graphic Packaging hopes the Texas Supreme Court will reverse the appellate court’s decision that the margin tax is not an income tax.

Texas is a member of the Multistate Tax Commission (MTC), which binds member states to the Multistate Tax Compact. In the article, Steve explained the MTC’s definition of an income tax and how the Texas margin tax is calculated.

“The MTC Compact definition of income tax as adopted by the Texas Tax Code includes ‘any tax imposed on or measured by an amount arrived at by deducting expenses from gross income, one or more of which expenses are not specifically and directly related to particular transactions,’” Steve said. “The Texas Franchise Tax base is ‘total revenue,’ less the greatest of four alternative deductions based on compensation, cost of goods sold, 30 percent of gross revenue, or $1 million.”

Based on the state’s membership in the MTC, Graphic Packaging and others argue that the margin tax is, in fact, an income tax. A reversal in the in the case would lead to an easing of tax burdens for Graphic Packaging and several other taxpaying businesses.

Steve, who is co-author of Bloomberg BNA’s Texas Corporate Income Tax Navigator, explained that the Financial Accounting Standards Board (FASB) also views the margin tax as an income tax.

“After FASB staff recommended that the Texas Franchise Tax be treated as an income tax, the FASB Board concurred, reasoning there would not be diversity in conclusions reached by preparers, auditors, and regulators on whether the Texas Franchise Tax was an income tax,” Steve said.

The Texas Supreme Court has requested merit briefing to determine whether it will review the Graphic Packaging Corp. v. Hegar case. Texas businesses will remain watchful of the Texas Supreme Court’s decision on this matter as Texas is now one of only four states that imposes taxes based on gross receipts.

About Steve Moore

Steve Moore focuses on tax law, and is recognized for his expertise in the Texas margin tax. He conducts planning and controversy work on sales tax, Texas margin tax, ad valorem tax, Chapter 313 property tax value limitation agreements, and insurance premium and retaliatory tax on behalf of a diverse range of clients. He is regularly called on to speak about various tax-related topics and was named to The Best Lawyers in America list in 2015 and 2016.