In its opinion issued May 8, 2020 in EBS Solutions, Inc. v. Hegar, the Texas Supreme Court allowed a taxpayer’s lawsuit challenging a Texas tax assessment to go forward even though the taxpayer had not prepaid the entire assessment before filing suit. (Note: Seay & Traphagan, PLLC represents EBS Solutions, Inc. in connection with this matter.) In doing so, the Texas Supreme Court overturned a prior decision by the Texas Third Court of Appeals that agreed with the Texas Comptroller’s position that a Texas law required taxpayers to pay an entire tax assessment in protest before challenging it in court. We explain the Texas Supreme Court’s Decision and its implications for Texas taxpayers in more detail below.
Continue Reading…Texas Supreme Court Rules on Broadcast Apportionment, Implications for Remote Services
The Texas Supreme Court recently ruled on apportionment under the Texas franchise tax, also known as the Texas margin tax. Apportionment is the method by which a taxpayer determines how much of its income (or, in Texas, taxable margin) is taxable to a particular state as opposed to other states. In this case, the Texas Supreme Court ruled that Sirius XM’s receipts from providing its satellite radio services were taxable to the states from which the satellite radio programs were broadcast, not the states in which subscribers received the programs. While this decision is specific to satellite radio, it may have implications for other providers of remote services. We discuss this opinion and its broader impact on Texas taxpayers below.
Continue Reading…Lack of Specificity Fatal to Texas Tax Refund Claim
The recent Texas Third Court of Appeals decision in Hegar v. El Paso Electric Company highlights the importance of specificity when seeking Texas state tax refunds. There, the Third Court of Appeals found that the courts lacked jurisdiction over a taxpayer’s Texas sales tax refund suit when the taxpayer failed to specify the precise grounds under which it sought the refund until its administrative hearing was ongoing. This post will describe the opinion in further detail as well as its implications for Texas taxpayers.
Background
The Texas Tax Code requires a Texas tax refund claim to, among other things, “state fully and in detail each reason or ground upon which the claim is founded.” If the Texas Comptroller denies the refund claim, the law requires the taxpayer to go through the administrative hearings process to challenge the denial of the refund claim. To request an administrative hearing, the Texas Comptroller’s rules require a taxpayer to file a statement of grounds. If the taxpayer is unsuccessful in the refund hearing, the taxpayer may file a refund suit in Travis County District Court. The courts only have jurisdiction over the refund suit if the taxpayer meets the law’s procedural prerequisites.
El Paso Electric Company’s refund suit sought a Texas sales and use tax refund based on the Texas Tax Code’s exemption for telemetry units related to step-down transformers, which is found in the manufacturing exemption statute. In its statement of grounds, El Paso Electric Company quoted the entire manufacturing exemption statute, which lists over four dozen categories of exempt equipment, but did not state in particular that it sought an exemption for telemetry units related to step-down transformers. It specifically stated that it sought this exemption in a filing before the State Office of Administrative Hearings made four years after the filing of the statement of grounds.
The Decision and Its Implications
The Texas Third Court of Appeals held that the courts did not have jurisdiction over El Paso Electric Company’s Texas tax refund claim because it had not timely claimed the exemption for telemetry units related to step-down transformers. The Court’s position was that the taxpayer should have stated the specific grounds for the refund claim in the statement of grounds. While El Paso Electric Company argued that their quotation of the entire manufacturing exemption statute was specific enough, the Court found that this was not sufficient to put the Comptroller on notice as to the taxpayer’s claim.
This decision serves as a cautionary tale for taxpayers seeking Texas tax refunds. While it has become common for taxpayers to file general or blanket refund claims, this decision shows the possible pitfalls of this strategy. Taxpayers seeking Texas tax refunds should be careful to be as specific as possible in their statements of grounds. To avoid potentially losing out on Texas tax refunds for which they otherwise qualify, taxpayers seeking to file Texas tax refund claims should contact a Texas tax professional, such as a tax attorney, to be sure they state their claims with necessary specificity.
Courts Rule on Texas Franchise Tax Apportionment
Two recent Texas court opinions address apportionment under the Texas franchise tax, also known as the Texas margin tax. Apportionment is the method by which a taxpayer determines how much of its income (or, in Texas, taxable margin) is taxable to a particular state as opposed to other states.
The Texas Supreme Court decided one of these cases. That case, Lockheed Martin Corporation v. Hegar, et al., found Lockheed Martin’s receipts from the sale of fighter jets to foreign governments, with the U.S. government acting as an intermediary due to the requirements of federal law, were apportionable to the locations of the foreign buyers and not to the Texas location where Lockheed Martin delivered the jets to the federal government.
The Third Court of Appeals decided the other case. That case, Hegar, et al. v. Sirius XM Radio, Inc., determined that Sirius XM should apportion its satellite radio subscription receipts based on the locations of its subscribers and not the locations where it created the satellite radio content.
We discuss these opinions and their broader implications for Texas taxpayers in further detail below.
Continue Reading…Texas Franchise Tax Deadlines Extended Due to COVID-19
The Texas Comptroller has announced the extension of the Texas franchise tax filing and payment deadlines due to the ongoing COVID-19 situation.
Annual Texas franchise tax reports are now due on July 15, 2020. All Texas franchise taxpayers will receive this extension automatically. Taxpayers may also request additional extensions.
- Mandatory EFT taxpayers. Taxpayers who the Texas Comptroller requires to pay their Texas franchise taxes by electronic funds transfer (EFT) may file an extension request on or before July 15, 2020 to receive an extension of time until August 15, 2020 to file their annual Texas franchise tax report and pay all tax due. These taxpayers must pay either 90 percent of the tax due for the current year or 100 percent of the tax they owed for their prior year along with their extension request in order to receive the extension. These taxpayers may then file a second extension request on or before August 15, 2020 to receive an extension of time until January 15, 2021 to file their annual Texas franchise tax report. These taxpayers must pay all tax due with this second extension request.
- All other taxpayers. Taxpayers who are not required to pay their Texas franchise tax by EFT may file an extension request on or before July 15, 2020 and receive an extension of time until January 15, 2021 to file their annual Texas franchise tax report and pay all tax due . These taxpayers must pay either 90 percent of the tax due for the current year or 100 percent of the amount of tax they owed for the prior year along with their extension request in order to receive the extension.
As discussed in our previous blog entry, the Texas Comptroller is offering assistance to taxpayers affected by coronavirus (COVID-19). Seay & Traphagan, PLLC will continue to update this blog with any additional information that becomes available regarding Texas tax law during social distancing. Taxpayers with additional questions should contact a Texas tax professional, such as a tax attorney, to clarify their obligations.
Texas Supreme Court Rules in Margin Tax COGS Cases
The Texas Supreme Court recently released opinions in three Texas franchise tax/margin tax cases. All three opinions address the applicability of the Texas franchise tax’s cost of goods sold subtraction to costs incurred by taxpayers in specific industries. Below, we discuss the industry-specific rulings in each case, and then consider what the cases, taken as a whole, mean for Texas taxpayers. (Please note that Seay & Traphagan, PLLC does not represent any of the taxpayers in these cases.)
Continue Reading…Texas Tax Law During Social Distancing
Texas taxpayers should remain vigilant of Texas tax law during social distancing. One easy way to do this is by checking the mail for tax communications with important deadlines. The following are a few examples of time-sensitive notices from the Texas Comptroller.
Notice of Tax Due
A taxpayer who receives a Notice of Tax Due has 60 days to file for redetermination, or they will likely need to pay the tax before they can challenge it. Tax Code § 111.009.
Denied Refund Claim
Much like the Notice of Tax Due, a taxpayer who receives a denied refund claim has 60 days to request a hearing. Tax Code § 111.105.
Jeopardy Determination
A jeopardy determination only allows the taxpayer 20 days to file a petition for redetermination. Tax Code § 111.022.
Administrative Hearing Process
For taxpayers going through the administrative hearing process, particularly with refund claims, a Comptroller Decision becomes final 25 days after the Decision is signed, unless the taxpayer files a motion for rehearing. Government Code § 2001.146. In a refund hearing, the district courts don’t get jurisdiction, unless that motion for rehearing is timely filed. Tax Code § 112.151.
Request for Redetermination
In sales tax cases, a taxpayer who has submitted a request for redetermination will receive a “60-day letter,” at which point they will have 60 days to submit properly completed resale or exemption certificates to the Texas Comptroller. Tax Code § 151.054(e).
As discussed in our previous blog entry, the Texas Comptroller is offering assistance to taxpayers affected by coronavirus (COVID-19). Seay & Traphagan, PLLC will continue to update this blog with any additional information that becomes available regarding Texas tax law during social distancing. Taxpayers with additional questions should contact a Texas tax professional, such as a tax attorney, to clarify their obligations.
Texas Comptroller Offers Taxpayers COVID-19 Help
The Texas Comptroller’s office announced today that it would offer assistance to taxpayers affected by coronavirus (COVID-19). According to a new page on the Texas Comptroller web site, the Texas Comptroller will offer short-term payment plans as well as waiver of penalty and interest for most taxpayers. Such assistance is available for the Texas sales tax, Texas franchise tax, and other types of Texas taxes and fees administered by the Texas Comptroller.
Representatives of the Texas Comptroller’s Enforcement Division stated by phone that Texas taxpayers affected by coronavirus (COVID-19) who contacted the Texas Comptroller’s Enforcement Division could receive a 30-day deferment of payments due without any payment, or up to a 90-day deferment of payments due after making a partial payment of 15 percent. Taxpayers may also apply for penalty and interest waiver during the payment deferment by using the forms available on the Texas Comptroller’s web site.
The Texas Comptroller’s office has asked that taxpayers in need of assistance due to coronavirus (COVID-19) please call the Texas Comptroller’s Enforcement Hotline at 1-800-252-8880.
Seay & Traphagan, PLLC will continue to update this blog with any additional information that becomes available regarding Texas taxpayer relief as a result of coronavirus (COVID-19). Taxpayers with additional questions about relief available to them as a result of coronavirus (COVID-19) should contact a Texas tax professional, such as a tax attorney, to clarify their tax obligations.
U.S. Supreme Court Overturns Physical Presence Standard
The U.S. Supreme Court recently issued the most important state and local tax opinion in 25 years. That opinion, South Dakota v. Wayfair, Inc., overrules the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota. In Quill, the U.S. Supreme Court reaffirmed that states could only impose their taxes on those businesses with nexus with the state, and stated that only businesses with a physical presence in a state had nexus. However, in Wayfair, the Court rejected the physical presence standard and found a South Dakota law imposing an economic nexus standard to be constitutional. But, the Court left open the question of what the new constitutional standard for nexus would be. This blog post discusses the Wayfair decision and its implications in more detail.
U.S. Supreme Court Takes Up Online Tax Case
The U.S. Supreme Court recently agreed to hear a case that could change the way states tax online sales. The case, South Dakota v. Wayfair, Inc., challenges the U.S. Supreme Court’s 1992 decision in Quill Corp. v. North Dakota. In Quill, the U.S. Supreme Court reaffirmed that states could only impose their taxes on those businesses with nexus with the state, and stated that only businesses with a physical presence in a state had nexus. In the years since, until now, the U.S. Supreme Court has not chosen to hear any of the cases presented on the nexus issue despite the rise of online sales and the actions of state governments. This blog post explores the nexus issue the U.S. Supreme Court will consider and its possible implications for taxpayers.
For Prompt Updates on Texas Tax Law
