2023 Texas Statutes › Tax Code › Title 2 - State Taxation › Subtitle F - Franchise Tax; Credits › Chapter 171 - Franchise Tax › Subchapter A. Definitions; Tax Imposed › Section 171.0002. Definition of Taxable Entity

Sec. 171.0002.  DEFINITION OF TAXABLE ENTITY.  (a)  Except as otherwise provided by this section, "taxable entity" means a partnership, limited liability partnership, corporation, banking corporation, savings and loan association, limited liability company, business trust, professional association, business association, joint venture, joint stock company, holding company, or other legal entity.  The term includes a combined group.  A joint venture does not include joint operating or co-ownership arrangements meeting the requirements of Treasury Regulation Section 1.761-2(a)(3) that elect out of federal partnership treatment as provided by Section 761(a), Internal Revenue Code.
(b)  "Taxable entity" does not include:
(1)  a sole proprietorship;
(2)  a general partnership:
(A)  the direct ownership of which is entirely composed of natural persons; and
(B)  the liability of which is not limited under a statute of this state or another state, including by registration as a limited liability partnership;
(3)  a passive entity as defined by Section 171.0003; or
(4)  an entity that is exempt from taxation under Subchapter B.
(c)  "Taxable entity" does not include an entity that is:
(1)  a grantor trust as defined by Sections 671 and 7701(a)(30)(E), Internal Revenue Code, all of the grantors and beneficiaries of which are natural persons or charitable entities as described in Section 501(c)(3), Internal Revenue Code, excluding a trust taxable as a business entity pursuant to Treasury Regulation Section 301.7701-4(b);
(2)  an estate of a natural person as defined by Section 7701(a)(30)(D), Internal Revenue Code, excluding an estate taxable as a business entity pursuant to Treasury Regulation Section 301.7701-4(b);
(3)  an escrow;
(4)  a real estate investment trust (REIT) as defined by Section 856, Internal Revenue Code, and its "qualified REIT subsidiary" entities as defined by Section 856(i)(2), Internal Revenue Code, provided that:
(A)  a REIT with any amount of its assets in direct holdings of real estate, other than real estate it occupies for business purposes, as opposed to holding interests in limited partnerships or other entities that directly hold the real estate, is a taxable entity; and
(B)  a limited partnership or other entity that directly holds the real estate as described in Paragraph (A) is not exempt under this subdivision, without regard to whether a REIT holds an interest in it;
(5)  a real estate mortgage investment conduit (REMIC), as defined by Section 860D, Internal Revenue Code;
(6)  a nonprofit self-insurance trust created under Chapter 2212, Insurance Code, or a predecessor statute;
(7)  a trust qualified under Section 401(a), Internal Revenue Code;
(8)  a trust or other entity that is exempt under Section 501(c)(9), Internal Revenue Code; or
(9)  an unincorporated entity organized as a political committee under the Election Code or the provisions of the Federal Election Campaign Act of 1971 (52 U.S.C. Section 30101 et seq.).
(d)  An entity that can file as a sole proprietorship for federal tax purposes is not a sole proprietorship for purposes of Subsection (b)(1) and is not exempt under that subsection if the entity is formed in a manner under the statutes of this state, another state, or a foreign country that limit the liability of the entity.
Amended by:
Acts 2007, 80th Leg., R.S., Ch. 1282 (H.B. 3928), Sec. 2, eff. January 1, 2008.
Acts 2011, 82nd Leg., 1st C.S., Ch. 4 (S.B. 1), Sec. 45.02, eff. January 1, 2012.
Acts 2023, 88th Leg., R.S., Ch. 768 (H.B. 4595), Sec. 20.002, eff. September 1, 2023.