2023 Texas Statutes › Tax Code › Title 2 - State Taxation › Subtitle F - Franchise Tax; Credits › Chapter 171 - Franchise Tax › Subchapter C. Determination of Taxable Margin; Allocation and Apportionment › Section 171.101. Determination of Taxable Margin

Sec. 171.101.  DETERMINATION OF TAXABLE MARGIN.  (a)  The taxable margin of a taxable entity is computed by:
(1)  determining the taxable entity's margin, which is the lesser of:
(A)  the amount provided by this paragraph, which is the lesser of:
(i)  70 percent of the taxable entity's total revenue from its entire business, as determined under Section 171.1011; or
(ii)  an amount equal to the taxable entity's total revenue from its entire business as determined under Section 171.1011 minus $1 million; or
(B)  an amount computed by determining the taxable entity's total revenue from its entire business under Section 171.1011 and subtracting the greater of:
(i)  $1 million; or
(ii)  an amount equal to the sum of:
(a)  at the election of the taxable entity, either:
(1)  cost of goods sold, as determined under Section 171.1012; or
(2)  compensation, as determined under Section 171.1013; and
(b)  any compensation, as determined under Section 171.1013, paid to an individual during the period the individual is serving on active duty as a member of the armed forces of the United States if the individual is a resident of this state at the time the individual is ordered to active duty and the cost of training a replacement for the individual;
(2)  apportioning the taxable entity's margin to this state as provided by Section 171.106 to determine the taxable entity's apportioned margin; and
(3)  subtracting from the amount computed under Subdivision (2) any other allowable deductions to determine the taxable entity's taxable margin.
(b)  Notwithstanding Subsection (a)(1)(B)(ii)(a), a professional employer organization may subtract only the greater of $1 million as provided by Subsection (a)(1)(B)(i) or compensation as determined under Section 171.1013.
(c)  In making a computation under this section, an amount that is zero or less is computed as a zero.
(d)  An election under Subsection (a)(1)(B)(ii) shall be made by the taxable entity on its annual report and is effective only for that annual report.  A taxable entity shall notify the comptroller of its election not later than the due date of the annual report.
(e)  For purposes of Subsection (f), "aerospace costs" means any costs not already subtracted under Subsection (a)(1)(B)(ii)(a) that are properly allocated and incurred under the Federal Acquisition Regulation (48 C.F.R. Chapter 1) and subject to the requirements of 48 C.F.R. Chapter 2 or Chapter 18 for contracts, or subcontracts supporting those contracts, for the sale of goods or services to the federal government by a taxable entity in the aerospace industry that is engaged in activities described by North American Industry Classification System code 334511, 3364, 3399, 5413, 5415, 5416, or 5419. For purposes of this subsection, a reference to a federal regulation includes a successor regulation.
(f)  In computing the sum for purposes of Subsection (a)(1)(B)(ii), a taxable entity may add to other amounts described by that subparagraph:
(1)  for a report originally due on or after January 1, 2020, and before January 1, 2021, 20 percent of aerospace costs;
(2)  for a report originally due on or after January 1, 2021, and before January 1, 2022, 40 percent of aerospace costs;
(3)  for a report originally due on or after January 1, 2022, and before January 1, 2023, 60 percent of aerospace costs;
(4)  for a report originally due on or after January 1, 2023, and before January 1, 2024, 80 percent of aerospace costs; and
(5)  for a report originally due on or after January 1, 2024, 100 percent of aerospace costs.
Acts 1981, 67th Leg., p. 1697, ch. 389, Sec. 1, eff. Jan. 1, 1982.  Amended by Acts 1991, 72nd Leg., ch. 901, Sec. 53(b), eff. Aug. 26, 1991;  Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.05, eff. Jan. 1, 1992.
Amended by:
Acts 2006, 79th Leg., 3rd C.S., Ch. 1 (H.B. 3), Sec. 5, eff. January 1, 2008.
Acts 2007, 80th Leg., R.S., Ch. 1282 (H.B. 3928), Sec. 11, eff. January 1, 2008.
Acts 2013, 83rd Leg., R.S., Ch. 117 (S.B. 1286), Sec. 24, eff. September 1, 2013.
Acts 2013, 83rd Leg., R.S., Ch. 1232 (H.B. 500), Sec. 6, eff. January 1, 2014.
Acts 2019, 86th Leg., R.S., Ch. 1073 (H.B. 1607), Sec. 2, eff. January 1, 2020.