Texas Administrative Code › Title 34 - PUBLIC FINANCE › Part 1 - COMPTROLLER OF PUBLIC ACCOUNTS › Chapter 3 - TAX ADMINISTRATION › Subchapter V - FRANCHISE TAX › Section 3.588 - Margin: Cost of Goods Sold

Current through Reg. 49, No. 28; July 12, 2024
(a)
				  Effective Date. The provisions of this section apply to franchise tax reports
				  originally due on or after January 1, 2008, except as otherwise
				  noted.
(b) Definitions. The
				  following words and terms, when used in this section, shall have the following
				  meanings, unless the context clearly indicates otherwise.
(1) Arm's length--The standard of conduct
				  under which entities that are not related parties and that have substantially
				  equal bargaining power, each acting in its own interest, would negotiate or
				  carry out a particular transaction.
(2) Computer program--A series of
				  instructions that are coded for acceptance or use by a computer system and that
				  are designed to permit the computer system to process data and provide results
				  and information. The series of instructions may be contained in or on magnetic
				  tapes, printed instructions, or other tangible or electronic media.
(3) Goods--Real or tangible personal property
				  sold in the ordinary course of business of a taxable entity.
(4) Heavy construction
				  equipment--Self-propelled, self-powered, or pull-type equipment that weighs at
				  least 3,000 pounds and is intended to be used for construction. The term does
				  not include a motor vehicle required to be titled and registered.
(5) Lending institution--An entity that makes
				  loans and:
(A) is regulated by the Federal
				  Reserve Board, the Office of the Comptroller of the Currency, the Federal
				  Deposit Insurance Corporation, the Commodity Futures Trading Commission, the
				  Office of Thrift Supervision, the Texas Department of Banking, the Office of
				  Consumer Credit Commissioner, the Credit Union Department, or any comparable
				  regulatory body;
(B) is licensed
				  by, registered with, or otherwise regulated by the Department of Savings and
				  Mortgage Lending;
(C) is a "broker"
				  or "dealer" as defined by the Securities Exchange Act of 1934 at
				  15 U.S.C. §
													78c; or
(D) provides financing to unrelated parties
				  solely for agricultural production.
(6) Principal business activity--The activity
				  in which a taxable entity derives the largest percentage of its "total
				  revenue".
(7)
				  Production--Construction, manufacture, installation occurring during the
				  manufacturing or construction process, development, mining, extraction,
				  improvement, creation, raising, or growth.
(8) Related party--A person, corporation, or
				  other entity, including an entity that is treated as a pass-through or
				  disregarded entity for purposes of federal taxation, whether the person,
				  corporation, or entity is subject to the tax under this chapter or not, in
				  which one person, corporation, or entity, or set of related persons,
				  corporations, or entities, directly or indirectly owns or controls a
				  controlling interest in another entity.
(9) Service costs--Indirect costs and
				  administrative overhead costs that can be identified specifically with a
				  service department or function, or that directly benefit or are incurred by
				  reason of a service department or function. For purposes of this section, a
				  service department includes personnel (including costs of recruiting, hiring,
				  relocating, assigning, and maintaining personnel records or employees);
				  accounting (including accounts payable, disbursements, and payroll functions);
				  data processing; security; legal; general financial planning and management;
				  and other similar departments or functions.
(10) Tangible personal property--
(A) includes:
(i) personal property that can be seen,
				  weighed, measured, felt, or touched or that is perceptible to the senses in any
				  other manner;
(ii) films, sound
				  recordings, videotapes, live and prerecorded television and radio programs,
				  books, and other similar property embodying words, ideas, concepts, images, or
				  sound, without regard to the means or methods of distribution or the medium in
				  which the property is embodied, for which, as costs are incurred in producing
				  the property, it is intended or is reasonably likely that any medium in which
				  the property is embodied will be mass-distributed by the creator or any one or
				  more third parties in a form that is not substantially altered; and
(iii) a computer program, as defined in
				  paragraph (2) of this subsection.
(B) does not include:
(i) intangible property or
(ii) services.