Comptroller Fixes COGS/Compensation
Election Problem

March 21, 2008

Great news from the Texas Comptroller’s Office!

Taxpayers must pay in 100% of prior year tax or 90% of the tax reported on the 2008 return when it is filed to get a valid extension of time to file. If the taxpayer pays less than the 90% of tax due, the extension is invalid.

An invalid extension can cause the loss of the Cost of Goods Sold/Compensation deduction election (because the election was not timely filed) and require the taxpayer to pay tax on 70% of total revenue.
[ Also see: Texas Margin Tax Extensions ]

The Comptroller’s position is that only corporations or LLCs are allowed the option to base their extension on 100% of the prior year tax. If the taxpayer is a partnership, trust, or other entity newly subject to the tax, it must pay 90% of the tax reported on the current year return or the extension is denied and thus the COGS/compensation election is lost in that year.

However, in a letter from Comptroller Susan Combs to Sen. Florence Shapiro dated March 20, 2008, Combs states that her agency will now interpret the statute as follows

The election for COGS or compensation must be made by the due date, the extended due date or the date the report is filed, whichever is latest. The election is annual and is effective for the entire period upon which the report is based and may not be changed by filing an amended report after the due date.

Given the above statement, the Comptroller’s office will amend the rules and plans to request a clarifying amendment of the statute during the next legislative session.

TSCPA would like to commend Comptroller Combs and her office on this truly taxpayer friendly policy and their efforts during the transition to the revised franchise tax.

This is great news and another example of how we can effect change by working together with positive communication to the Comptroller's office.