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Franchise Tax
Frequently Asked Questions

Note: TTC means Texas Tax Code and IRC means Internal Revenue Code

Credits

Rules 3.593 and 3.594

1. Can the installments and carryovers from the economic development credits be used?
A taxable entity that established a research and development or job creation credit on a franchise tax report originally due prior to January 1, 2008, may claim any unused credit carryforward to offset the tax on margin unless the entity elects to file using the E-Z Computation. A taxable entity that established a capital investment credit on a franchise tax report originally due prior to January 1, 2008, may claim any unused installments and credit carryforward to offset the tax on margin unless the entity elects to file using the E-Z Computation.
2. Is the 1992 temporary credit still allowed?
Yes, those entities that preserved their 1992 credit can continue to claim the credit unless the entity elects to file using the E-Z Computation. Also note that if the entity claims the 1992 temporary credit, the entity must compute an additional tax on taxable capital.
3. Who is eligible to take the Temporary Credit for Business Loss Carryforwards?
A taxable entity is eligible for the credit if the entity was, on May 1, 2006, subject to the franchise tax. Each eligible taxable entity must have preserved its right take the credit on or before the due date of its 2008 report.
4. How is the Temporary Credit for Business Loss Carryforwards calculated?
The credit is based on business loss carryforwards that were created on the 2003 and subsequent franchise tax reports that were not expired or exhausted on a report due before January 1, 2008. Business loss carryforwards must have been used to offset any positive amount of earned surplus, even in years when no tax was due or the tax due was based on taxable capital.

The credit calculation is:
Report Years 2008-2017: (unexhausted business loss carryforwards as of 01/01/08) x 2.25% x 4.5%
Report Years 2018-2027: (unexhausted business loss carryforwards as of 01/01/08) x 7.75% x 4.5%

5. If I elect to file using the E-Z Computation can I still take the credit for business loss carryforwards?
No, for any report year in which the E-Z Computation is used, the business loss carryforward credit for that year is lost and may not be carried over to subsequent years. TTC 171.1016(c).
6. Is a combined group eligible to take the credit for business loss carryforwards?
A taxable entity that is a combined group may claim the temporary credit for each eligible member of the combined group. An eligible member is one subject to the franchise tax on May 1, 2006 and that preserved the right to take the credit on or before the due date of its 2008 report.
7. Can a combined group take a credit for business loss carryforwards if a member leaves the group?
If a member of a combined group changes combined groups after June 30, 2007, the business loss carryforward of that member will no longer be included in the temporary credit calculation of the combined group and the related share of any temporary credit carried over from a previous year is lost to the group. There is no proration for a partial year. In addition, the business loss carryforward does not follow the member to a separately filed report or another combined group. Example: entities A, B and C each have business loss carryforwards and are members of combined group ABC. If Group ABC sells member C then C's credit is lost to C and lost to the combined group. A and B's credits remain with the combined group.
8. What happens to the credit for business loss carryforwards if one member of a combined group merges into another member of the same combined group?
If one member of a combined group merges into another member of the same combined group, that non-surviving member's business loss carryforward will remain with the group.
9. Can a combined group continue to take a credit for business loss carryforwards if it adds a member to the combined group?
If a combined group expands from within, there is no effect on the temporary credit of the combined group. If a combined group adds an existing entity to the group, that new member's temporary credit is lost. Example: if Group ABC acquires D after June 30, 2007, then A, B and C's credits remain. D's credit, if any, is lost.
10. How are business loss carryforwards calculated for the temporary credit for business loss carryfowards?
The temporary credit for business loss carryforwards is based on business loss carryforwards created on the 2003 and subsequent franchise tax reports and that were not expired or exhausted on a report due before January 1, 2008. A business loss is any negative amount of earned surplus after apportionment and allocation but before any deductions for solar energy devices, clean coal project, or investment in an enterprise zone. To calculate your business loss carryforwards you start with any negative amount of apportioned and allocated earned surplus on the 2003 franchise tax report (item 23). To this amount you would add any amounts of negative apportioned and allocated earned surplus from the 2004-2007 franchise tax reports and subtract any amounts of positive apportioned and allocated earned surplus from the 2004-2007 franchise tax reports. You must subtract any amounts of positive apportioned and allocated earned surplus regardless of whether you paid tax on taxable capital or owed no tax. (Updated 06/19/08)
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