TITLE 34. PUBLIC FINANCE

PART 1. COMPTROLLER OF PUBLIC ACCOUNTS

CHAPTER 3. TAX ADMINISTRATION

SUBCHAPTER V. FRANCHISE TAX

34 TAC §3.585

The Comptroller of Public Accounts adopts amendments to §3.585, concerning margin: annual report extensions, with changes to the proposed text as published in the May 5, 2017, issue of the Texas Register (42 TexReg 2394). The amendments implement a policy change with respect to combined groups requesting an extension of time to file a report when there is a change in the members of the group; clarify penalty and interest assessments for late payment; correct grammatical errors; and update the section to improve readability.

Amendments throughout the section correct grammatical errors and make minor revisions.

Subsection (a) amendment adds language to indicate that, where noted, the provisions of this section apply to reports other than those originally due on or after January 1, 2008.

Written comments were received from Dale Craymer, representing the Texas Taxpayers and Research Association, and David Colmenero, representing the State Bar of Texas, Tax Section, regarding the omission of the reference to the extended due date of the report from the proposed rule. Mr. Craymer and Mr. Colmenero requested that the comptroller amend the rule to provide that the due date of the report will reflect any extension granted. Mr. Colmenero specifically requested that the comptroller "insert in the Proposed Rule a new subsection providing that, for purposes of Tax Code §111.204, 'the last day on which a payment is required' by Chapter 171 is the date to which a taxpayer has been granted an extension of the due date for a report." The comptroller agrees that revisions are needed but has chosen to revise existing subsections as opposed to adding a new subsection. The comptroller has revised subsections (c), (f), and (g) to clarify that these subsections relate specifically to the extension of the due date of the report.

Amendments to subsection (c)(3)(B), regarding the 100% option for requesting an extension, restructure the information for combined groups into three clauses. Clause (i) provides the policy, effective for reports due prior to January 1, 2017, regarding a combined group's request for extension when a change in combined group members occurs. Clause (ii) adds the revised policy, effective for reports due on or after January 1, 2017, that allows a combined group to file an extension request using the 100% option even if the combined group has added members since the previous year. Clause (iii) provides information that currently appears in (c)(3)(B), without change.

Subsection (e) amendments retitle the subsection to clarify that it provides penalty and interest information only for taxable entities not required to pay by electronic funds transfer. Amendments to subsection (e) and paragraphs (1), (2), and (3) remove all references to "due date" and rewrite the provisions to make them easier to read, without making substantive changes to the information.

Amendments to subsection (f)(3)(B), regarding mandatory electronic funds transfer filers 100% option for requesting an extension, restructures the information for combined groups into three clauses. Clause (i) provides the policy, effective for reports due prior to January 1, 2017, regarding a combined group's request for extension when a change in combined group members occurs. Clause (ii) adds the revised policy, effective for reports due on or after January 1, 2017, that allows a combined group to file an extension request using the 100% option even if the combined group has added members since the previous year. Clause (iii) provides information that currently appears in (f)(3)(B), without change.

Subsection (h) amendments retitle the subsection to clarify that it provides penalty and interest information for taxable entities required to pay by electronic funds transfer. Amendments to subsection (h) and paragraphs (1), (2), and (3) remove all references to "due date" and rewrite the provisions to make them easier to read, without making substantive changes to the information.

This amendment is adopted under Tax Code, §111.002 (Comptroller's Rules; Compliance; Forfeiture), which provides the comptroller with the authority to prescribe, adopt, and enforce rules relating to the administration and enforcement of the provisions of Tax Code, Title 2.

The amendment implements Tax Code, §171.202 (Annual Report) and §171.362 (Penalty for Failure to Pay Tax or File Report).

§3.585.Margin: Annual Report Extension.

(a) Effective date. Except as otherwise provided, the provisions of this section apply to franchise tax reports originally due on or after January 1, 2008.

(b) Taxable and nontaxable entities. See §3.581 of this title (relating to Margin: Taxable and Nontaxable Entities) for a list of taxable and nontaxable entities.

(c) Extension of due date to November 15. Except for a taxable entity that has been notified by the comptroller that it is required to make its franchise tax payments by electronic funds transfer (see subsections (d), (f), and (g) of this section), a taxable entity will be granted an extension to file an annual report and the due date of the report is extended to the next November 15, if the taxable entity:

(1) requests the extension on or before May 15;

(2) requests the extension on a form provided by the comptroller; and

(3) remits with the extension request:

(A) 90% or more of the amount of tax reported as due on the report filed on or before November 15; or

(B) 100% of the tax reported as due for the previous calendar year on the report due in the previous calendar year and filed on or before May 14 of the year for which the extension is requested.

(i) For reports originally due prior to January 1, 2017, a combined group may only use this 100% option if the combined group has lost a member or if the members of the combined group are the same as they were on the last day of the period upon which the report due in the previous calendar year was based.

(ii) For reports originally due on or after January 1, 2017, a combined group may use this 100% option regardless of any changes in combined group members.

(iii) A separate entity that was included in a combined group report originally due in the previous calendar year may not use the 100% extension option.

(d) No previous report. An extension shall not be granted under subsection (c)(3)(B) or (f)(3)(B) of this section, if no report was due in the previous calendar year or the report due in the previous calendar year is not filed on or before May 14 of the year for which the extension is requested.

(e) Penalty and interest for taxable entities not required to pay by electronic funds transfer. Penalty and interest, except for a taxable entity that has been notified by the comptroller that it is required to make its franchise tax payments by electronic funds transfer (see subsection (h) of this section), will be calculated in the following manner.

(1) If a taxable entity is granted an extension by remitting, on or before May 15, at least 100% of the tax reported as due for the previous calendar year on the report due in the previous calendar year and filed on or before May 14 of the year for which the extension is requested, then no penalty or interest will be assessed if the remaining tax due is remitted on or before November 15.

(2) If a taxable entity is granted an extension by remitting, on or before May 15, 90% or more of the tax that will be reported as due on or before November 15, then no penalty or interest will be assessed if the remaining tax due is remitted on or before November 15.

(3) If a taxable entity, on or before May 15, requests an extension but does not meet the requirements of paragraph (1) or (2) of this subsection, then penalty and interest will be assessed on the difference between 90% of the tax finally determined to be due and the amount remitted on or before May 15. Penalty and interest will also be assessed on 10% of the tax finally determined to be due if not remitted on or before November 15.

(f) Required electronic funds transfer extension of the due date to August 15. Subject to paragraphs (1) - (3) of this subsection, a taxable entity that has been notified by the comptroller that it is required to make its franchise tax payments by electronic funds transfer (see §3.9 of this title (relating to Electronic Filing of Returns and Reports; Electronic Transfer of Certain Payments by Certain Taxpayers)) will be granted an extension to file an annual report and the due date of the report is extended to the next August 15. A combined group is required to make its franchise tax payments by electronic funds transfer if any member of the combined group receives notice of the requirement. An extension of the due date to August 15 will be granted if the taxable entity:

(1) requests the extension on or before May 15;

(2) requests the extension on a form provided by the comptroller; and

(3) remits with the extension request:

(A) 90% or more of the amount of tax reported as due on the report filed on or before August 15; or

(B) 100% of the tax reported as due for the previous calendar year on the report due in the previous calendar year and filed on or before May 14 of the year for which the extension is requested.

(i) For reports originally due prior to January 1, 2017, a combined group may only use this 100% option if the combined has lost a member or if the members of the combined group are the same as they were on the last day of the period upon which the report due in the previous calendar year was based.

(ii) For reports originally due on or after January 1, 2017, a combined group may use this 100% option regardless of any changes in combined group members.

(iii) A separate entity that was included in a combined group report originally due in the previous calendar year may not use the 100% extension option.

(g) Required electronic funds transfer second extension of the due date to November 15. A taxable entity granted an extension under subsection (f) of this section will be granted an extension to file an annual report and the due date of the report is extended to the next November 15 if the taxable entity:

(1) requests the extension on or before August 15;

(2) requests the extension on a form provided by the comptroller; and

(3) remits with the request the difference between the amount paid previously for the current reporting period and 100% of the amount of tax reported as due on the report filed on or before November 15.

(h) Penalty and interest for taxable entities required to pay by electronic funds transfer. Penalty and interest will be calculated in the following manner.

(1) If a taxable entity is granted an extension until August 15 by remitting, on or before May 15, at least 100% of the tax reported as due for the previous calendar year on the report due in the previous calendar year and filed on or before May 14 of the year for which the extension is requested, then no penalty or interest will be assessed if the remaining tax due is remitted on or before August 15. However, if the taxable entity requests, on or before August 15, an extension until November 15, and remits, on or before August 15, at least 99% of the amount reported as due on or before November 15, then no penalty will be assessed. Interest will be assessed on the remaining tax due if not remitted on or before November 15.

(2) If a taxable entity is granted an extension until August 15 by remitting, on or before May 15, 90% or more of the tax that will be reported as due on or before August 15, then no penalty or interest will be assessed if the remaining tax due is remitted on or before August 15. However, if the taxable entity requests, on or before August 15, an extension until November 15, and remits, on or before August 15, at least 99% of the amount reported as due on or before November 15, then no penalty will be assessed. Interest will be assessed on the remaining tax due if not remitted on or before November 15.

(3) If a taxable entity, on or before May 15, requests an extension until August 15, but does not meet the requirements of paragraph (1) or (2) of this subsection, then penalty and interest will be assessed on the difference between 90% of the tax finally determined to be due and the amount remitted on or before May 15. Penalty and interest will also be assessed on 10% of the tax finally determined to be due if not remitted on or before August 15. However, if the taxable entity requests, on or before August 15, an extension until November 15, and remits on or before August 15 at least 99% of the amount reported as due on or before November 15, then penalty and interest will be assessed on the difference between 90% of the tax finally determined to be due and the amount remitted on or before May 15. No penalty will be assessed on the remaining tax due if remitted on or before November 15. Interest will be assessed on the remaining tax due if not remitted on or before November 15.

(i) No additional extensions. No additional extensions will be granted for annual franchise tax reports pursuant to Tax Code, §111.057.

The agency certifies that legal counsel has reviewed the adoption and found it to be a valid exercise of the agency's legal authority.

Filed with the Office of the Secretary of State on September 21, 2017.

TRD-201703709

Lita Gonzalez

General Counsel

Comptroller of Public Accounts

Effective date: October 11, 2017

Proposal publication date: May 5, 2017

For further information, please call: (512) 475-0387