What the Texas Legislature Hath Wrought

What the Texas Legislature Hath Wrought

We have been saying all along that we thought that Texas legislators didn't really understand what they were voting for when they enacted this new "margin tax" in Texas. Texas has alway been "business friendly". It's a major factor businesses consider when deciding to relocate to this fair state. But the special committee headed by John Sharp that conceived of this tax apparently suffered from California envy. Now Texas has the most onerous corporate income tax in the Union. The legislators who voted for this thing are already hearing it from the Taxpaxers and you can bet the noise will get louder and louder. The Comptroller's Office is charged with implementing this stinker and they seem to making a huge effort to educate the public. The office of Texas Comptroller is an elected position. How would you like to be the Comptroller responsible for implementing the worst tax ever passed by the State of Texas? Susan Combs is just the messenger, but she's getting an earful. She could turn into a hero, if she becomes the public champion of the "Let's Repeal this Tax" committee. Then the legislature would be under a huge amount of pressure. We'll see how this all develops.

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Major Defeat Dealt to States Seeking to Apportion Income Using the "Operational Function Test"

The U.S. Supreme Court issued a very interesting ruling affirming its earlier decisions related to the taxation of "unitary businesses".  (See MeadWestvaco Corp. v. Illinois Department of Revenue, U.S. Supreme Court, Dkt. 06-1413, vacating the Illinois Appellate Court, April 15, 2008).

In this case, Mead had sold Lexis-Nexis for a $1Billion gain. That gain was allocated to Ohio by Mead. Illinois audited them and took the position that the gain should have been apportioned to IL. IL made the argument at the trial court (which agreed with the State) that although the businesses weren't unitary, the asset (Lexis-Nexis) was used in an "operational function", it should be apportioned. This "operational function" concept has arisen in a couple of recent US Supreme decisions. It has apparently given the states the idea that there is no such thing as allocable income anymore because all they have to do is argue that the asset involved was used in an operation function and they can apportion it. Of course, only the extraterritorial states want to make this argument. But the Supremes in this case, say the IL court erred in their interpretation of this test. See below for their commentary:

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Texas Offers 30 Day Extension on Margin Tax Filing

Texas --Corporate Income Tax: Comptroller Extends Filing Date by 30 Days

In a Press Release, issued by Texas Comptroller Susan Combs, dated, April 22, 2008 it was announced that businesses unable to meet the May 15 due date for the revised franchise tax, also referred to as the business margin tax, are being granted a 30-day extension to submit their returns or file an extension without penalty. Reports filed on or before June 16, 2008, for annual reports and June 2, 2008, for initial reports will be considered timely. Prior to the extension, a 5% penalty would have been imposed on those not filing by May 15. The comptroller's office is allowing the additional 30 days due to the complexity of the revised franchise tax and the newness of the enhanced electronic reporting methods.