Texas Franchise Tax Update: Rent-to-Own Companies Must Reduce COGS by Federal Depreciation Deducted During Rental Period
Jimmy Martens, Danielle Ahlrich, Allison Cunningham & Gordon Martens
Rent-A-Center is a leading provider of furniture and electronics to consumers through rent-to-own agreements in which customers become the owners of property if they do not terminate or breach the agreement during the lease term. Federal income tax law required Rent-A-Center to capitalize the costs it in incurred to purchase furniture and electronics that it leased to customers. Rent-A-Center claimed depreciation on its federal income tax return on the items while they were being leased.
On its 2008 franchise tax report, Rent-A-Center elected to subtract COGS related to “rental-purchase sales” when computing its taxable margin. Rent-A-Center calculated its COGS subtraction based upon the costs it had incurred to purchase the leased items, but did not reduce the costs by the amounts claimed for federal depreciation. Effectively, Rent-A-Center subtracted the full, original cost of the leased items. Rent-A-Center then calculated its margin tax using the lower tax rate available to retailers and wholesalers.
The Comptroller audited Rent-A-Center and rejected...more
Jimmy Martens and Danielle Ahlrich
The jurisdictional tide may be turning in Texas. Prior to May 9, 2019, Texas taxpayers were generally barred from pursuing claims for “declaratory relief” in tax protest and tax refund suits. As a result, taxpayers were unable to seek attorney’s fees otherwise available for declaratory claims. In general, a claim for “declaratory relief” asks the court to determine the litigating parties’ rights under a statute or rule. In a tax suit, a claim for “declaratory relief” would seek the court’s ruling construing tax statutes and rules for the future.
Historically, courts have barred taxpayers from raising claims for “declaratory relief,” reasoning that a court’s judgment awarding recovery of the overpaid taxes implicitly provides the future guidance that taxpayers seek. As a result, the courts considered the claims for “declaratory relief” to be unnecessary and redundant.
However, times have changed. The Texas Comptroller no longer treats a court decision or judgment ordering the refund of taxes as providing any guidance on how the tax laws apply in the future. In...more
Danielle Ahlrich wrote an article for Austin Lawyer titled "Present, Not Perfect" about her experience offering pro bono assistance to asylum seekers. As part of her call for others to join in pro bono service, Danielle explained: "The help for which my client was so grateful was something that we lawyers, of all stripes, do every day in our practices: break an issue into manageable steps and demystify the process." You can read the full article in Austin Lawyer here: https://issuu.com/austinbar/docs/al_apr19-digital/14more
Texas Sales Tax: Proposed Legislation Would Make Labor to Drill Oil & Gas Wells, Variety of Other Services Taxable
Jimmy Martens & Allison Cunningham
On March 1, 2019, Representative Springer filed HB 2915 in the Texas House of Representatives. The bill was introduced as a comprehensive means to reduce local property taxes. Notably, the bill would amend the Tax Code to make the following services taxable:
- · Accounting and audit services
- · Automotive services
- · Barbering or cosmetology services
- · Dating services
- · Debt management services
- · Funeral services
- · Hunting or fishing guide services
- · Interior design and decorating
- · Massage therapy
- · Packing services
- · Personal instruction services
- · Transport services
- · Veterinary services
In addition, the proposed legislation would also amend the Texas Tax Code to make real property “construction” services, a term which the bill defines broadly to include...more
Martens, Todd, Leonard & Ahlrich is pleased to announce that Danielle Ahlrich has been selected as a Texas Rising Star in business tax for the third year in a row. The Rising Stars list is comprised of the top up-and-coming Texas attorneys who are 40 or younger or have been in practice for 10 years or less. No more than 2.5 percent of Texas attorneys were chosen for this honor.more
Texas Sales Tax: Texas Comptroller Directs Texas Legislature to Retroactively Amend Sales Tax Statutes Against Texas Businesses
By Jimmy Martens & Danielle Ahlrich with Martens, Todd, Leonard & Ahlrich
Seeking to turn the tide of numerous court loses, the Texas Comptroller has adopted a new strategy to use against Texas businesses. Specifically, the Comptroller directs our legislature to amend Texas sales tax statutes and label the amendments as “clarifications” of existing law so that he may retroactively tax Texas businesses. The Comptroller seeks to do this through amendments offered this legislative session. The amendments, if passed, would overturn at least one pro-business Texas Supreme Court opinion, and bolster the Comptroller’s litigating positions in several pending cases. It seems as though the Comptroller used the list of litigation pending against him to craft his proposed legislation.
For instance, in Senate Bill 1525, the Comptroller seeks to overturn the Texas Supreme Court’s opinion in Combs v. Roark Amusement & Vending. In Roark, the court held that the resale exemption applies to...more
Texas Sales Tax: Proposed Legislation Imposes Compliance Burdens on Marketplace Providers Who Sell For Third Parties
By Jimmy Martens & Allison Cunningham with Martens, Todd, Leonard & Ahlrich
On February 19, 2019, Legislators in the Texas House and Senate filed identical bills mandating sales tax collection by marketplace providers, such as Amazon, Etsy, and EBay. If enacted, the bills would require “marketplace providers” to report as taxable sales, and collect and remit Texas sales tax on, sales of items by third parties through their marketplaces. “Marketplace providers” means “a person who owns or operates a marketplace and directly or indirectly processes sales or payments for marketplace sellers.” The proposed legislation is intended to shift the compliance responsibilities from smaller retailers who sell taxable items, to the marketplace platforms through which the retailers sell their products. The marketplace providers will likely have the algorithms, software, and know-how, to comply with Texas’s confusing web of sales and use tax laws.
The legislation comes on the heels of the Comptroller’s recent amendments to his administrative rule regarding sellers’ and purchasers’ responsibilities. He amended his rules to implement a safe harbor from the duty to...more
Martens, Todd, Leonard & Ahlrich has been named a Tier 1 law firm in Austin for Tax Law by U.S. News – Best Lawyers® “Best Law Firms” in 2019. We’re looking forward to another great year!more
On February 15, 2019, Gulf Copper & Manufacturing Corporation filed its reply brief with the Texas Supreme Court in its franchise tax dispute with the Texas Comptroller. Gulf Copper’s brief explains to the Supreme Court why both the trial court and appeals court correctly rejected the Comptroller’s arguments denying Gulf Copper a reduction in the margin tax base for (1) payments to subcontractors who rebuilt the drilling rigs that were destined for offshore drilling projects and (2) the full scope of costs generated by Gulf Copper’s manufacturing process.
If the Texas Supreme Court grants review, taxpayers in a wide range of industries will benefit from guidance on two key components of the franchise tax calculation: the subcontractor revenue exclusion and the cost of goods sold subtraction.
For more information on this case, please see our...more
Gulf Copper rebuilds offshore drilling rigs. Its employees and subcontractors manufacture new rig components and install them on rigs. The manufacturing process continues into installation. The Gulf Copper case addresses two critical components of the Texas franchise tax base of “margin”: (1) the availability of the revenue exclusion for payments to subcontractors who assist in rebuilding offshore drilling rigs and (2) the scope of cost of goods sold for businesses who manufacture and install component parts on offshore drilling rigs.
The Gulf Copper case is presently pending before the Texas Supreme Court.
On December 12, 2018, Gulf Copper and the...more