Texas Franchise Tax Policy Memo Benefits Utility Companies

Integrated utility companies benefit from a Texas franchise tax policy memorandum recently issued by the Texas Comptroller. The memo explains the process available for a utility company to calculate its cost of goods sold deduction. In short, the deduction includes transmission and distribution costs incurred before the electricity’s voltage is “stepped down” for distribution to the consumer because these costs constitute eligible processing or handling costs. Previously, the Comptroller had rejected these costs as selling or distribution costs.

The memo is authored by the head of the Tax Policy Division and informs the head of the Audit Division about this policy change. The memo applies to all tax report years that are open within the statute of limitations. The Comptroller intends to amend Comptroller Rule 3.588 for this position.

Comment: This policy change may provide indirect support to claim the sales tax manufacturing exemption for certain equipment falling within the scope of this policy interpretation.

For more information or questions, please contact Jimmy Martens or Danielle Ahlrich.