![]() ![]() Under the revised rules, the Comptroller clarifies that a service is performed at the location of the receipts-producing, end-product act or acts. Services in General. Under Texas law, gross receipts from a service are sourced to the location where the service is performed. A highlighted selection of some of the more noteworthy provisions follows below. Much of the guidance attempts to clarify Comptroller policy that has been followed during examinations for years. The new rules reflect many changes to the sourcing of revenue. 1, 2008, taxpayers may in certain circumstances apply the sourcing procedures under the former rules for prior tax periods. While most of the amendments are retroactively effective from Jan. Code section 3.591, was published in the Texas Register on Jan. The rule strikes the above highlighted language: “directly related to the service and not overhead costs.” The rule replaces the stricken language with guidance that such costs should be limited to “the direct costs of doing the work that the customer hired the taxable entity to perform and should not include any costs that are not directly used to provide a service to the customer.The Texas Comptroller of Public Accounts recently adopted amendments to administrative guidance significantly affecting the state’s franchise tax apportionment rules. ![]() If costs are considered, costs should be limited to costs directly related to the service and not overhead costs.” (emphasis added). The cost of performing a service does not necessarily represent its value. Units of service, such as hours worked, may also be considered. In determining fair value, the relative value of each service provided on a stand-alone basis may be considered. The rule previously provided that “if services are performed both inside and outside Texas for a single charge, then receipts from the services are Texas gross receipts on the basis of the fair value of the services that are performed in Texas. Activities that are not directly used to provide a service are not relevant when determining the location where a taxable entity performs a service.”Īmendment to sourcing rule for unspecified services – Fair value and direct costs ![]() The rule adds the following language: “a service is performed at the location or locations where the taxable entity's personnel or property are doing the work that the customer hired the taxable entity to perform. The Comptroller states that the amended rule interprets the Supreme Court’s phrase “useful work for the customer” to mean “work that the customer hired the taxable entity to perform,” and that the phrase does not include “activities that enable the taxable entity to do business in general or are not directly used in the provision of a service to the customer.” The Comptroller also chose to use the term “property” rather than “equipment” because in some cases property may be used to perform services and the property may not be considered equipment. However, the amendments do not include changes to internet hosting services or internet advertising provisions adopted by the Comptroller on January 15, 2021.Īmendment to sourcing rule for unspecified services – Location of personnel or propertyĮffective March 10, 2023, rule 3.591(e)(26) removes references to the “receipts-producing, end-product act" to determine the location of where a service is performed for sourcing purposes. Specifically, the rule narrows what costs may be analyzed in determining where a service is performed. Hegar (click here for our Insight) and uses that decision to limit the potential impact of the appellate decision for the issues that were reviewed on remand. The amended rule incorporates the Texas Supreme Court’s decision in Sirius XM Radio, Inc. The Comptroller also amended the rule to incorporate the Texas Supreme Court’s decision that “the most natural reading of ’service performed in this state’ supports locating the performance of the service at the place where the taxpayer's personnel or equipment is physically doing useful work for the customer.” On March 10, 2023, the Comptroller amended its Texas Margin rule to delete its receipt producing, end-product act discussion and related examples. On November 10, 2022, the Texas Court of Appeals, on remand, determined that the taxpayer’s cost-of-performance methodology was acceptable in determining the fair value of services performed in Texas. On March 25, 2022, the Texas Supreme Court rejected the “receipt producing, end-product act” test as a factor in determining the location of where a service is performed for apportionment sourcing purposes. Texas generally sources revenue from services to the location where the service was performed. ![]()
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