Texas Franchise Tax Revenue Exlcusion for Freight Forwarding Entities

In: Business and Management

Submitted By skrafcheck
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Tax Research Memorandum
________________________________________
Date: February 23, 2016
Author: Anonymous
Subject: Freight Service Revenue Exclusion of Subcontractor Services for Freight Forwarding
________________________________________
Issue #1
Does the Company meet the criteria to be considered a Qualified Courier and Logistics Company (“Qualified Courier”) under Texas Statute §171.1011, Subsection g-7?
Issue #2
Currently, the Company uses an apportionment method based on mileage within and without the State of Texas (“Mileage Method”). This method is prescribed by the Texas State Comptroller as option for “Transportation Companies” to apportion its Gross Margin for purposes of calculating its Texas Taxable Margin. Is the Company considered a Transportation Company qualifying to use the mileage ratio for calculating its Texas Franchise Tax apportioned Margin?
Conclusion
Revenue Exclusion:
Based on information obtained from inquiry of the Company’s personnel and internet searches, the Company appears to meet all 8 criteria to be considered a Qualified Courier and Logistics Company under the Texas Franchise Tax Code. This conclusion entitles the Company to exclude from Total Revenue, payments to subcontractor drivers and/or agents.
Apportionment:
The business is a freight-forwarding/logistics company and not a transportation company due to the fact that it does not directly transport goods or passengers. Rather, the business provides a service in

arranging for the transportation logistics. Therefore, the taxpayer is a service company and should be apportioning its Taxable Margin based on where the service has been performed.
Discussion and Analysis
Revenue Exclusion:
The 82nd state legislator amended section 171.1011 to include subsection (g-7) which defines a Qualified Courier based on eight (8) factors listed below. If all 8…...

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