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Don't Mess with Texas: No Three-Factor MTC Election for You!

In two decisions by the Texas Office of Administrative Hearings, the Comptroller affirmed its position that the evenly weighted three-factor apportionment formula contained in an election provided by the Multistate Tax Compact (MTC Election) does not

December 12, 2012

In two decisions by the Texas Office of Administrative Hearings, the Comptroller affirmed its position that the evenly weighted three-factor apportionment formula contained in an election provided by the Multistate Tax Compact (MTC Election) does not apply to the Texas Margins Tax. See Tex. Compt. Dec. No. 106,503 (Aug. 10, 2012); Tex. Compt. Dec. No. 106,508 (Jul. 13, 2012). Rather, taxpayers must apportion via the statutory single receipts factor.

Taxpayers have filed Texas returns claiming that the MTC Election allows taxpayers to apply an evenly weighted apportionment formula comprised of property, payroll and sales factors similar to successful attempts by California taxpayers to make the MTC election. The Gillette Company et. al v. Franchise Tax Board, 207 Cal. App.4th 1369 (Op. on Rehearing, Oct. 2, 2012). However, the Comptroller determined, without explanation, that the single-factor formula was required by Tex. Tax. Code Ann. § 171.106 and that the taxpayers were not allowed to elect the MTC three-factor formula.

A Texas taxpayer, Graphic Packing Corporation, recently filed a suit in Travis County District Court on September 27, 2012, challenging the Comptroller’s position on the availability of the MTC Election. See Graphic Pkg. Corp v. Combs, No. D-1-GN-12-003038, Plaintiff’s Original Petition (Trav. Cty. Dist. Ct. 2012). Texas will present an especially interesting environment for this challenge because the Comptroller is likely to contend that the Texas Margins Tax is not an income tax and thus the MTC Election is inapplicable.

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