Tax Amnesty, Texas Taxes

Texas Tax Notes

It has been a while since I posted anything on my blog.   I’ve been burning the midnight oil on some interesting projects for clients.  For some reason, the folks around HM&M think I should log some billable hours to get a paycheck.  I need to check my contract again.

 Anyway, there are some interesting items concerning Texas taxes.

 Remember, it is amnesty time in Texas.  The Fresh Start tax amnesty period started June 12 and runs through August 17, 2012.  See my post of March 28, 2012 for more information.

Texas Franchise Tax Matters

There is a new Common Owner Information Report that must be filed with the Comptroller for Texas Franchise Tax purposes.  A new report this year, it can be filed by using the Texas WebFile system (but not corrected on WebFile).  Combined groups are getting notices that they should file this report.  We are pretty sure that these only need to be filed by combined groups protecting temporary credits for business loss carryforwards.  However, representatives of the Comptroller’s office have various conflicting opinions about that conclusion.  If you get a notice and don’t have a temporary credit, you might file the form anyway; it’s easier than arguing with the Comptroller’s office.

 Earlier this month, the Comptroller reversed field on its position with regard to the election to take the cost of goods sold (“COGS”) or compensation deduction when filing an amended long form franchise tax report.  The Comptroller’s Texas Franchise Tax rules said you could not switch between the COGS and the compensation deduction on an amended return.  Now the Comptroller says you can.  That’s nice.  If you think you might have chosen the wrong number, act now.

Southwest Royalties v. Combs

In a recent case in a district court in Austin, the judge issued an oral judgment on April 10 in favor of the taxpayer in Southwest Royalties v. Combs:  downhole equipment used in oil and gas extraction is exempt from sales tax under the manufacturing equipment exemption. 

Then, according to the Austin American-Statesman, “the ever-colorful [State District Judge John] Dietz recalled that he had been reading The Wall Street Journal over a breakfast of oat gruel when he saw that some Texas judge had recently overturned 50 years of tax law and crippled the state budget [reducing revenue by about $500 million each year and setting up potential refund claims to the tune of $2 billion, plus interest]. ‘What fool did that?’ Dietz wondered as he read the story.  ‘I’ll be damned; it’s me.'”

So, Judge Dietz ordered a rehearing and reversed his findings a couple of weeks later.

We understand that Southwest Royalties is considering an appeal of the decision.  Also, there are other similar cases working their way through the court system that will be heard by other Texas courts.  It seems prudent for oil and gas companies to file protective claims for refund for periods that may be approaching the statute of limitations for refund claims – four years.

Severance Tax Matters 

Oil and gas companies can get a Texas severance tax exemption (limited, but to a substantial sum) for high cost gas wells.  Among other definitions of “high cost” is a well that produces from “the Devonian shale; or designated tight formations or produced as a result of production enhancement work” such as hydraulic fracturing (“fracking”).  The underlined phrase encompasses most wells drilled in Texas these days.  If you haven’t been pursuing this exemption, jump on it. 

There is also a full or partial exemption from Texas severance tax for low producing gas wells (production not exceeding an average 90 MCF per day for the prior three months).  Because natural gas prices are so low currently, production from low producing gas wells is currently fully exempt from severance tax.  Are you still paying severance tax on gas production from such wells?  Get it in gear. 

That’s all for now.


Tax Amnesty

Texas Comptroller Announces Tax Amnesty for Businesses for a Limited Period this Summer

According to the Webster-Merriam dictionary website, amnesty is  ”the act of an authority (as a government) by which pardon is granted to a large group of individuals.”  Amnesty can apply to businesses, too. 

The state of Texas announced on March 15, 2012 its Fresh Start tax amnesty period running from June 12 through August 17, 2012.  This gives businesses a chance to file missing reports or amend previous reports in which they had incorrectly reported a lower tax than was due, pay the tax, and not incur penalties or interest.  Remember:  you must pay the tax – all of it – with the report.

The tax amnesty covers taxes and fees that were originally due before April 1, 2012.  It applies to sales tax, franchise tax and other state or local taxes or fees administered by the Comptroller’s office, except the Public Utility Commission gross receipts assessment.  Thus, for example, it does not apply to property taxes, since they are not administered by the Texas Comptroller’s office.

The amnesty does not apply to underpaid tax returns (tax that was reported but not paid) or to filing periods under audit or investigation, or identified for an audit or investigation. 

The Fresh Start amnesty program is not being offered simply as an act of kindness.  A similar tax amnesty was held in the summer of 2007 and brought in approximately $100 million of unpaid taxes.

This may be a fruitful summer activity, if you need to square up with the Comptroller’s office.  You can find out more about the amnesty program at  You will know your are in the right place if the landing page has a funny-looking chicken on it.