taxes

Franchise Tax Frequently Asked Questions

Tiered Partnership Provisions

Can a lower tier entity exclude from total revenue the amount of total revenue that it reports to an upper tier entity under the tiered partnership provisions?

Yes. However, a lower tier entity may not report total revenue to an upper tier entity if the upper tier entity is not subject to the franchise tax. (Texas Tax Code (TTC) 171.1015.)

Are there any special reports that must be filed if the tiered partnership provision is used?

Each entity (lower and upper tier) that is filing under the tiered partnership provision must submit, along with its franchise tax report, Form 05-175, Texas Franchise Tax Tiered Partnership Report, to show the amount of total revenue that each upper tier entity should include with the upper tier entity's own total revenue.

Is an upper tier entity eligible for the E-Z computation or no tax due report?

The no tax due thresholds and the E-Z computation do not apply to an upper or lower tier entity if, before the attribution of any total revenue by a lower tier entity to an upper tier entity, the lower tier entity does not meet the criteria.

Do the tiered partnership provisions apply if some of the entities in the tiered partnership arrangement are part of a combined group?

The tiered partnership provision is not available if the lower tier entity is included in a combined group.

Do upper tiers and lower tiers have to have the same accounting period to make the tiered partnership election?

No, but the revenue must be allocated to the accounting period on which the report is based.

Is the tiered partnership election in TTC 171.1015 an alternative to combined reporting?

No. Combined reporting is mandatory for taxable entities that meet the ownership and unitary criteria. The tiered partnership provisions are not available if the lower tier entity is included in a combined group.

If the tiered partnership election in TTC 171.1015 is made, does the lower tier partnership have to report all revenue to all upper tier entities?

No, a lower tier entity that is not part of a combined group may choose to report total revenue to any or all of its upper tier entities. If the lower tier entity chooses to report total revenue to an upper tier entity, the lower tier entity must report total revenue to the upper tier entity according to the ownership interest of the upper tier entity. A lower tier entity may not report total revenue to an upper tier entity if the upper tier entity is not subject to the franchise tax.