Taxation of Series LLCs in Texas: Bigger Isn\u27t Always Better in the Lone Star State.

Series Limited Liability Companies (series LLCs) are not yet widely popular as an entity of choice; but just as it took many years for traditional LLCs to become widely used, there could also come a day when series LLCs are the “go-to” entity of choice. One development in the law that will aid in this process is greater certainty in state taxation of series LLCs. Texas has provided some guidance with respect to the taxation of series LLCs for Texas franchise tax purposes after the comptroller’s issuance of Comptroller Private Letter Ruling 201005184L. In this ruling, the comptroller concluded that each series of a series LLC should be aggregated and treated as a single taxable entity for Texas franchise tax purposes. Although the comptroller should be commended for the ongoing efforts to provide meaningful and timely guidance to taxpayers, the comptroller’s policy concerning the taxation of series LLCs is not a correct or sound tax policy. This is because the comptroller’s policy does not have statutory support and creates constitutional and procedural issues. The comptroller’s policy also treats similarly situated taxpayers differently, and it fails to significantly lessen administrative burdens for either the comptroller or taxpayers. To fix these issues, Texas should reform the law and adopt separate tax treatment for series LLCs—each series of a series LLC should be treated as a separate taxable entity for Texas franchise tax purposes. This change would be similar to the treatment adopted by several other states and the treatment adopted for federal income tax purposes

Call to the Texas Legislature: The Franchise Tax Needs Substansive Changes, Not Just Rate Reductions.

Abstract Forthcoming

Call to the Texas Legislature: The Franchise Tax Needs Substansive Changes, Not Just Rate Reductions.

Abstract Forthcoming

Taxation of Series LLCs in Texas: Bigger Isn\u27t Always Better in the Lone Star State.

Series Limited Liability Companies (series LLCs) are not yet widely popular as an entity of choice; but just as it took many years for traditional LLCs to become widely used, there could also come a day when series LLCs are the “go-to” entity of choice. One development in the law that will aid in this process is greater certainty in state taxation of series LLCs. Texas has provided some guidance with respect to the taxation of series LLCs for Texas franchise tax purposes after the comptroller’s issuance of Comptroller Private Letter Ruling 201005184L. In this ruling, the comptroller concluded that each series of a series LLC should be aggregated and treated as a single taxable entity for Texas franchise tax purposes. Although the comptroller should be commended for the ongoing efforts to provide meaningful and timely guidance to taxpayers, the comptroller’s policy concerning the taxation of series LLCs is not a correct or sound tax policy. This is because the comptroller’s policy does not have statutory support and creates constitutional and procedural issues. The comptroller’s policy also treats similarly situated taxpayers differently, and it fails to significantly lessen administrative burdens for either the comptroller or taxpayers. To fix these issues, Texas should reform the law and adopt separate tax treatment for series LLCs—each series of a series LLC should be treated as a separate taxable entity for Texas franchise tax purposes. This change would be similar to the treatment adopted by several other states and the treatment adopted for federal income tax purposes

Cheers! Ending Quill . . . What Can Be Learned from the Wine Industry

In today’s age of technology, does it really matter where we are physically present? For example, a person in rural Montana can buy items online, just as if that person were in a brick-and-mortar store in New York City or San Francisco. An Internet business having employees and offices only in Chicago could sell products to customers located in all 50 states. If physical presence has become a bygone of the past, then why still talk about it? The answer is the 1992 U.S. Supreme Court decision in Quill Corp. v. North Dakota. Quill involved whether an out-of-state office supply company selling products to customers located in North Dakota was required to collect sales and use taxes from those customers. Despite Quill being the 6th largest office supply company in North Dakota and having 3,000 customers in the state, the Court held Quill was not required to collect sales and use taxes because it did not have “physical presence” in the state (e.g., brick-and-mortar store, distribution center, or warehouse). The volume of sales in North Dakota did not matter. The amount of revenues generated in North Dakota also did not matter. Fast forward to today, the age of the Internet, and it is probably easy to see the problem created by Quill. Many Internet retailers may only have physical presence in one state or a small handful of states. For example, physical presence may exist only in the state where the company maintains its corporate office. Or the company may have physical presence in only a small handful of states because it has a corporate office in one state and a warehouse or distribution center in other states. But despite having physical presence in only one state, or just a small handful of states, the company may sell merchandise in many states or perhaps even nationwide. Because Quill prevents remote sellers from collecting sales and use taxes, this has resulted in lost tax revenue to the states. The impact is less money for public education, police protection, road repairs, and other necessary state government services. There have been many excellent articles written about why the time has come to “Kill Quill.” This article provides additional support to the “Kill Quill” movement by making observations to the wine industry and the aftereffects of the U.S. Supreme Court’s decision in Granholm v. Heald, a 2005 case involving wineries and their ability to make online sales and ship wine directly to customers located in other states. It is mportant to understand that a reversal of Quill would not create a new tax. The media sometimes inaccurately reports this. The reason consumers may believe a reversal of Quill would create a new tax is because they are not aware of their already existing responsibility to pay, directly to the state, any taxes not collected by remote retailers. For example, if you are a Florida resident and you buy a tennis racquet online and sales tax is not collected from you by the retailer at the time of sale, then you are responsible for paying the taxes directly to the Florida Department of Revenue. Thus, a reversal of Quill would not create a new tax, it would only create a better way to collect the tax (i.e., collection by the retailer). This article is extremely timely. On January 12, 2018, the U.S. Supreme Court granted the petition for writ of certiorari to hear a South Dakota case, South Dakota v. Wayfair, Inc, and oral arguments were held on April 17, 2018. This case has the potential to reverse Quill. The observations discussed in this article have the ability to impact the “Kill Quill” debate

Call to the Texas Legislature: The Franchise Tax Needs Substantive Changes, Not Just Rate Reductions

This articles addresses one of several substantive issues that persist in the Texas Franchise Tax Code that requires the legislature’s attention. With the next legislative session set to begin in early 2017, the hope is this article will serve as a call to the Texas Legislature to focus on addressing substantive issues in the Texas Franchise Tax Code rather than just simple rate reductions. Substantive changes are needed to ensure taxpayers are being subjected to a tax system that is fair, equitable, and that makes sense

Taxation of Series LLCs in Texas: Bigger Isn’t Always Better in the Lone Star State

Texas’s Comptroller of Public Accounts announced a policy concerning the taxation of series LLCs in which all series of a series LLC should be aggregated and treated as a single taxable entity for Texas franchise tax purposes. The comptroller’s policy of aggregating a series LLC into a single taxable entity for Texas franchise tax purposes illustrates that bigger is not always better. This article addresses whether the comptroller’s policy concerning the taxation of series LLCs is correct or sound tax policy. The author believes the policy is not sound because the comptroller’s policy does not have statutory support and creates constitutional and procedural issues. The comptroller’s policy also treats similarly situation taxpayers differently, and it likely will not significantly lessen administrative burdens for either the comptroller or taxpayers. Furthermore, the comptroller’s policy is at odds with the position adopted by other states and the policy adopted for federal income tax purposes

ABA Tax Section Comments on Assets-Over Partnership Mergers

This article discusses the ABA Tax Section submitted comments concerning the tax treatment of property distributions following partnership mergers

FAA Provides Guidance on Calculating the Amount of Gross Income Omitted for Purposes of Determining the Section

This article discusses the Field Attorney Advice (FAA) released on February 1, 2006, involving a taxpayer who purchased a tax avoidance scheme to divert and omit income on her Form 1040

Understanding the Apportionment of Taxable Capital and Taxable Earned Surplus

This short article discusses how taxable capital and taxable earned surplus are apportioned to Texas