Comptroller Revises Franchise Tax Rules

Texas physicians' potential liability under the state's new franchise tax got a bit smaller in March thanks to revised  rules  developed at the urging of TMA.

The revised rules to be adopted by Texas Comptroller Susan Combs will allow physicians to deduct copayments and deductibles paid by Medicare, Medicaid, and other patients from taxable revenues. The revisions also will allow physicians to deduct expenses, such as employee compensation and benefits or cost of goods sold, that are associated with Medicare, Medicaid, and other excluded revenue.

Under rules published Dec. 28, physicians were allowed to exclude payments from Medicare, Medicaid, TRICARE, the Children's Health Insurance Program, and workers' compensation plans from their taxable revenue but would have had to pay tax on deductibles and copayments received from patients covered under those plans.

TMA had argued that disallowing exclusion of deductibles and copayments from taxable revenue violated legislative intent. State Rep. John Otto (R-Dayton) also wrote a letter to Comptroller Combs stating that disallowing exclusion of compensation costs and cost of goods sold from taxable revenue was contrary to legislative intent.

TMA still is working to resolve several other concerns with the proposed rules, including disallowing exclusion of compensation expenses related to uncompensated care and a provision that states that any partial payment renders a service ineligible for the uncompensated care exclusion.

Franchise tax returns for 2007 will be due in May.

Action , March 17, 2008