Franchise Tax Deadline Almost Here


Physicians and other businesses have until June 15 to file their state franchise tax returns or seek a filing extension without having to pay a 5-percent penalty.

May 15 was the original deadline, but Texas Comptroller Susan Combs extended it for 30 days because "the complexity of the revised franchise tax and the newness of the enhanced electronic reporting methods have caused concern among tax practitioners and taxpayers statewide."

Under the original rules published Dec. 28, physicians could 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 argued that disallowing exclusion of deductibles and copayments from taxable revenue violated legislative intent. In February, the comptroller agreed to amend the rules to allow exclusion of those amounts. 

A further revision allows physicians to claim some allowance for uncompensated care, even when patients have made small partial payments. 

A TMA staff analysis of the revisions shows they are closer to what TMA believes was the legislature's intent - to include most cases in which the provider wasn't paid in full and no negotiated or government-mandated discount price applies.

The comptroller still says expenses attributable to uncompensated care cannot be deducted if the cost of that care is excluded from revenue, but, overall, TMA staff believes, the new rules are an improvement over the previous version.

The Texas Legislature created the new franchise tax in 2006 as part of Gov. Rick Perry's school finance reform plan. 

The tax impacts all corporations, limited liability partnerships, professional associations, some general partnerships, and other business entities. The tax is calculated based on a business' gross receipts minus the cost of goods sold or the cost of compensation and benefits paid to owners and employees. Businesses with taxable gross receipts less than $300,000 pay no tax, and those grossing less than $1 million will get discounts off the standard tax rates, which are 0.5 or 1 percent, depending on the type of business. Sole proprietorships and general partnerships in which all partners are individuals rather than business entities are exempt from the margins tax, meaning physicians in solo practice who are not organized as a professional association will not be affected. Also exempt are physicians who practice in federally qualified nonprofit organizations.

Thanks to TMA lobbying, health care providers have special treatment and can exclude revenues they receive for covered services they provide to beneficiaries in Medicare, Medicaid, TRICARE, the Children's Health Insurance Program, workers' compensation plans, and in accordance with the Indigent Health Care and Treatment Act. Another exclusion is available for the actual costs of uncompensated care, calculated by multiplying the total uncompensated care charges by the ratio of total cost to total charges for the practice. According to the rule and revisions outlined in the comptroller's February tax policy newsletter, physicians can exclude all of these revenues, including related copays, coinsurance, and deductibles and program payments from private plans, but health care facilities can exclude only 50 percent. 

Deductible compensation expenses include wages, salaries, and benefits with some limitations, but do not include contract labor payments.

Related Information

Action , June 2, 2008