Texas Appellate Court – Certain subcontracting expenses excluded from Franchise Tax

State and Local Tax
On March 14, 2014, the Texas Third Court of Appeals ruled that the franchise tax flow-through funds exclusion applied to subcontracted services that have a reasonable connection to real property construction, remodeling, design, or repair work. The court rejected the Comptroller of Public Account’s argument that only taxpayers engaged in construction services qualify for the exclusion.

Taxpayers subcontracting transportation and other services should review whether their services have a reasonable connection to real property construction, remodeling, design, or repair work to satisfy the requirements of Texas’ flow-through funds exclusion.


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