Income / Franchise Tax Texas: Foreign manufacturing affiliate may potentially disqualify affiliated group's use of reduced 0.5% retail/wholesale rate

Tax Policy News [Entities with Foreign Manufacturing Affiliates and Qualification for the 0.5 Percent Tax Rate], Tex. Cmptrlr. (3/10). Clarifying a taxable entity's eligibility for the franchise tax's reduced retail or wholesale tax rate (0.5%) when an affiliated entity is the foreign manufacturer of the goods being sold, the comptroller explains that a taxable entity is primarily engaged in retail or wholesale trade only if less than 50% of the total revenue from activities in retail or wholesale trade comes from the sale of products it produces or products produced by an entity that is part of an affiliated group to which the taxable entity also belongs. Therefore, although a foreign manufacturing entity may not be included in a taxpayer's combined group (e.g., if it is an 80/20 company), it may nevertheless potentially disqualify the group from using the reduced 0.5% rate if the foreign manufacturer is part of the taxpayer's affiliated group.