Texas: In Good-Standing? / The Hurdles to a Tax Clearance Certificate

Is your company in "good-standing" with Texas? Are you sure? One way to find out is to go to Texas' website and enter your info. You can click on the following link to access Texas' website:

http://ecpa.cpa.state.tx.us/coa/Index.html

Why do I ask?

Well, I have had several companies or clients receive notices from Texas stating they need to file their 2008 Franchise Tax Report (2007 tax period). Some companies also didn't file their Public Information Report or Ownership Information Report.

The main reason these companies received notices is because they were included in a "combined return," and the "reporting entity" did one of three things:

1. didn't attach the "affiliate" schedule,
2. didn't attach the correct "affiliate schedule" (there is one for extension purposes and a different one for return filing purpose), or
3. filled out the "affiliate schedule" incorrectly.

The catch is, once these entities file the correct information, according to sources at Texas, it takes 6 to 8 weeks for Texas to process the response. Therefore, your company may still not be in "good-standing" for another couple of months.

Nexus Questionnaire Impact

In addition, I was recently told by Texas that a company wasn't in "good-standing" because it needed to file a nexus questionnaire.

The nexus questionnaire issue makes no sense to me. First of all, the company is being included in a combined return simply because of its affiliation with other related entities that have nexus in Texas. The company does not have nexus in Texas on its own; therefore, that is why it is not registered in Texas. Obviously, Texas cannot figure this out without the company filling out a nexus questionnaire. However, why does Texas really care, if the company is already being included in a combined return, their income or gross receipts are already being taxed? In any case, can Texas really keep a company from being in "good-standing" simply because it hasn't filled out a nexus questionnaire?

Tax Clearance Certificate?

You may be asking, why does this matter so much? Well, when a company needs to obtain a "tax clearance certificate," they need to be in good-standing with Texas. Hence, you can see how important it is to fill-out these reports correctly the first time. If you don't, it can cause costly delays for your business when attempting to make sales, obtain loans, etc.

These hurdles can be overcome, but it is not without a test of the patience and will.

What has your experience been with Texas?