In the February 2008 edition of Tax Policy News, the Texas Comptroller of Public Accounts (“Comptroller”) addressed the reporting requirements for nontaxable entities. All nontaxable entities, including passive entities, will be subject to the following requirements:
|If an entity has previously notified the Comptroller or the Secretary of State that it is doing business in Texas, the entity must notify the Comptroller that it qualifies as a nontaxable entity by filing the No Tax Due Report (Form 05-163) and blackening the circle in Item 1 on or before the due date of the report for which the entity qualifies as a nontaxable entity. Passive entities do not have to file a Public Information Report or Ownership Information Report.
|If an entity has not notified the Comptroller or the Secretary of State that it is doing business in Texas, the nontaxable entity must notify the Comptroller in writing only when the entity no longer qualifies as a nontaxable entity.
|If an entity receives notification in writing from the Comptroller asking if the entity is taxable, the entity must reply to the Comptroller within 30 days of the notice.
As the Rules are currently written, a taxable entity that qualifies as a passive entity must notify the Comptroller each year that it qualifies as a passive entity. Under the new policy, a passive entity will be required to notify the Comptroller of its qualification as a passive entity only in the first year in which it qualifies. The entity will have no further reporting requirements until it ceases to qualify as a passive entity. Rule 3.582(g) on Reports and Payments and Rule 3.584(b) on Passive Entities will be amended to reflect these changes in policy with regard to passive entities.