2023 Texas Statutes
Tax Code
Title 2 - State Taxation
Subtitle F - Franchise Tax; Credits
Chapter 171 - Franchise Tax
Subchapter A. Definitions; Tax Imposed
Section 171.0003. Definition of Passive Entity
Sec. 171.0003. DEFINITION OF PASSIVE ENTITY. (a) An entity is a passive entity only if:
(1) the entity is a general or limited partnership or a trust, other than a business trust;
(2) during the period on which margin is based, the entity's federal gross income consists of at least 90 percent of the following income:
(A) dividends, interest, foreign currency exchange gain, periodic and nonperiodic payments with respect to notional principal contracts, option premiums, cash settlement or termination payments with respect to a financial instrument, and income from a limited liability company;
(B) distributive shares of partnership income to the extent that those distributive shares of income are greater than zero;
(C) capital gains from the sale of real property, gains from the sale of commodities traded on a commodities exchange, and gains from the sale of securities; and
(D) royalties, bonuses, or delay rental income from mineral properties and income from other nonoperating mineral interests; and
(3) the entity does not receive more than 10 percent of its federal gross income from conducting an active trade or business.
(a-1) In making the computation under Subsection (a)(3), income described by Subsection (a)(2) may not be treated as income from conducting an active trade or business.
(b) The income described by Subsection (a)(2) does not include:
(1) rent; or
(2) income received by a nonoperator from mineral properties under a joint operating agreement if the nonoperator is a member of an affiliated group and another member of that group is the operator under the same joint operating agreement.
Amended by:
Acts 2006, 79th Leg., 3rd C.S., Ch. 1 (H.B. 3), Sec. 2, eff. January 1, 2008.
Acts 2007, 80th Leg., R.S., Ch. 1282 (H.B. 3928), Sec. 3, eff. January 1, 2008.
