Tex. Codes » Tax Code · TITLE 2. STATE TAXATION · SUBTITLE F. FRANCHISE TAX; CREDITS · CHAPTER 171. FRANCHISE TAX
Texas Codes

Tex. Tax Code § 171.106 (2026)

Apportionment Of Margin To This State

✓ current as of May 2026
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Sec. 171.106. APPORTIONMENT OF MARGIN TO THIS STATE. (a) Except as provided by this section, a taxable entity's margin is apportioned to this state to determine the amount of tax imposed under Section 171.002 by multiplying the margin by a fraction, the numerator of which is the taxable entity's gross receipts from business done in this state, as determined under Section 171.103, and the denominator of which is the taxable entity's gross receipts from its entire business, as determined under Section 171.105.

(b) A taxable entity's margin that is derived, directly or indirectly, from the sale of management, distribution, or administration services to or on behalf of a regulated investment company, including a taxable entity that includes trustees or sponsors of employee benefit plans that have accounts in a regulated investment company, is apportioned to this state to determine the amount of the tax imposed under Section 171.002 by multiplying the taxable entity's total margin from the sale of services to or on behalf of a regulated investment company by a fraction, the numerator of which is the average of the sum of shares owned at the beginning of the year and the sum of shares owned at the end of the year by the investment company shareholders who are commercially domiciled in this state or, if the shareholders are individuals, are residents of this state, and the denominator of which is the average of the sum of shares owned at the beginning of the year and the sum of shares owned at the end of the year by all investment company shareholders. In this subsection, "regulated investment company" has the meaning assigned by Section 851(a), Internal Revenue Code.

(c) A taxable entity's margin that is derived, directly or indirectly, from the sale of management, administration, or investment services to an employee retirement plan is apportioned to this state to determine the amount of the tax imposed under Section 171.002 by multiplying the taxable entity's total margin from the sale of services to an employee retirement plan company by a fraction, the numerator of which is the average of the sum of beneficiaries domiciled in Texas at the beginning of the year and the sum of beneficiaries domiciled in Texas at the end of the year, and the denominator of which is the average of the sum of all beneficiaries at the beginning of the year and the sum of all beneficiaries at the end of the year. In this section, "employee retirement plan" means a plan or other arrangement that is qualified under Section 401(a), Internal Revenue Code, or satisfies the requirements of Section 403, Internal Revenue Code, or a government plan described in Section 414(d), Internal Revenue Code. The term does not include an individual retirement account or individual retirement annuity within the meaning of Section 408, Internal Revenue Code.

(d) A banking corporation shall exclude from the numerator of the bank's apportionment factor interest earned on federal funds and interest earned on securities sold under an agreement to repurchase that are held in this state in a correspondent bank that is domiciled in this state. In this subsection, "correspondent" has the meaning assigned by 12 C.F.R. Section 206.2(c).

(e) Receipts from services that a defense readjustment project performs in a defense economic readjustment zone are not receipts from business done in this state.

(f) Notwithstanding Section 171.1055, if a loan or security is treated as inventory of the seller for federal income tax purposes, the gross proceeds of the sale of that loan or security are considered gross receipts.

(f-1) Notwithstanding Section 171.1055, if a lending institution categorizes a loan or security as "Securities Available for Sale" or "Trading Securities" under Financial Accounting Standard No. 115, the gross proceeds of the sale of that loan or security are considered gross receipts. In this subsection, "Financial Accounting Standard No. 115" means the Financial Accounting Standard No. 115 in effect as of January 1, 2009, not including any changes made after that date. In this subsection, "security" means a security as defined in Section 171.0001(13-a).

(g) A receipt from Internet hosting as defined by Section 151.108(a) is a receipt from business done in this state only if the customer to whom the service is provided is located in this state.

(h) A taxable entity that is a broadcaster shall include in the numerator of the broadcaster's apportionment factor receipts arising from licensing income from broadcasting or otherwise distributing film programming by any means only if the legal domicile of the broadcaster's customer is in this state. In this subsection:

(1) "Broadcaster" means a taxable entity, not including a cable service provider or a direct broadcast satellite service, that is a:

(A) television station licensed by the Federal Communications Commission;

(B) television broadcast network;

(C) cable television network; or

(D) television distribution company.

(2) "Customer" means a person, including a licensee, that has a direct connection or contractual relationship with a broadcaster under which the broadcaster derives revenue.

(3) "Film programming" means all or part of a live or recorded performance, event, or production intended to be distributed for visual and auditory perception by an audience.

(4) "Programming" includes news, entertainment, sporting events, plays, stories, or other literary, commercial, educational, or artistic works.

Acts 1981, 67th Leg., p. 1698, ch. 389, Sec. 1, eff. Jan. 1, 1982. Amended by Acts 1991, 72nd Leg., 1st C.S., ch. 5, Sec. 8.07, eff. Jan. 1, 1992; Acts 1997, 75th Leg., ch. 1185, Sec. 7, eff. Jan. 1, 1998; Acts 1999, 76th Leg., ch. 184, Sec. 2, eff. Jan. 1, 2000; Acts 2001, 77th Leg., ch. 1263, Sec. 59, eff. Jan. 1, 2002; Acts 2003, 78th Leg., ch. 209, Sec. 37, eff. Oct. 1, 2003.

Amended by:

Acts 2006, 79th Leg., 3rd C.S., Ch. 1 (H.B. 3), Sec. 5, eff. January 1, 2008.

Acts 2007, 80th Leg., R.S., Ch. 1282 (H.B. 3928), Sec. 22, eff. January 1, 2008.

Acts 2009, 81st Leg., R.S., Ch. 1055 (H.B. 4611), Sec. 1, eff. January 1, 2010.

Acts 2013, 83rd Leg., R.S., Ch. 1232 (H.B. 500), Sec. 12, eff. January 1, 2014.

Acts 2015, 84th Leg., R.S., Ch. 1098 (H.B. 2896), Sec. 1, eff. January 1, 2018.

Notes of Decisions
Cited in 41 cases (5 in the last 5 years), 1994–2026 · leading case: Anderson-Clayton Bros. Funeral Home, Inc. v. Strayhorn, 149 S.W.3d 166 (Tex. App. 2004).
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Anderson-Clayton Bros. Funeral Home, Inc. v. Strayhorn, 149 S.W.3d 166 (Tex. App. 2004). · cites it 4× “Tex. Tax Code Ann. § 171.106 (c) (West Supp.”
Graphic Packaging Corp. v. Hegar, 538 S.W.3d 89 (Tex. 2017). · cites it 3× “TEX. TAX CODE § 171.106. For example, the tax base derived from the sales of services to or for a regulated investment company is apportioned with a fraction based on company shares, whereas a tax base derived from the sales of services to an employee retirement plan is…”
Rylander v. Fisher Controls Int'l, Inc., 45 S.W.3d 291 (Tex. App. 2001). “See Tex. Tax Code Ann. § 171.106 (a), (b) (West Supp.”
INOVA Diagnostics, Inc. v. Strayhorn, 166 S.W.3d 394 (Tex. App. 2005). · cites it 2× “A corporation's taxable capital or taxable earned surplus is apportioned to the state by dividing the corporation's gross receipts generated in Texas by the corporation’s total world-wide gross receipts.”
Gulf Chem. & Metallurgical Corp. v. Hegar, 460 S.W.3d 743 (Tex. App. 2015). · cites it 3× “Laws 651, 652 (amended 2006) (current version at Tex. Tax Code § 171.106) (providing formula to apportion taxable capital and taxable earned surplus to this state, where gross receipts are component) (hereinafter Former Tex.”
Gen. Dynamics Corp. v. Sharp, 919 S.W.2d 861 (Tex. App. 1996). “Tex.Tax Code Ann. § 171.106 (West 1992). The apportioned tax base is then multiplied by the tax rate to determine a corporation’s Texas franchise tax liability.”
El Paso Nat. Gas Co. v. Strayhorn, 208 S.W.3d 676 (Tex. App. 2006). “Tex. Tax Code Ann. § 171.106 (a). State law requires companies to use "generally accepted accounting principles” (GAAP) to calculate their net taxable capital.”
Arch Petroleum, Inc. v. Sharp, 958 S.W.2d 475 (Tex. App. 1997). “Tex. Tax Code Ann. § 171.106 (West 1992) (“Tax Code”).”
Tandy Corp. v. Sharp, 872 S.W.2d 814 (Tex. App. 1994). “Laws 1490, 1698 (Tex.Tax Code Ann. § 171.106, since amended) (“Former Tax Code § 171.”
Ivan I. Smith, Jr. & Gloria G. Smith v. Kimberly L. Robinson, Sec'y of the Dep't of Revenue, State of Louisiana, 265 So. 3d 740 (La. 2018). “In the final step, the taxpayer uses one of four alternative methods to determine the "taxable margin": (1) seventy percent of the "total revenue"; (2) "total revenue" minus $1,000,000.00; (3) "total revenue" minus wages; or, (4) "total revenue" minus cost of goods sold.”
EMC Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas, 471 S.W.3d 138 (Tex. App. 2015). · cites it 3× “Tex. Tax Code § 171.106(a); see also id. §§ 171.”
Lockheed Martin Corp. v. Hegar, 550 S.W.3d 855 (Tex. App. 2018). “Tex. Tax Code § 171.106(a) (providing that generally "a taxable entity's margin is apportioned to this state to determine the amount of tax imposed under Section 171.”
Show all 41 citing cases →
— Tex. Tax Code § 171.106(a) — 14 cases
Graphic Packaging Corp. v. Hegar, 538 S.W.3d 89 (Tex. 2017). “TEX. TAX CODE § 171.106. For example, the tax base derived from the sales of services to or for a regulated investment company is apportioned with a fraction based on company shares, whereas a tax base derived from the sales of services to an employee retirement plan is…”
EMC Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas, 471 S.W.3d 138 (Tex. App. 2015). “Tex. Tax Code § 171.106(a); see also id. §§ 171.”
Lockheed Martin Corp. v. Hegar, 550 S.W.3d 855 (Tex. App. 2018). “Tex. Tax Code § 171.106(a) (providing that generally "a taxable entity's margin is apportioned to this state to determine the amount of tax imposed under Section 171.”
Graphic Packaging Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2015).
EMC Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2015).
— Tex. Tax Code § 171.106(b) — 2 cases
Graphic Packaging Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2015).
EMC Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2015).
— Tex. Tax Code § 171.106(c) — 2 cases
Graphic Packaging Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2015).
EMC Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2015).
— Tex. Tax Code § 171.106(d) — 2 cases
Graphic Packaging Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2015).
EMC Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2015).
— Tex. Tax Code § 171.106(f) — 2 cases
CITGO Petroleum Corp. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2021).
Conagra Brands, Inc. v. Glenn Hegar, Comptroller of Pub. Accounts of the State of Texas & Ken Paxton, Attorney Gen. of the State of Texas (Tex. App. 2022).
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