On January 15, 2021, the state of Texas published new regulations that alter its means of sourcing service revenue for the state’s margin tax. As detailed below, these changes affect sourcing various types of services revenue, including internet hosting, advertising, digital property, capital assets and investments, single-member LLC interests and financial derivatives.
Despite the recent publishing of these regulations, the Texas Comptroller may apply these changes retroactively to report years dating back to 2008, unless otherwise noted.
Overview of Texas’ New Sourcing Rules
Texas has historically sourced service revenue to the location where the service was performed (i.e., the cost of performance method). To the extent a service was rendered both inside and outside the state, Texas would historically have sourced the service revenue to Texas based on the portion of the “fair value” of the services that were performed in the state.
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