Texas Comptroller Issues Franchise Tax Guidance Regarding

For purposes of the Texas franchise tax, the Texas Comptroller of Public Accounts recently issued an internal memo from the Tax Policy Division to the Audit Division outlining the treatment of vendor funded incentives (VFIs) received by retailers related to goods acquired for resale.¹ VFIs are allowances, credits and rebates offered to retailers by wholesalers and manufacturers and include items such as volume-based purchase price adjustments and sales-based incentives.

Background

The computation of the cost of goods sold (COGS) deduction is an important component in determining a taxpayer's total franchise tax liability.² As the statute governing the COGS deduction is relatively complex and not completely tied to what a taxpayer reports for federal income tax purposes, taxpayers and the Comptroller have differed as to what types of costs should be factored into the COGS calculation.