Texas Comptroller Limits Telecommunications Company’s COGS Deduction

The Texas Comptroller of Public Accounts recently upheld a decision by the Administrative Law Judge (ALJ) to limit a telecommunications company's cost of goods sold (COGS) deduction for purposes of the Revised Texas Franchise Tax (RTFT) to those costs incurred in purchasing certain telephone equipment that was sold to its customers in the regular course of business.¹ On the report filed, the taxpayer had sought to include in its COGS deduction, a deduction for costs associated with the telecommunications products provided to its customers. The ALJ determined that the telecommunications products sold by the taxpayer were services and therefore, inclusion of costs related to those services was improper.