Issue link: https://viewer.e-digitaledition.com/i/274627
T H E T E X A S F R A N C H I S E t a x is a n of ten-forgot ten source of additional ta xes a practice must incur to operate in Texas. Essentially, this ta x places a 1 percent ta x on the gross margin of a practice. While the rules governing the franchise ta x are lengthy and complicated, potential reductions exist for businesses in the medical industry. Without getting into the specific mechanics of how to ca lculate the ta x, know that there a re five methods by which a business can determine its liability. The focus of this article is to educate the reader regarding sources of revenue exclusions specific to healthcare providers. The overall goal of these revenue exclusions is to determine the correct amount of ta xable gross income. Why is this important? Entities with $1 million or less of gross income (after consideration of the revenue exclusions) are not liable for a franchise tax. For tax years beginning 2013, the Texas Comptroller's Office has adjusted some of the rules to mitigate the ta x burden on entities with gross income slightly in excess of $1 million; however, a ta x is still imposed once an entity crosses this threshold. First, a clarification of terms: For purposes of the fol- lowing discussion, a healthcare provider is an entity that delivers services in one or more of the following government programs: Medicaid, Medicare, Children's Health Insurance Program (CHIP), the state workers' compensation program or the TRICARE military health insurance system. A healthcare institution is inclusive of numerous types of businesses, such as ambulator y surgical centers, assisted-living facilities, hospitals, nursing homes and pharmacies. It is possible for a healthcare institution to qualif y as a healthcare provider. For healthcare providers, an exclusion of 100 percent of the payments received from Medicaid, Medicare, CHIP, the state workers' compensation program or the TRICARE military health insurance system is allowed. For healthcare institutions, an exclusion of 50 percent of the payments from the same sources is allowed. The following is an example of the savings: A practice has total collections of $1.4 million for the 2013 period. Upon reviewing the records, there was a determination that $375,000 of total collections was received from Medicaid/ Medicare and $30,000 was received from CHIP. The total receipts from allowed programs of $405,000 ($375,000+$30,000) are subtracted as a revenue exclusion from the $1.4 million in total receipts. As such, the practice has total taxable gross income of $995,000 — thus being under the $1 million threshold and being eligible to file a no-tax-due report. Now, assume this analysis of collections was not performed, and the practice paid compensation of $400,000 during the year (allowed as a deduction under the compensation method of calculating the tax). Gross receipts would be $1.4 million, and allowable deductions (not revenue exclusions) would be $400,000, thus creating a taxable margin of $1 million. Total franchise tax under this scenario would be $10,000. A second item specific to healthcare entities is costs of uncompensated (pro bono) care. Once again, healthcare providers may exclude 100 percent of the costs of uncompen- sated care from total revenue, while healthcare institutions are allowed only a 50 percent exclusion of these costs. The determination of this figure is beyond the scope of this article; however, it is worthwhile to mention that a practice must maintain detailed records of uncompensated care to consider taking this revenue exclusion opportunity. As can be seen, the savings are in the details. W hile seemingly complicated and burdensome, attention to details and knowledge of the franchise rules discussed in this article could have a significant impact on your practice's bottom line. Christopher B. Davis, CPA, is a tax super visor at Sol Schwartz & Associates, P.C. and has been practicing public accounting since 2008. He practices in various areas of public account- ing, including ta x compliance and consulting for individual, cor porate, S cor poration and partnership ta xation. He is a member of the f ir m's healthcare niche, which specializes in identif ying and implementing solutions to achieve the goals of the physician clientele they ser ve. ■ Texas Franchise Tax By Christopher B. Davis, CPA +++++++++++++++++++ +++ + +++ + +++++++++++++++++++ ❮ ACCOUNTING M D N E W S . CO M ■ MD NEWS San Antonio | 1 7