Many Texas taxpayers find the state’s franchise tax burdensome—particularly trucking companies. But a decision could lighten that load for many trucking companies by allowing refunds on some of the tax they’ve paid, namely, on fuel surcharge reimbursements.

Here’s what transpired: A Texas administrative law judge (ALJ) allowed a trucking company to exclude fuel surcharge reimbursements from its franchise tax calculation and ordered the Texas Comptroller of Public Accounts to pay refunds. The ALJ found the following company practices, among others, to be relevant in determining whether fuel surcharge reimbursements should be excluded from a company’s franchise tax calculation:

• The company contracts for fuel surcharge reimbursements from its customers.
• The company builds the cost per gallon for fuel into its contracted freight charges.
• The company states fuel surcharges on invoices to customers separately from other charges.
• The company accounts for fuel surcharges on its books and records as a separate revenue item.

If your company engages in these practices or similar practices, reach out to your tax professional to discuss whether you may be able to claim a refund in light of the decision. In general, a claim for refund must be made within four years of the date the tax becomes due and payable.

The key takeaway: Fuel surcharges may be excludable for Texas franchise tax purposes, and refund opportunities may be available.

Details on the Decision

In the decision, the ALJ determined that the fuel costs for which the company received fuel surcharge reimbursements constituted ordinary and necessary business expenses that were otherwise deductible under Internal Revenue Code Section 162. However, due to the taxpayer’s more-than-reasonable expectation that it would be substantially repaid by its clients, the taxpayer didn’t deduct the expenses under Section 162 nor include the reimbursement payments in its federal gross receipts pursuant to federal income tax reimbursement theory.

Because the gross receipts reported on the company’s amended 2008 federal income tax return complied with federal law, the company properly amended its Texas franchise tax report for 2009 by using the amended gross receipts, thereby excluding the collected fuel surcharge reimbursements from its calculation of total revenue.

We’re Here to Help

If your company engages in the practices above and receives fuel surcharge reimbursements from its customers, reach out to your Moss Adams professional as soon as possible to determine whether you may be able to claim a refund for any Texas franchise tax paid on those reimbursements.