Be Ready to Pounce on a Texas Margins Tax Challenge

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On July 29, 2011, Allcat Claims Services, L.P. (Allcat) and one of its individual partners filed a petition with the Texas Supreme Court seeking a declaratory judgment that the Texas margins tax (TMT) is unconstitutional under the Bullock Amendment of the Texas Constitution. In re Allcat Claims Service, L.P. and John Weakly, No. 11-0589. Tax practitioners have anticipated this challenge since the TMT was first enacted in 2006. The legislature also anticipated this type of challenge and created a special procedure whereby any challenge to the constitutionality of the TMT is filed directly with the Texas Supreme Court for expedited review.1 Regardless of whether the Texas Supreme Court will strike down the TMT in its entirety, the court’s decision could have significant implications for many corporate taxpayers. In this Legal Alert, we summarize the legal issues and ramifications of the Allcat challenge.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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