Texas, famously, does not tax individuals’ income, but it does impose franchise taxes on “taxable entities”, such as limited liability companies. Federal tax law treats them as partnerships unless they elect to be treated otherwise. In Hibernia Energy LLC v. Hegar, a Texas court addressed how Hibernia, a non-taxable entity under federal law, is taxable under Texas law.
The franchise tax
Hibernia sold leasehold interests. Its franchise-tax reports to the Comptroller in 2013 and 2015 reported gains that were almost entirely attributable to the sale of the interests. The gains were included in the determination of its total revenue and corresponding liability for franchise taxes. Hibernia paid the taxes.
