Evidently the Comptroller is still grappling with many businesses in the service industry incorrectly electing to take a cost of goods sold deduction on their franchise tax reports.  In her July 2010 Tax Policy News, the Comptroller reminds Texas taxpayers that “service industry entities generally do not qualify for the cost of goods sold deduction.”  The Comptroller states that taxpayers that incorrectly elected cost of goods sold must amend their franchise tax reports, and because the tax rules prevent an amended report from changing a taxpayer’s elected deduction, the amended reports must calculate the tax owed based on the “70% method” (which permits a taxpayer to receive the equivalent of a 30% deduction from revenue).  A taxpayer may not file an amended report and elect to take a compensation deduction.  To review the entire tax policy news, follow this link: www.cpa.state.tx.us/taxinfo/taxpnw/tpn2010/tpn1007.html.