All that You have to know about the Texas Franchise Tax

The Texas Comptroller’s office collects more than 60 separate taxes, assessments, and fees, including local sales taxes on behalf of more than 1,400 cities, counties and other local governments around the state. One amongst them is the Texas Franchise Tax.

The Texas Franchise Tax is a tax that is levied on each taxable entity which has been formed or organized. Each business entity has to file and pay the franchise tax.

The Entities can be:

  • State limited Banking Associations
  • Professional Corporations
  • Partnerships
  • Trust
  • LLC’s
  • Loans and Savings Association
  • Joint ventures etc

Calculating the Tax:

Calculating the Tax

Margin:

The tax payable is based on the entity’s margin. It is computed in the following methods:

  • Total revenue minus compensation
  • Total revenue minus $1 million
  • Total revenue minus cost of the goods sold.
  • Total revenue times 70%

Total Revenue:

This total revenue is determined from revenue amounts of the federal income tax minus statutory exclusions. Exclusions from revenue include:

  • Foreign Royalties
  • Schedule Dividends
  • Dividends under Internal Revenue Code Section 78,951-964
  • Flow through Funds
  • Interest from Federal obligations

The Cost of Goods:

It generally includes costs related to tangible personal property and real property which are acquired and produced. The entities that only sell services will not have a cost of goods sold deduction.

Compensation:

The deductions from the compensation are as follows:

  • W-2 wages and cash compensation paid to officers, owners, directors, partners, and employees for the 12-month period upon the tax basis.
  • It is subjected to the inflation-adjusted per person wage and cash compensation limitation.
  • This compensation does not include payroll taxes or 1099 labor paid by the employer.

Combined Reporting:

Taxable business entities which are a part of an affiliated group who are engaged in unitary business must file a combined group report. The combined group members must use the same method in the computation of the margin.

Tax Reports and Information Reports:

Each Taxable Business entity must file a Franchise tax report that includes Ez computation, no tax due and an information report that includes public information report or owner information report.

Due Dates:

Annual Franchise Tax Reports:

The due date for the annual franchise tax report is May 15. If this date falls on a weekend or holiday, the due date will be automatically extended to the next business day.

Final Franchise Tax Reports:

A Texas Business entity should file and pay their final franchise tax report in the year it plans to merge, withdraw or terminate with the Texas Secretary of State’s office. It has to be filed before the entity can get a Certificate of Account Status to merge, withdraw or terminate.

A franchise tax report can be filed or can be requested for an extension of time to file, online. However, there is a $50 penalty for a franchise tax report filed after the due date.

For Further information,  Visit Texas FRANCHISE TAX