Texas Franchise Tax

If you are operating a business in Texas, it is important to note that you may be subject to the State’s franchise tax. This post will discuss what the tax is, how it is calculated, what business entities are subject to the tax, and how to report it with the State. Please remember that it is important you discuss the franchise tax with your tax professional to see if it pertains to you.

What is the Texas Franchise Tax and How is It Calculated?

The Texas franchise tax is a privilege tax imposed on each taxable entity formed, organized, or doing business in Texas.

Most entities are taxed 1% on their taxable margin. The taxable margin is calculated in one of the following ways:

  • total revenue times 70 percent;
  • total revenue minus cost of goods sold (COGS);
  • total revenue minus compensation; or
  • total revenue minus $1 million (effective Jan. 1, 2014)

It is important to note that the tax has a current revenue threshold of $1,130,000. If your annual revenue is below this amount then you do not need to pay any tax. However, you still have to file a return every year stating that no tax is due.

What Business Entities are Subject to The Franchise Tax?

The following business entities are subject to the franchise tax:

  • corporations;
  • limited liability companies (LLCs), including series LLCs;
  • banks;
  • state limited banking associations;
  • savings and loan associations;
  • S corporations;
  • professional corporations;
  • partnerships (general, limited and limited liability);
  • trusts;
  • professional associations;
  • business associations;
  • joint ventures; and
  • other legal entities

How do you report any tax owed to the State?

The annual franchise tax report is due on May 15th. The easiest way to report is online through the Texas Comptroller’s payment portal.

If you need more information on the tax, please visit the Texas Comptroller’s website and consult your tax professional.