Texas Franchise Tax Instruction
The Texas franchise tax is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas. The annual franchise tax report is due on May 15 each year.
- Who required to file the Texas Franchise Tax?
Each taxable entity formed in Texas or doing business in Texas must file and pay franchise tax. The following types are considered taxable entities:
(1)
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Corporations (including C corporations and S corporations);
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(2)
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Limited liability companies (LLCs), including single member LLCs (SMLLCs) and series LLCs;
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(3)
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Partnerships (including limited partnerships, limited liability partnerships, and general partnerships);
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(4)
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Professional Associations;
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(5)
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Business Trusts;
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(6)
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Joint ventures; and
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(7)
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Other legal entities.
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Note: For out-of-state entities in Texas or entities outside the U.S., i.e., remote sellers, who conduct business activities within the state of Texas will also be considered taxable entities and will also be required to file and pay franchise tax after reaching the $500,000 threshold in revenue.
- What activities are considered to be doing business in Texas?
(1)
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Having Physical Presence
Activities generally considered to be doing business in Texas with a physical presence include having a business location, employing Texas-based employees, selling goods or services, advertising to Texas customers, entering into contracts, owning or leasing assets, and conducting regular business transactions in the state.
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(2)
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Having Texas Sales Tax Permit.
An entity holding a Texas sales tax permit means that it conducts business activities in Texas and is required to file and pay the Texas franchise tax whether or not the entity is an entity outside of the United States.
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(3)
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Reaching the Economic Nexus Threshold
For each federal income tax accounting period ending in 2019 or later, out-of-state entities in Texas or entities outside the U.S. with annual gross receipts of $500,000 or more from business has economic nexus and is subject to Texas franchise tax, even if it has no physical presence in Texas.
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- Which form should be elected for filing?
Texas has a variety of forms to select from based on different levels of gross revenues. Below is a brief introduction of each form:
(1)
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Public Information Report or Ownership Information Report Only
Starting from January 1, 2024, an entity with annualized total revenue less than or equal to the no tax due threshold is not required to file a No Tax Due Report. But the entity still required to file a Public Information Report or an Ownership Information Report.
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(2)
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EZ Computation
An entity, including a combined group or an entity with zero Texas gross receipts, can file using the EZ Computation if its annualized total revenue is or equal to $20 million. Franchise tax rates, thresholds and deduction limits vary by report year.
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(3)
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Long Form
Any entity that does not elect to file using the EZ Computation or has annualized total revenue that is above $20 million must file the Long Form report. The Long Form is suitable for businesses with higher revenue or more complex operations, requiring more detailed financial information.
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- 2024 Tax Rates, Thresholds and Deduction Limits
Generally, the tax rate for using EZ Computation is more favourable than that for Long Form. Please find below the tax rates, thresholds, and relief limits for the year 2024 (reporting period from January 1, 2023, to December 31, 2023) for your reference.
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Item
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Amount
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No tax due threshold
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$2,470,000
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Tax Rate (retail or wholesale)
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0.375%
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Tax Rate (other than retail or wholesale)
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0.75%
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Compensation Deduction Limit
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$450,000
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EZ Computation Total Revenue Threshold
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$20 Million
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EZ Computation Rate
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0.331%
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Reference:
https://comptroller.texas.gov/taxes/franchise/
https://comptroller.texas.gov/taxes/publications/98-806.php
https://comptroller.texas.gov/taxes/franchise/forms/2024-franchise.php
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