Every business operating in Texas is subject to the state’s franchise tax. The franchise tax is levied on businesses in the state, regardless of whether they are corporations, limited liability companies (LLCs), partnerships, or sole proprietorships. In this blog post, we will explore what Texas franchise taxes are, when they are due, and the thresholds for owing.
What Are Texas Franchise Taxes?
The Texas franchise tax is a tax on the privilege of doing business in the state. It is calculated based on the taxable margin of the business, which is the larger of 70% of the total revenue or the total revenue minus the cost of goods sold (COGS) and other deductions. The tax rate is 0.375% for most businesses, while some entities such as banks and savings institutions are taxed at a higher rate.
Who is Required to File a Texas Franchise Tax Report?
All entities that are considered to be doing business in Texas are required to file a Texas Franchise Tax report, regardless of whether they owe any tax. This includes corporations, limited liability companies (LLCs), partnerships, and sole proprietorships, regardless of whether they are organized under Texas law or the laws of another state or country.
When Is the Tax Return Due?
The due date for the Texas franchise tax return is May 15th, or the next business day if May 15th falls on a weekend or holiday. Businesses are required to file an annual report and pay the franchise tax to the Texas Comptroller of Public Accounts.
Who Owe Texas Franchise Tax?
Not all businesses are required to pay the Texas franchise tax. There are two thresholds that businesses must meet before they owe any tax. The first is the no-tax-due threshold, which applies to businesses with annualized total revenue of $1,230,000 or less. These businesses are not required to pay any franchise tax but are still required to file a franchise tax report.
The second threshold is the EZ computation threshold, which applies to businesses with annualized total revenue of $20 million or less. These businesses may use the EZ computation method, which is a simplified method of calculating the franchise tax. The EZ computation method takes into account only the total revenue of the business and applies a tax rate of 0.331%. Businesses that do not qualify for the EZ computation must use the standard calculation method.
Conclusion
In conclusion, Texas franchise taxes are a tax on the privilege of doing business in the state, and they are due annually on May 15th. The tax is calculated based on the taxable margin of the business, and the tax rate is 0.375% for most businesses. Businesses with annualized total revenue of $1,230,000 or less are not required to pay any franchise tax, while businesses with annualized total revenue of $20 million or less may use the EZ computation method. It is important for businesses operating in Texas to understand their franchise tax obligations and to ensure they file their tax returns and pay their taxes on time to avoid penalties and interest.
Mitzi E. Sullivan, CPA is a cloud based professional services provider
specializing in cloud accounting.