Business Taxes in Texas Are Limited to Specific Taxpayers

Business taxes in Texas are limited to specific taxpayers, and it's essential to understand who qualifies. In Texas, businesses are only required to pay franchise taxes if they have a certain level of gross receipts.

The threshold for paying franchise taxes is $1.18 million in gross receipts. This means that businesses with lower gross receipts are exempt from paying these taxes.

Businesses that are exempt from paying franchise taxes include certain non-profits, churches, and government entities. These organizations are not required to pay taxes on their gross receipts.

To qualify for this exemption, non-profit organizations must obtain a certificate of exemption from the Texas Comptroller's office.

Entities subject to franchise tax in Texas include corporations, limited liability companies (LLCs), banks, and partnerships, among others. This means that if you're running a business in Texas, you'll likely be required to pay franchise tax.

The entities not subject to franchise tax include sole proprietorships, general partnerships owned entirely by natural persons, and certain types of trusts. This is a key distinction, as it means that some businesses may be exempt from paying franchise tax.

Here's a breakdown of the entities subject to franchise tax:

Keep in mind that this list is not exhaustive, and you should consult the Texas Comptroller's website for the most up-to-date information on entities subject to franchise tax.

Entities subject to the Texas franchise tax include corporations, limited liability companies (LLCs), and partnerships, among others. These entities must file and pay franchise tax if they're formed in Texas or do business in the state.

Corporations, LLCs, and partnerships are all subject to the franchise tax, regardless of their size or type. This means that even small businesses and startups must pay franchise tax if they're formed in Texas or do business in the state.

The franchise tax applies to most Texas businesses, with a few exceptions. These exceptions include sole proprietorships, general partnerships owned directly by a single natural person, and certain exempt entities.

Here's a list of entities that are subject to the Texas franchise tax:

Note that this list is not exhaustive, and there may be other entities that are subject to the franchise tax. It's always a good idea to consult with a tax professional to ensure you're meeting your tax obligations.

If you're a business owner in Texas, you might be eligible for some tax credits that can help reduce your tax burden.

The Temporary Credit for Business Loss Carryforwards under Texas Tax Code Section 171.111 is available for reports originally due on or after January 1, 2008.

This credit can be a game-changer for businesses that have experienced losses and are looking to carry those losses forward to future tax years.

Research and Development Activities Credit under Texas Tax Code Chapter 171, Subchapter M is available for reports originally due on or after January 1, 2014.

This credit is designed to encourage businesses to invest in research and development activities, which can lead to innovation and economic growth.

If you're looking to rehabilitate a historic structure, you might be eligible for the Certified Historic Structures Rehabilitation Credit under Texas Tax Code Chapter 171, Subchapter S, which is effective for reports originally due on or after January 1, 2015.

Alternatively, you can also consider the Certified Historic Structures Rehabilitation Credit under Texas Tax Code Chapter 172, also effective for reports originally due on or after January 1, 2015.

Here's a quick rundown of the available credits:

Calculating the Franchise Tax in Texas is a bit complex, but it's essential to understand the basics. The Texas Franchise Tax is calculated on a company's margin for all entities with revenues above $2,470,000.

The margin can be calculated in one of four ways: Total Revenue Multiplied by 70 Percent, Total Revenue Minus Cost of Goods Sold, Total Revenue Minus Compensation, or Total Revenue Minus $1 Million. This threshold is subject to change each year, so be sure to check the latest information.

To calculate revenue, you'll need to determine total revenue by extracting it from specific lines on the federal income tax forms. You'll then need to reduce this total by applicable exclusions per Texas law, which include industry-based exclusions and bad debt.

Here are the revenue exclusions that apply to different industries:

The tax rate under the deduction method is 0.5% for taxable entities engaged primarily in retail or wholesale trade and 1% for all other taxpayers. The tax rate under the E-Z computation method is 0.575%, and it's used for taxable entities with no more than $10 million of total revenue from their entire business.

Apportionment is a crucial step in tax calculations. It's used to determine the taxable margin in Texas, and it's based on gross receipts.

A single-factor apportionment formula is used in Texas, which means that only gross receipts are considered when apportioning the tax base. This formula is outlined in the Tax Code Section 171.106 and Rule 3.591.

For unitary combined returns, only Texas receipts from members that have nexus with Texas on their own are included in the numerator of the gross receipts factor. This is a key consideration when filing tax returns.

The throwback rule has been done away with in the new tax law, which means that certain receipts are no longer excluded from total revenue. This change is reflected in the Tax Code Section 171.103(1).

The legislature has considered changing the way entities are evaluated, but for now, the Joyce rule remains in place. This means that entities are evaluated on a stand-alone basis instead of as a unitary business group, as outlined in the Appeal of Joyce, Inc., No. 066-SBE-069 (CA SBE 11/23/66).

Calculating the Texas Franchise Tax can be a bit tricky, but don't worry, I've got you covered. The tax is calculated on a company's margin, which is determined by one of four methods: total revenue multiplied by 70 percent, total revenue minus cost of goods sold, total revenue minus compensation, or total revenue minus $1 million.

To determine which method to use, you'll need to consider your company's revenue and expenses. For instance, if you're a retail or wholesale business, you might want to use the method that subtracts cost of goods sold.

There are some specific rules to keep in mind when calculating revenue. For example, if your total revenue after exclusions is less than $300,000, you won't owe any tax. Additionally, certain types of income, such as passthrough income from partnerships or S corporations, may be excluded from total revenue.

Here are the four methods for calculating margin:

It's worth noting that the margin's threshold is subject to change each year, so be sure to check the current threshold before calculating your tax.

The Texas franchise tax is due on May 15 each year, unless the 15th falls on a Saturday, Sunday, or legal holiday, in which case the next business day becomes the due date.

You can file your franchise tax report online, and there's a $50 penalty for filing after the due date, even if no tax is due.

If you need an extension, you can request one online, but it must be received or postmarked on or before the due date of the original report.

The Texas franchise tax rate is .75% of the taxable margin, with a reduced rate of 0.375% for qualifying wholesalers and retailers.

Here's a breakdown of the taxable margin:

If your business's total tax due is less than $1,000 or your annualized total revenue is less than or equal to the no-tax-due threshold ($1,230,000 in 2022 and 2023), then you don't owe any franchise tax.

Texas has a unique income tax system, and understanding your obligations is crucial for compliance. The state doesn't have a traditional income tax, but rather a franchise tax, which is a tax on businesses.

The franchise tax rate varies depending on the type of business and its revenue. For most businesses, the rate is 0.75% of the taxable margin, but for qualifying wholesalers and retailers, it's 0.375%. Businesses with $20 million or less in total revenue can elect to use the E-Z Computation, which has a rate of 0.331%.

The taxable margin is the basis for the franchise tax, and it's calculated using one of four methods: 70% of total revenue, 100% of total revenue minus cost of goods sold (COGS), 100% of total revenue minus compensation, or total revenue minus $1 million.

If your business's total tax due is less than $1,000 or its annualized total revenue is less than or equal to the no-tax-due threshold ($1,230,000 in 2022 and 2023), you don't owe any franchise tax. Franchise tax returns are due each year on May 15th.

Here are the no-tax-due thresholds and franchise tax rates for different years:

Compensation deductions are another important aspect of the franchise tax. Compensation includes W-2 wages and cash compensation to directors/owners/partners/employees, as well as benefits provided to all personnel to the extent deductible for income tax purposes. However, compensation does not include 1099 labor or payroll taxes paid by the employer.

The compensation deduction is capped at $300,000 per individual, and payments made to undocumented workers are not deductible. Benefits are allowed to the extent deductible for federal income tax purposes and include an employer's cost of retirement benefits, employee health insurance, and cost of workers' compensation benefits.

You can file your Texas franchise tax report online or by mail. There are two ways to file: EZ Computation and Long Form. If your business has revenue under $2,470,000, you don't owe any franchise tax, but you may still need to file a Public Information Report or Ownership Information Report.

The Comptroller's office will grant an extension of time to file a franchise tax report, but you need to request it on or before the due date. You can file for an extension online. A $50 penalty applies to late filings, even if no tax is due.

You can download the necessary forms from the Comptroller's website, including the Franchise Tax, Public Information Report (PIR), and Ownership Information Report (OIR). Submit them by mail to the Texas Comptroller of Public Accounts at PO Box 149348, Austin, TX 78714-9348.

The franchise tax rate varies depending on your business type and revenue. For most businesses, the rate is 0.75% of the taxable margin. For qualifying wholesalers and retailers, the rate is 0.375%. If you elect to use the EZ Computation, the rate is 0.331%.

Here are the four options to calculate the taxable margin: