Taxable entities organized in Texas or doing business in Texas are subject to a franchise tax or business tax. Even if your business does not owe taxes, it is required to file a Franchise Tax Report each year. You will be required to show that your business franchise taxes are current when you borrow money for your business, sell the business or terminate the business.
If your company does not file its Franchise Tax Report and pay any applicable taxes it will no longer be in good standing and you may be held personally liable for the obligations of your business. Be sure to discuss this matter with your CPA.
Applies to Taxable Entities.
The franchise tax applies to Texas entities and non-Texas entities doing business in Texas, such as LLC’s, corporations, partnerships, business trusts, professional associations, business associations and joint ventures. Here are some exceptions:
- New veteran owned businesses are not subject to franchise taxes for an initial 5 year period.
- Sole proprietorships are generally not subject to the franchise tax.
- Non-profit entities are subject to the Texas franchise tax unless they obtain an exemption from the Texas Comptroller’s Office.
No Tax Due Report.
All taxable entities must file a franchise tax report. Those businesses whose total revenue is below the no-tax-due threshold qualify to file a No Tax Due Report. For reports due from January 1, 2020 through January 1, 2021, the no-tax-due threshold is $1,080,000. The report includes the business’s total revenue as well as the names and addresses of all its officers, directors and members.
May 15 Deadline.
A taxable entity’s initial report is due one year and 90 days after registration with the Texas Secretary of State’s Office or, in the case of non-Texas taxable entities, after the date the entity began doing business in Texas. Thereafter, the annual report is due each year by May 15.
The franchise tax base is based on various calculations. The franchise tax rate for most businesses is approximately 1%. Businesses engaged primarily in retail or wholesale may qualify to use a lower rate of approximately 0.5%.