What is the Texas Franchise Tax?
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Texas franchise tax is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas. For general information, see Franchise Tax Overview.
Tax Rates, Thresholds, and Deduction Limits
Franchise tax rates, limits, and deduction limits vary by reporting year. Use the rate that corresponds to the year for which you are filing.
|No Tax Due Threshold||$1,230,000|
|Tax Rate (retail or wholesale)||0.375%|
|Tax Rate (other than retail or wholesale)||0.75%|
|Compensation Deduction Limit||$400,000|
|EZ Computation Total Revenue Threshold||$20 million|
|EZ Computation Rate||0.331%|
Annual Franchise Tax Reports
The annual franchise tax report is due by May 15th. Since May 15th falls on a weekend or holiday, the due date will be the next business day.
Final Franchise Tax Reports
Before obtaining an account status certificate to terminate, convert, merge, or deregister with the Texas Secretary of State:
- A Texas entity terminating, converting or merging must file its final tax report and pay any amount due in the year it plans to terminate, convert or merge.
- An out-of-state entity terminating its nexus in Texas must file its final report and pay any amount due within 60 days of ceasing to have nexus.
Main Messages. In Texas, companies with annual revenues of $1.18 million to $10 million pay a franchise tax of 0.375%. Companies with revenues less than $1.18 million do not pay franchise tax. The maximum franchise tax in Texas is 0.75%.
Franchise tax is based on a taxable entity’s margin. Unless a taxable entity qualifies and chooses to file using the EZ calculation, the tax base is the taxable entity’s margin and is calculated in one of the following ways: total revenue times 70%; total revenue less cost of goods sold (COGS);
The first thing to know when it comes to Texas franchise tax is that it is NOT the same as sales tax. Sales tax taxes the final consumer only.
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Refrence: Texas Comptroller
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