Revenue Threshold
Businesses with annual revenue above $2,470,000 are required to file a franchise tax report. Businesses below this threshold do not need to file a franchise tax report but may still be required to file a Public Information Report or Ownership Information Report.
Calculation Methods
The Texas franchise tax is calculated based on a business’s margin, which can be determined using one of the following methods:
Methods for Determining Taxable Margin
- Total Revenue Multiplied by 70%
- Multiply total revenue by 70% to determine the taxable margin.
- Total Revenue Minus Cost of Goods Sold (COGS)
- Subtract the cost of goods sold from total revenue.
- Total Revenue Minus Compensation
- Subtract compensation paid to employees and directors from total revenue.
- Total Revenue Minus $1 Million
- Subtract $1 million from total revenue.
Note:
The method that results in the lowest margin is typically used for tax calculation.
Computation for Businesses with Total Receipts Between $2,470,000 and $20 Million
Businesses within this revenue range can use the EZ Computation Form, which simplifies the calculation process. However, this form does not allow deductions for the cost of goods sold, compensation, or certain credits.
- EZ Computation Rate: 0.331% of revenue apportioned to Texas.
Tax Rates
The tax rate varies depending on the type of business:
- Retail and Wholesale Businesses: taxed at 0.375%.
- All Other Businesses: taxed at 0.75%.
Filing Requirements
- The franchise tax report is due annually by May 15.
- Businesses can file online through the Comptroller’s WebFile system or submit the forms by mail.
- Late returns are subject to penalties.
Frequently Asked Questions
Who is required to file a Texas franchise tax report?
Businesses with annual revenue exceeding $2,470,000 must file a franchise tax report. Those below this threshold are exempt from filing the tax report but may still need to submit a Public Information Report or Ownership Information Report.
What are the different methods for calculating taxable margin?
Texas allows businesses to calculate their taxable margin using one of four methods: 70% of total revenue, total revenue minus cost of goods sold (COGS), total revenue minus compensation, or total revenue minus $1 million. Businesses typically select the method that results in the lowest tax liability.
Can small businesses use a simplified tax calculation method?
Yes, businesses with total receipts between $2,470,000 and $20 million can use the EZ Computation Form. This simplified method applies a flat tax rate of 0.331% to Texas-apportioned revenue but does not allow deductions like COGS or compensation.
How do tax rates vary by business type in Texas?
Retail and wholesale businesses are taxed at a rate of 0.375%, while all other types of businesses are taxed at a higher rate of 0.75% under the Texas franchise tax system.
When is the Texas franchise tax report due?
The report is due annually by May 15. Businesses can file either online via the Comptroller’s WebFile system or by submitting paper forms. Late filings are subject to penalties.