The Texas Franchise Tax is levied annually by the Texas Comptroller on taxable entities doing business in the state that make over $2.47 million in annual revenue. The tax is based upon the entity’s margin and can be calculated in a number of different ways. Businesses that are eligible for this tax must file a Franchise Tax Report by May 15 each year. Business entities under the $2.47 million threshold don’t need to file a Texas Franchise Tax Report but still need to file a Public Information Report or Ownership Information Report by May 15.
The majority of business entities in Texas (those making less than $2.47 million in revenue) no longer need to file a Franchise Tax Report, but they still file a Public Information Report. These entities include:
Other non-exempt business entities, such as trusts, instead file an Ownership Information Report. For both forms, the deadline is May 15, and the form can be mailed to the Texas Comptroller.
The Texas Franchise Tax is calculated on a company’s margin for all entities with revenues above $2,470,000. The margin’s threshold is subject to change each year.
The margin can be calculated in one of the following ways:
Total revenue is calculated by taking revenue amounts reported for federal income tax and subtracting statutory exclusions.
Cost of goods sold includes costs related to the acquisition and production of tangible personal property and real property. Other allowances are made for specific industries. If your company sells services, it typically will not have a cost of goods sold deduction.
Compensation deductions include:
Compensation does not include 1099 labor or payroll taxes paid by the employer.
There are two ways to file the Texas Franchise Tax Report:
If your business falls under the $2,470,000 revenue limit, then you don’t owe any franchise tax, but you may still need to file a Public Information Report or Ownership Information Report. If you are above the limit, you can choose to fill out and file the EZ Computation form or to take the time to fill out the Long Form.
You can download the Franchise Tax, PIR, or OIR form you need from the Comptroller and submit them by mail to the following address:
Texas Comptroller of Public Accounts
PO Box 149348
Austin, TX 78714-9348
If you need more time to file your Franchise Tax Report, you can submit a Franchise Tax Extension with the Comptroller. The Comptroller will generally only accept an extension if 90 to 100 percent of the tax owed is paid by May 15.
There are four different types of Franchise Tax Extensions, depending upon your situation.