taxes

Franchise Tax Frequently Asked Questions

Why did I get a franchise tax notice?

Texas Tax Code Section 171.001 imposes franchise tax on each taxable entity that is formed in or doing business in this state. All taxable entities must file completed franchise tax and information reports each year. See Franchise Tax Rule 3.584 (c) and (i), Margin: Reports and Payments.

When franchise tax reports are filed or payments are made, sometimes errors or omissions occur. Our office sends notices letting the taxpayer know that there is a problem with the account.

You can find information on our franchise tax notices webpage that explains what the error message means and how to resolve it.

How do I reinstate or terminate a Texas-formed or out-of-state-formed entity?

An entity registered with the Texas Secretary of State (SOS) must satisfy all state tax filing requirements before it can reinstate, terminate, merge or convert its business. This applies to both Texas-formed and out-of-state-formed entities.

You can find detailed information about how to reinstate or terminate SOS-registered entities on our Reinstating or Terminating a Business webpage.

To end the franchise tax reporting responsibility of an unregistered entity (i.e., an entity not registered with the SOS) that is not or is no longer subject to franchise tax, the unregistered entity must do the following with the Texas Comptroller of Public Accounts:

This will provide information required for the Comptroller’s office to end the entity’s franchise tax reporting responsibility, including

  • the entity’s Texas 11-digit taxpayer identification number;
  • its legal name;
  • its reason for ending its reporting responsibility; and
  • the date it is or was no longer subject to the tax.
What is the accounting period for my franchise tax report?

An entity’s accounting period includes both its accounting year begin and end dates. See Franchise Tax Rule 3.584 (c), Margin: Reports and Payments.

Accounting Year Begin Date

For a first annual report, enter the day the entity became subject to the tax. For a Texas-formed entity, this is its Texas Secretary of State (SOS) registration date. For an out-of-state-formed entity, this may be the entity’s Texas SOS registration date or the day it began operations in Texas.

Examples

A Texas entity registered with the SOS on Dec. 20, 2020. It became subject to franchise tax on its registration date. So, on its 2021 “first annual” franchise tax report, it enters 12/20/2020 as its accounting year begin date.

An out-of-state-formed entity registers with the SOS July 31, 2020, but it sent employees to Texas on June 19, 2020, to submit bids for the new construction contracts it won. This entity enters 06/19/2020 as its accounting year begin date for its “first annual” franchise tax report.

For an annual report, enter the day after the end date the entity reported on its previous year’s franchise tax report.

Example

An entity entered the accounting year end date of 12/31/2019 on its 2020 annual franchise tax report. On its 2021 annual franchise tax report, the entity will enter its accounting year begin date as 01/01/2020.

For a final report, enter the day after the end date the entity reported on its current year’s annual franchise tax report.

Example

An entity that is terminating this year entered the accounting year end date of 12/31/2020 on its 2021 annual franchise tax report. On its 2021 final franchise tax report, it will enter its accounting year begin date as 01/01/2021.

Accounting Year End Date

For a first annual report, enter the accounting period end date reported for federal income tax purposes that is in the same calendar year as the entity’s accounting year begin date.

Note – for an entity that became subject to the tax during the 2020 calendar year and has a federal accounting year end date that occurs before to the date the entity became subject to franchise tax, use the day the entity became subject to franchise tax as its accounting year end date on its first annual report. This will result in a $0 tax due report.

Examples

An out-of-state entity uses a calendar year accounting period of Dec. 31 for reporting with the Internal Revenue Service (IRS). On its 2021 first annual franchise tax report, it will enter its accounting year end date as 12/31/2020.

An out-of-state entity created Texas nexus on Sep. 1, 2020. It uses a fiscal year (June 30) accounting period when reporting with the IRS. On its 2021 first annual franchise tax report, it enters its accounting year end date as 09/01/2021.

For an annual report, generally an entity should enter the federal accounting year end date that ended in the calendar year before the calendar year in which the report is originally due. If, however, there is no such ending date, which may occur when an entity uses a 52-53-week accounting period, then enter Dec. 31 of the calendar year before the calendar year in which the franchise tax report is due.

Example

When an entity filed with the IRS, it used a calendar year accounting year end date of Dec. 31. When it files its 2021 annual franchise tax report, it will enter its accounting year end as 12/31/2020.

When an entity filed with the IRS, it used a fiscal year accounting year end date of March 31. When it files its 2021 annual franchise tax report, it will enter its accounting year end as 03/31/2020.

For a final report, enter the day the entity ends its Texas nexus (or a date within 60 days of its last business transaction in Texas) as its final franchise tax accounting year end date.

Example

An out-of-state-formed entity is withdrawing its Texas SOS registration on May 31, 2021. On its 2021 final franchise tax report, the entity enters its accounting year end date as 05/31/2021.

Why did I get an “Original Franchise Tax Report Not Filed” notice?

Since Texas Tax Code Section 171.001 imposes franchise tax on each taxable entity that is formed in or doing business in this state, if you have not filed an original franchise tax report for your entity, or the Comptroller’s office could not process the filed report, we estimate the tax liability due. Paying the estimate DOES NOT resolve your entity’s tax reporting delinquency. To resolve the delinquency, your entity must file its franchise tax report and the appropriate information report (either the Public Information Report or Ownership Information Report).

You can file your entity’s franchise tax and information reports using

If your entity is a member of a combined group and it received an Original Franchise Tax Report Not Filed notice, your entity is delinquent because the reporting entity

  • has not filed the original tax report;
  • did not file the tax report as a combined group report;
  • did not list your affiliate member when it filed the tax report; or
  • the tax report did process.

Your entity does not need to contact or file anything with the Comptroller’s office. Instead, to resolve the issue, contact the entity that reports your company's information on the combined group franchise tax report. Your entity’s situation (the cause for the notice) will resolve itself automatically when the reporting entity

  • files the missing tax report with all required schedules such as the listing affiliates; or
  • amends the filed tax report and schedules to provide correct information for all affiliate members of the combined group.

You can find information on our franchise tax notices webpage that explains what the error message means and how to resolve it.

How do I amend my filed franchise tax report?

You must amend and submit all franchise tax reports in paper format with

  • a cover letter explaining the reason(s) for amending the tax report (and schedules); and
  • the word “AMENDED” written across the top of each page submitted.

For more information about amending reports, see

Does my nonprofit organization qualify for tax exemption?

To determine if your nonprofit organization qualifies for an exemption from franchise tax reporting, please see our Exempt Organizations webpage.

The available information includes

  • types of organizations that qualify for exemption
  • types of tax exemptions for which an organization may qualify
  • exemption application forms

For more information about tax exemptions for nonprofit organizations, see

How are grant and forgiven loan proceeds from COVID-related federal relief programs reported on the franchise tax report?

Generally, a taxpayer is required to report grant or forgiven loan proceeds as income. However, after passage of House Bill 1195 in the 87th Legislature, Regular Session, taxable entities that received certain COVID-related relief grants or had certain COVID-related relief loans forgiven by the federal government do not have to report those grant or loan proceeds as income on their 2021 franchise tax reports.

HB 1195 added Texas Tax Code Section 171.10131, Provisions Related to Certain Money Received for COVID-19 Relief, which provides that for franchise tax reports originally due on or after Jan. 1, 2021, grant or forgiven loan proceeds from qualifying COVID-related federal programs are not included in total revenue. Furthermore, expenses paid using those grant or loan proceeds can be claimed as a cost of goods sold or as compensation in the franchise tax calculation, if eligible under current law.

The following are the qualifying federal COVID-related relief programs:

  • Coronavirus Aid, Relief, and Economic Security (CARES) Act
  • Paycheck Protection Program (PPP) Flexibility Act of 2020
  • PPP Extension Act of 2021
  • American Rescue Plan Act of 2021
  • Consolidated Appropriations Act, 2021
Is there a difference between the XT Webfile number and the FQ Webfile number?

Yes. The Comptroller’s office assigns unique Webfile numbers to each taxpayer for filing its reports with our office. The Webfile number is a Personal Identification Number (PIN) or security code. Our office prints this number on the reports and notices we mail to each business.

A taxpayer (or tax preparer) uses the Webfile system’s XT number for

  • filing franchise tax reports or extension requests;
  • making payments; or
  • requesting Certificates of Account Status to Reinstate or Terminate.

The FQ number is used for filing Form AP-114, Texas Nexus Questionnaire (PDF) online.

You can find additional information on our Add Webfile Access and Franchise Tax Help Links webpages.

How can I change the mailing address for a taxpayer account?

You can update contact information for a taxpayer account using the Change a Business Address/Phone Number webpage.

To protect the security of the account when updating the address, you must provide two pieces of confidential information. The security information options listed include

  • Total sales of last return filed (if new entity, enter zero)
  • Total amount paid of last return filed (if new entity, enter zero)
  • RT # (Webfile number for filing reports for sales and most other taxes)
  • XT # (Webfile number for filing franchise tax reports)
If I filed a federal extension, do I need to file a Texas franchise tax extension request as well?

Yes. Unless you are filing your business’s franchise tax report and paying any franchise tax due by the reporting due date, you need to file a franchise extension request with the Comptroller’s office. This is because your business’s federal income tax extension is filed with the Internal Revenue Service (IRS), not with our office.

To request and receive a valid franchise tax extension, you must timely submit your extension request

  • online using Webfile or an approved third-party software; or
  • by mail; and
  • pay with the extension request either
  • 100 percent of the tax that was due and payable in the previous reporting year; or
  • 90 percent of the tax that will be due and payable with the current year’s report.

Note – filed timely means an entity’s extension request is submitted electronically or mailed with a canceled postmark on or before the due date of the original report.

For more information about filing an extension request, see

How do I change the registered agent’s name and/or registered office address?

The Texas Secretary of State (SOS) maintains and updates Registered Agent and/or Office information. For more information about changing the registered agent’s name or office address, please contact the SOS at 512-463-5555 or visit the SOS website.

If I didn’t know I needed to file, why do I have to pay a late fee?

A $50 penalty is assessed on taxpayers on each report filed after the report due date for the taxes and fees listed below. This penalty is assessed regardless of whether any taxes or fees are due for the late-filed report period. This late-filing penalty is in addition to any other penalties assessed for the reporting period. For more information, see Publication 98-918, Late Filing Penalties (PDF).

After filing your tax report and paying the amount due, you may request a waiver of all penalties assessed by downloading, completing and submitting Form 89-224, Request for Waiver of Penalty for Late Report and/or Payment (PDF).

Where can I find the franchise tax rate?

Franchise tax rates, thresholds and deduction limits vary by report year. Use the rate that corresponds to the year for which you are filing. You can find the appropriate tax rate on our Franchise Tax webpage in the Tax Rates, Thresholds and Deduction Limits section.