taxes

Franchise Tax Frequently Asked Questions

Reports and Payments

What is franchise tax?

The Texas franchise tax is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas.

What does an entity file if it is ending its existence or no longer has nexus?

An entity ending its existence that is not part of a combined group must file

  • its annual report for the current privilege period,
  • a final report, and
  • the appropriate information report.

To determine whether you should file Form 05-102, Texas Franchise Tax Public Information Report (PDF), or Form 05-167, Texas Franchise Tax Ownership Information Report (PDF), see this question below: Which entities file Form 05-102, Texas Franchise Tax Public Information Report (PDF), and which entities file Form 05-167, Texas Franchise Tax Ownership Information Report (PDF)?

If your entity is a member of a combined group, see Rule 3.590(k) to determine whether you are required to file a final report in addition to the annual report and appropriate information report.

If tax due is more than $1,000, but annualized total revenue is less than the no-tax-due threshold amount, do I owe the tax?

A taxable entity will owe no tax based on the following criteria. Note that the reporting requirements are different for each scenario.

  • If annualized total revenue is less than the no-tax-due threshold amount, then the taxable entity files Form 05-163, Texas Franchise Tax No Tax Due Report (PDF).
  • If the tax due is less than $1,000, but annualized total revenue is greater than the no-tax-due threshold amount, then a No Tax Due Information Report cannot be filed. A franchise tax report supporting the amount of tax due (Form 05-158, Texas Franchise Tax Report (PDF), or Form 05-169, Texas Franchise Tax EZ Computation Report (PDF)) must be filed. Thus, when the amount of tax due shown on these forms is less than $1,000, the entity files the report but does not owe any tax.

Learn about the no-tax-due threshold amounts for each report year by reading this question below: How much is the no-tax-due threshold amount?

Filing for each of these two scenarios must include the appropriate information report (Form 05-102, Texas Franchise Tax Public Information Report (PDF), or Form 05-167, Texas Franchise Tax Ownership Information Report (PDF)) based on entity type. For entities electing to report using the tiered partnership provision, read more about tiered partnership provisions and their no-tax-due qualification requirements.

What is the E-Z Computation, and who is eligible for it?
  • For reports originally due on or after Jan. 1, 2016, a taxable entity with annualized total revenue of $20 million or less can elect to compute the franchise tax by multiplying total revenue by the apportionment factor and then multiplying the apportioned total revenue by a tax rate of 0.331 percent.
  • For reports originally due on or before Dec. 31, 2015, a taxable entity with annualized total revenue of $10 million or less can elect to compute the franchise tax by multiplying total revenue by the apportionment factor and then multiplying the apportioned total revenue by a tax rate of 0.575 percent.

A taxable entity that elects to use the E-Z Computation is not eligible for the cost of goods sold (COGS), compensation or other margin deductions and may not claim any credits (Texas Tax Code 171.1016).

If the accounting period on my franchise tax report is not 12 months, how do I annualize total revenue to determine my eligibility for the no-tax-due threshold and qualification for the E-Z Computation?

When the accounting period upon which the franchise tax report is based is more or less than 12 months, a taxable entity must annualize its total revenue to determine its eligibility for the no-tax-due threshold and qualification for the E-Z Computation. To annualize total revenue, divide total revenue by the number of days in the period upon which the report is based, then multiply the result by 365.

EXAMPLE

  • A taxable entity's 2014 franchise tax report is based on the period Sept. 15, 2013, through Dec. 31, 2013 (108 days).
  • Its total revenue for the period is $350,000.
  • Its annualized revenue is $1,182,870 ($350,000 divided by 108 days multiplied by 365 days).

Because annualized revenue is not less than the $1,080,000 no-tax-due threshold, the taxable entity does not qualify to file a No Tax Due Information Report. It is eligible to file using the E-Z Computation.

Is the information I report on the Ownership Information Report (OIR) public information?

No. TTC 171.206 says "&helip;the following information is confidential and may not be made open to public inspection: 1) information that is obtained from a record or other instrument that is required by this chapter to be filed with the comptroller." We believe this provision makes the information on the OIR confidential.

What if entities filed separate reports and later determine they should have filed a combined report?

The entity that filed incorrectly should submit a letter with its name and taxpayer number stating that the report was filed in error and the entity will report with a combined group. The letter must also include the name and taxpayer number of the combined group's reporting entity, along with a request for a refund or authorization to transfer any tax payment from the member's account to the reporting entity's account.

Which entities file Form 05-102, Texas Franchise Tax Public Information Report (PDF), and which entities file Form 05-167, Texas Franchise Tax Ownership Information Report (PDF)?

Each taxable entity that is legally formed as a corporation, limited liability company, professional association, limited partnership or financial institution files a public information report (PIR).

Associations, trusts and all other taxable entities file the OIR. Prior to Jan. 1, 2016, professional associations and limited partnerships were required to file OIRs instead of PIRs.

Each member of a combined group must submit a separate PIR or OIR unless the member does not have nexus in Texas.

How do I complete Section A on Form 05-167, Texas Franchise Tax Ownership Information Report (PDF), if I do not have limited or general partners?
  • Trusts should report their trustee information and not check any box (PARTNER or OTHER).
  • Associations should report information for the individuals who have authority to sign a contract on behalf of the association and not check any box (PARTNER or OTHER).
  • All other entities should report their executive board members and check the OTHER box.
May I leave the registered agent's information blank if I do not have one?

No. TTC 171.354 states each taxable entity on which the franchise tax is imposed shall designate a resident of this state as the taxable entity's agent for the service of process.

Can I amend my franchise tax report?

An amended report may be filed

  • to correct a mathematical or other error in a report;
  • to support a claim for refund;
  • to change the method of computing margin; or
  • to elect to use the COGS or the compensation deduction.

Note that taxpayers who elected to use the E-Z Computation Report or filed the No Tax Due Information Report may amend to the long form and elect to use the COGS or the compensation deduction. An amended report that results in a reduction of tax liability is a request for refund and must meet refund requirements.

When is a newly taxable entity's first report due?

A taxable entity first subject to franchise tax on or after Oct. 4, 2009, will file a first annual report, instead of an initial report, on May 15 of the year following the year the entity became subject to the tax.

A taxable entity, therefore, that became subject to franchise tax during calendar year 2013 had a 2014 annual report due on May 15, 2014.

The privilege period covered by the first annual report will be from the date the entity becomes subject to franchise tax through Dec. 31 of the following calendar year. For example, an entity becoming subject to franchise tax on Nov. 15, 2013, filed a 2014 annual report due May 15, 2014, for the privilege period Nov. 15, 2013, through Dec. 31, 2014.

The accounting period covered by the first annual report will be based on the accounting period beginning on the date the entity becomes subject to franchise tax and ending on the last accounting period ending date for federal income tax purposes in the same calendar year as the beginning date. For example, for report year 2014, the accounting period ending date for an entity with a fiscal year end of Sept. 30 will be Sept. 30, 2013.

To learn more about what to do when an entity's accounting year end date is before the date it becomes subject to the franchise tax, read this question below: What if the entity's normal accounting year end date is before the date it became responsible for franchise tax?

What happens if my business closes in its first year?

To end its existence in its first year, an entity must satisfy franchise tax filing requirements prematurely. If the entity ceases business and has not had an accounting year end, the entity will file an annual franchise tax report (No Tax Due or EZ Computation, if qualified, or Long Form) and the appropriate information report, and pay any tax due

If the entity is a fiscal year end taxpayer that ceases business after its normal accounting year end, it must file both an annual and a final report. The annual report will cover the period from its beginning date through the entity's normal accounting year end. The final report will cover the day after its normal year end through the last day the entity conducted business. Only one information report is due.

In both cases, write the word PREMATURE across the top of the report(s). Include Form 05-359, Request for Certificate of Account Status to Terminate a Taxable Entity's Existence in Texas or Registration (PDF). The entity must file this certificate as part of the termination filing to end the entity's existence with the Secretary of State. Entities not registered with the Secretary of State must notify our office in writing of the last day business was conducted.

What if the entity's normal accounting year end date is before the date it became responsible for franchise tax?

If the entity's normal accounting year ending date is before the date the entity first became responsible for the tax, the first annual report filed will reflect a one-day accounting period (that is, the accounting year end date will be the same as the accounting year begin date).

EXAMPLE: An entity became subject to franchise tax Oct. 5, 2011. The entity's normal accounting year ending date is Aug 31. The entity cannot file with an Aug. 31, 2011, accounting year end for the 2012 franchise tax report, because Aug. 31, 2011, is before the date the entity first became subject to the tax. In this case, the entity will file with a one-day accounting year beginning and ending date of Oct. 5, 2011, for the privilege period Oct. 5, 2011, through Dec. 31, 2012. This will be a zero return. In 2013, the entity will file with an accounting period Oct. 5, 2011, through Aug. 31, 2012, for the privilege period ending Dec. 31, 2013.

What's the best way to make a payment on the due date?

If you are not paying electronically, your payment will be considered timely if it is postmarked on or before the due date, or hand delivered to a local Comptroller's office during normal business hours on or before the due date.

If you are paying electronically using the Web EFT (electronic check) method in WebFile, you have until midnight (CT) on the due date for your payment to be considered timely.

If you are paying electronically using TEXNET, read more about a "TEXNET Missed Payment Deadline" if you wish to make a payment by wire transfer.

Wire transfer is not an option if you are not enrolled in TEXNET.

How much is the no-tax-due threshold amount?

The no-tax-due threshold is adjusted each even-numbered year as required by TTC Section 171.006.

No Tax Due Threshold
(per 12-month period on which the margin is based)
For franchise tax reports originally due&helip; The no tax due threshold is&helip;
on or after Jan. 1, 2016, and before Jan. 1, 2018 $1,110,000
on or after Jan. 1, 2014, and before Jan. 1, 2016 $1,080,000
on or after Jan. 1, 2012, and before Jan. 1, 2014 $1,030,000
on or after Jan. 1, 2010, and before Jan. 1, 2012 $1,000,000
on or after Jan. 1, 2008, and before Jan. 1, 2010 $300,000