taxes

New Veteran-Owned Businesses and Texas Franchise Tax

Announcement

In the 87th Legislature, Regular Session, Senate Bill 938 reinstated the new veteran-owned business provision effective Jan. 1, 2022. Under the reinstated provision, a qualifying new veteran-owned business must be formed on or after Jan. 1, 2022, and before Jan. 1, 2026. A new veteran-owned business formed between Jan. 1, 2020 and Dec. 31, 2021 (the period during which the previous provision was expired), does not qualify.

A qualifying new veteran-owned business is not subject to franchise tax for its initial five-year period, but must file Form 05-163, Texas Franchise Tax No Tax Due Report (PDF), for each of those years. For more information, see Texas Tax Code Section Section 171.0005, Definition of New Veteran-Owned Business and Rule 3.574, Margin: New Veteran-Owned Businesses.

To be considered a new veteran-owned business, an entity must:

  • be formed or organized in Texas either
    • on or after Jan. 1, 2016, and before Jan. 1, 2020; or
    • on or after Jan. 1, 2022, and before Jan. 1, 2026;
  • be 100 percent owned by a natural person or persons, with each owner being an honorably discharged veteran from a branch of the U. S. Armed Services; and
  • provide a Letter of Verification of Veteran’s Honorable Discharge issued for each owner by the Texas Veterans Commission.

The Texas Comptroller of Public Accounts verifies this information. If, during the initial five-year period, a new veteran-owned business no longer meets the above criteria, the entity must notify the Comptroller’s office; and the entity becomes subject to franchise tax.

Verification Process for a New Veteran-Owned Business

For your new veteran-owned business to qualify for the five-year franchise tax exemption, you must complete three steps:

Step 1 – Request a Letter of Verification of Veteran’s Honorable Discharge from the Texas Veteran’s Commission (TVC)

To receive a Letter of Verification of Veteran’s Honorable Discharge that includes a unique alpha-numeric identification code, each veteran-owner must email a request, along with their Department of Defense Form 214 (DD214), to the TVC at vep@tvc.texas.gov. Please black out the Social Security number on the DD214 before emailing.

Each emailed request must include:

  • the date of the request
  • the veteran’s:
    • first name, middle initial, last name;
    • mailing address;
    • city, state, ZIP code;
    • telephone number;
  • the following statement: “In accordance with the verification provision of Senate Bill 938, I am hereby requesting verification of my status as a Veteran of the United States Military.”
  • the veteran’s signature
Step 2 – Complete Comptroller Form 05-904

Once all owners have received their Letter of Verification of Veteran’s Honorable Discharge from the TVC, complete Comptroller Form 05-904, Certification of New Veteran-Owned Business (PDF).

You must enter each owner’s:

  • name
  • unique alpha-numeric identification code from their Letter of Verification of Veteran’s Honorable Discharge
  • percentage of ownership in the business
  • signature.

Include as many pages as needed to identify 100 percent ownership in the business.

Step 3 – Submit Required Formation/Registration and Verification Documents

A veteran-owned business must either form with the Secretary of State (SOS) or register with the Comptroller’s office. Please use the instructions below to complete Step 3.

Qualifying Entities Forming or Previously Formed With the Secretary of State

If you formed, or are forming, a new veteran-owned business as a corporation, limited liability company, limited partnership, limited liability partnership or professional association, you must file these documents with the SOS:

Mail your documents to the following address:

Secretary of State
P.O. Box 13697
Austin, TX 78711-3697

Contact the SOS at 512-463-5555 for filing assistance.

Entities Not Required to be Formed With the Secretary of State

If you formed, or are forming, a new veteran-owned business as any other entity type that is subject to franchise tax, you must file these documents with the Comptroller’s office:

Mail your documents to the following address:

Comptroller of Public Accounts
P.O. Box 149348
Austin, TX 78714-9348

Contact the Comptroller’s office at 512-463-4402 for assistance.

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