This information applies to reports originally due on or after Jan. 1, 2008, unless otherwise noted.
Each taxable entity formed in Texas or doing business in Texas must file and pay franchise tax. These entities include:
See Franchise Tax Rule 3.586 for a list of some activities considered to be “doing business in Texas.”
The following entities do not file or pay franchise tax:
Franchise tax is based on a taxable entity’s margin. Unless a taxable entity qualifies and chooses to file using the EZ computation, the tax base is the taxable entity’s margin and is computed in one of the following ways:
Total revenue is determined from revenue amounts reported for federal income tax minus statutory exclusions.
Exclusions from revenue include the following:
See Tax Code Section 171.1011 and Rule 3.587 for more information about total revenue.
Cost of goods sold generally includes costs related to the acquisition and production of tangible personal property and real property. There are other cost of goods sold allowances for certain industries. Taxable entities that only sell services will not generally have a cost of goods sold deduction.
See Tax Code Section 171.1012 and Rule 3.588 for more information about cost of goods sold.
The compensation deduction includes the following:
Compensation does not include 1099 labor or payroll taxes paid by the employer.
See Tax Code Section 171.1013 and Rule 3.589 for more information about compensation.
Margin is apportioned to Texas using a single-factor apportionment formula based on gross receipts.
See Tax Code Section 171.106 and Rule 3.591 for more information about apportionment.
The following franchise tax credits are available:
Taxable entities that are part of an affiliated group engaged in a unitary business must file a combined group report. Members of a combined group must use the same method to compute margin.
See Tax Code Section 171.1014 and Rule 3.590 for more information on combined reporting.
Each taxable entity must file a Franchise Tax Report (No Tax Due, EZ Computation or Long Form) and an Information Report (Public Information Report or Ownership Information Report).
See Tax Rates for information on current and historic tax rate information.
Franchise tax reports are due on May 15 each year. If May 15 falls on a Saturday, Sunday or legal holiday, the next business day becomes the due date.
The Comptroller’s office will tentatively grant an extension of time to file a franchise tax report upon timely receipt of the appropriate form. Timely means the request is received or postmarked on or before the due date of the original report. See Franchise Tax Extensions of Time to File for more information.
You can file your franchise tax report, or request an extension of time to file, online.
There is a $50 penalty for a franchise tax report filed after the due date, even if no tax is due with that report and even if the taxpayer subsequently files the report.
Visit our website for more information about the franchise tax, including answers to frequently asked questions.
This publication is intended as a general guide and not as a comprehensive resource on the subjects covered. It is not a substitute for legal advice.