Texas Franchise Tax: What Small Businesses Need to Know

If your business is an LLC or corporation formed in Texas, or doing business in Texas, you very likely have to file a franchise tax report every year. The tax is administered by the Texas Comptroller of Public Accounts.

What the franchise tax is

It is a tax on the privilege of doing business in Texas. Instead of being based on net income, it is based on the entity's "margin", which is calculated from revenue using one of several methods.

Many small businesses owe no tax, but still have a filing

The state sets a threshold below which no franchise tax is due. An entity whose revenue is below it generally owes nothing. It generally still has to file the Public Information Report (or Ownership Information Report), because the separate "No Tax Due Report" has been discontinued. The threshold is updated from time to time, so check the current figure for the year you are filing.

The Public Information Report

Along with the franchise tax report, most entities file a Public Information Report (or Ownership Information Report) listing officers, directors, managers or members. It is part of the annual filing and is easy to forget.

The due date

The annual report is generally due on May 15. Extensions are available in some cases. Because the form and the rules change, confirm the current ones each year.

What happens if you miss it

Penalties and interest can apply. An entity that stays out of compliance can be forfeited, which means it loses its right to transact business in Texas, and the owners can lose the liability protection the entity was created to provide.

Practical tips

• Keep your registered agent and mailing address current with the state, so notices reach you
• Keep your revenue records and bookkeeping current, since the report is built from them
• Put the filing on your calendar every year, even if you owe nothing
• If you have missed a filing, do not wait: late filings are easier to fix sooner

This is general information about a state tax whose forms and rules change. Check the current instructions from the Comptroller, or ask a tax professional.