Thanks to the increasing trend toward franchising, the number of businesses subject to the franchise tax in Texas has dramatically expanded during the past two years. Many business owners are unaware of what this new duty implies as thousands of them are still figuring out how to comply with sales tax laws. To resolve your confusion here is all you need to know about the franchise tax in Texas.
What is Franchise Tax in Texas?
The Texas Comptroller defines Franchise Tax in Texas as—“a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas.”
According to the law, it is referred to be a price for the privilege of conducting a sizable amount of business in Texas. The franchise Tax in Texas actually works as an extra charge on top of your sales tax.
The tax rate changes according to a company’s yearly revenue:
- Businesses having annual sales of up to $1.18 million are exempt from the franchise tax.
- Businesses with annual revenue between $1.18 million and $10 million are subject to a 0.575% tax.
- A 1% franchise tax is applied to companies with annual sales of $10 million or higher.
- A foreign taxable entity with no physical presence in Texas now has nexus if, during any federal accounting period ending in 2019 or later, it has gross receipts from business done in Texas of $500,000 or more.
Tax rates of 0.575-1 are low when compared to Texas’ 6.25 percent sales tax rate. This is the reason why you, must pay franchise tax as opposed to sales tax, which is borne by the customer.
Here are some of the FAQs about franchise tax in Texas:
What is Texas franchise tax based on?
The franchise tax in Texas is computed using the margins of taxable enterprises. The tax base is established using one of the following procedures if a taxable entity does not meet the requirements or elects to utilize the EZ computation: 70% of revenues or revenue less the cost of goods sold (COGS).
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.
Do I have to file franchise tax?
The material that follows is relevant. Whether you are a resident, part-year resident, or non-resident, you must generally file an income tax return if you meet the following criteria: must submit a federal tax return.
Who needs to pay CA franchise tax?
Every corporation operating in California or eligible to do so is required by law to pay a minimum franchise tax of $800. California corporations that have been incorporated or are eligible to conduct business in California are exempt from paying the minimum franchise tax during their first year of operation.
Also Read: How Industry 4.0 will revolutionize Manufacturing?
