Franchise Tax is a tax imposed on every taxable entity formed or doing business in Texas. If you formed an entity, you probably got a notice in the mail notifying you of your franchise tax responsibility and the due dates for such reports.
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For new entities, you most likely will not have any tax due. Business with less than $1,180,000 in annualized total revenue do not owe any franchise tax. However, businesses that do not owe franchise tax must still file a report with the Comptroller for the State of Texas showing that they do not owe any franchise tax. This report is due May 15 of every year.
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If you do have revenue in excess of the threshold, you will need to compute the amount that you owe in franchise tax to the state of Texas. For the time being, the rate of tax is between 0.375% and 0.75% for most taxable entities. For those primarily engaged in wholesale or retail trades, you will pay the low end of the taxable rate. To figure out the margin for your tax rate you would take the least of 1) the total revenue minus cost of goods sold, 2) total revenue minus compensation, 3) 70% of total revenue, or 4) total revenue minus $1million. Once you have figured your margin, you can apply the tax rate and find the total amount of Franchise Tax due. You can also use the online calculator on the website for the Texas Comptroller.
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For San Antonio Small Businesses, the Franchise Tax can be a very simple process and should be easily handled by your business’s Accountant. If you decide to do it on your own, make sure you enter the correct information, save a copy of your form, and meet the deadline to file with the State Comptroller’s Office. San Antonio Small Business Attorney Nathaniel Gilbert helps business owners with questions regarding Franchise Tax and other entity management scenarios. If you’d like to learn more about LLC or partnership management, Click Here. If you ‘d like to get in touch with Nate directly, Click Here.
