What you need to know about Texas business taxes in 2019

April 17, 2019

texas-business-taxes-in-2019

The Texas franchise tax is a tax imposed on taxable entities organized in Texas or doing business in Texas. Even if your business does not owe taxes, you're required to file a Franchise Tax Report each year. The no tax due threshold has increased $20,000 for 2018 to $1,130,000.  

According to a report from the Texas Taxpayers and Research Association, franchise tax revenue in the past 10 years has decreased and currently represents about 6.5 percent of all state taxes collected. This decline is attributed to the rate reductions enacted by the Legislature in 2013 and 2015 and legislative actions favoring small businesses. While there have been several bills introduced in recent years to decrease and phase out franchise taxes, so far these efforts have not been successful.

What you need to know

You are required to show that your business franchise taxes are current when you borrow money for your business, sell your business or terminate your business. If your company does not file its Franchise Tax Report and pay any applicable taxes it will no longer be in good standing, which means you could be held personally responsible for your business’s obligations. Be sure to discuss this matter with your CPA.

Here are few things to know about business taxes in the state of Texas:

  1. Applies to Taxable Entities. Texas entities and non-Texas entities doing business in Texas, including LLC’s, corporations, partnerships, business trusts, professional associations, business associations and joint ventures, are subject to the Texas franchise tax. Please note the following exceptions:
    1. New veteran owned businesses are not subject to franchise taxes for an initial 5-year period.  
    2. Sole proprietorships are generally not subject to the franchise tax.  
    3. Non-profit entities are subject to the Texas franchise tax unless they obtain an exemption from the Texas Comptroller’s Office.
  2. No Tax Due Report. All taxable entities must file a franchise tax report on the business’s total revenue.  Those businesses whose total revenue is below the no-tax-due threshold qualify to file a No Tax Due Report.  For reports due for 2017, the no-tax-due threshold is $1,110,000.
  3. Public Information Report (PIR). One of the reports included in the annual franchise tax reports is a PIR, which lists the names and address of the company’s officers, directors and members.
  4. May 15 Deadline. The initial report is due one year and 90 days after registration with the Texas Secretary of State’s Office or, in the case of non-Texas taxable entities, after the date the entity began doing business in Texas.  After the initial report is filed, the taxable entity must file an annual report each year by May 15.
  5. Amount Due. The franchise tax base is based on various calculations. The franchise tax rate for most businesses is 1%. Businesses engaged primarily in retail or wholesale may qualify to use a lower rate of 0.5%.

Business tax issues are complex. Business owners should consult with their legal and tax advisers on such matters.  For more information on business legal matters, please contact Kathy Tremmel at Tremmel Law, PLLC at (512) 539-0317 or kathy@tremmellaw.com.

Kathy Tremmel

Tremmel Law

Kathy Tremmel has significant experience both as a business attorney and corporate executive. Her career spans both legal practice and business management and she opened her own solo law practice in January 2010. In additional to running her own practice, she also is of Counsel with Selman, Munser & Lerner, which is a business transaction law firm in Austin, Texas. Ms. Tremmel has more than 10 years’ experience as a business attorney, providing transactional legal services to a diverse client base, from start-up ventures to well established companies. She helps companies with all their contracts, including customer agreements, non-compete agreements, employment agreements, buy-sell agreements, loans, and leases, helps people set up new businesses, and represents buyers and sellers of businesses. In addition, Ms. Tremmel has 10 years of management experience working with start-up companies. As VP of Operations at Tusker Group, an international litigation support company, Ms. Tremmel led international teams, managed production and quality issues, handled price negotiations, worked closely with clients to determine the scope of their projects, provided project management services, and developed, implemented and documented best practices for processing and training. Ms. Tremmel earned a Doctor of Jurisprudence from the University of Colorado School of Law and a Bachelor of Arts from Dartmouth College. She is a Texas licensed attorney and a certified Project Management Professional.
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