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Controlling Your Taxes Your State Tax Obligations Texas Taxes on Business Income in Texas Franchise Tax in Texas
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In Texas, corporation franchise tax is computed on both taxable capital and a taxable earned surplus basis. Your business pays on the basis that produces the greater tax.
Franchise tax expanded. Applicable to reports originally due on or after January 1, 2008, the Texas franchise tax will be imposed on each taxable entity that does business in Texas, or that is chartered or organized in Texas, at a rate of 1% per year. The rate will be 0.5% per year for those taxable entities primarily engaged in retail or wholesale trade. The 0.5% rate applies to the lesser of 70 percent of total revenues. or 100% of gross receipts, as adjusted. Entities with a computed tax of less than $1,000 will not be subject to the tax, nor will entities with a total revenue from the entire business that is less than or equal to $300,000 (this amount will be adjusted annually beginning in 2009).
A "taxable entity" means a partnership, corporation, banking corporation, savings and loan association, limited liability company, business trust, professional association, business association, joint venture, joint stock company, holding company, or other legal entity, including a combined group. The term does not include:
- sole proprietorships;
- a general partnership, the direct ownership of which is entirely composed of natural persons;
- a passive entity; and
- entities exempt from the current franchise tax, such as certain insurance companies, railroad terminal corporations, open-end investment companies, and nonprofit companies.
