The Texas franchise tax exemption nearly doubled to $2.47 million in 2024, and many businesses are breathing a sigh of relief. But we’ve noticed some confusion about who qualifies and what other obligations still apply.
The Texas franchise tax exemption increase eliminates annual franchise taxes for an estimated 67,000 small- to medium-sized businesses that no longer have to file a “No Tax Due” form, either. However, if you are near this threshold, heed the following:
Add it up.
First, the Texas franchise tax is based on gross receipts, not on net corporate income. If you’re new to doing business in Texas, this may come as a surprise since only four states (Texas, Nevada, Ohio, and Washington) apply franchise taxes in this way. Second, the threshold applies to combined entities, so businesses with multiple entities need to consider their total combined revenue when determining their filing requirements.
Don’t overlook other filing requirements.
Even if you qualify for the “No Tax Due” report, many Texas entities (including LLCs, corporations, and limited partnerships) are still required to file a Form 05-102 (Public Information Report) and Form 05-167 (Ownership Information Report). These reports provide essential information about your business’s ownership and structure and must be submitted to remain in compliance with Texas state regulations. And while we’re talking ownership reports, there’s a new federal filing requirement for most small businesses as well: The CTA’s Beneficial Ownership Information (BOI) Report.
When in doubt, figure it out.
The state of Texas takes compliance seriously, and failure to file the necessary reports (and, of course, pay the taxes) can result in painful fines and other penalties. If you do any business in Texas, whether you’re based in the Lone Star state or not, investigate your obligations. For example, Swift Transportation recently lost a Texas Supreme Court case in which the trucking company claimed it and other motor carriers should be exempt from the state’s franchise tax. Turns out, “doing business” in Texas, for some, includes merely driving through it.
For other points, including exemptions for new veteran-owned businesses, filing requirements for passive entities and real estate investing trusts (REITs), and taxable entities with zero Texas gross receipts, review our previous post here.
As always, feel free to contact us with questions.