The January 1, 2024, Texas franchise tax filing deadline was the first for some business owners to avoid paying or even filing a “no taxes due” form.
The Texas franchise tax exemption has doubled, allowing up to $2.47 million of an entity’s total taxable revenue to be exempted from franchise taxes. The move completely eliminates annual franchise taxes for an estimated 67,000 small- to medium-sized businesses that no longer have to file a no-taxes-due form, either.
The move was part of an omnibus property tax relief package the Legislature approved during its second special session over the summer and approved as a constitutional amendment in November. The package included the infamous property tax relief bill, which required school districts in the state to reduce their initial 2024 tax rate by -$0.107 and also significantly raised homestead exemption discounts for school taxes.
The franchise tax changes give relief to growing businesses in a state that already boasts no corporate income tax. However, it’s important to note that 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.
In response to the newly passed legislation, the Texas Comptroller’s office has announced changes to the way some entities must report for franchise tax purposes. Here’s a rundown:
- A taxable entity whose annualized total revenue is less than or equal to $2.47 million is no longer required to pay franchise taxes or file a No Tax Due Report. However, the entity is still required to file Form 05-102 (Public Information Report) or Form 05-167(Ownership Information Report).
- A combined group must include all taxable entities in the combined group report even if any member, on a separate entity basis, has annualized total revenue at or below the no-tax due threshold.
- For combined groups below the threshold, a No Tax Due Report, an Affiliate Schedule, or a Common Owner Information Report for that year is not required. A Public Information or Ownership Information Report may still be, however.
- A qualifying new veteran-owned business is not required to file a No Tax Due Report or a Public Information or Ownership Information Report during its initial five-year period.
- Qualifying passive entities must file either the EZ Computation Report or the Long Form, marking the appropriate circle at the top of the form and signing it, but no longer need to provide information in any other section of the report or file a Public Information or Ownership Information Report.
- Qualifying real estate investment trusts (REITs) must also file either the EZ Computation Report or the Long Form, marking the appropriate circle at the top of the form and signing it, but must also continue to file a Public Information or Ownership Information Report.
- A taxable entity with zero Texas gross receipts must file either the EZ Computation Report or the Long Form, complete specific line items on the form (reporting zero on the Texas gross receipts line) and continue to file a Public Information or Ownership Information Report.
The move is a time and expense win for small and growing Texas businesses. Don’t forget to take advantage. The Texas Comptroller shares more about these new changes here. Feel free to contact us with questions.