In my most recent blog post, I finished going through the process for computing a taxable entity’s Texas Franchise Tax responsibility. That post can be found here. However, at the end of that post, I noted that there were exceptions to that process. Those will be discussed below.
No Texas Franchise Tax Report Filing Responsibility
In addition to exceptions mentioned in prior posts for non-taxable entities or passive entities, there are also exceptions based on reported amounts. Texas Tax Code § 171.002(d) provides that a taxable entity is not required to pay any tax and is not considered to owe any tax for a period if:
- The amount of tax computed for the taxable entity is less than $1,000; or
- The amount of the taxable entity’s total revenue from its entire business is less than or equal to $2.47 million or the amount determined under Section 171.006 per 12-month period on which margin is based. [1]
For reports due before January 1, 2024, taxable entities falling within either of the above will still need to file a “No Tax Due” franchise tax report. However, due to recent changes in legislation, for reports due on or after January 1, 2024 (i.e., beginning with the 2024 Report Year), these entities are no longer required to file a No Tax Due report, but must still file the required public information report. [2]
E-Z Computation
There is also separate rate applicable to taxable entities with total revenue, from their entire business, of not more than $20 million during the applicable report year. [3] The “E-Z Computation” does not require determining taxable margin, but instead requires the following steps:
- Determine total revenue from the entity’s entire business;
- Apportion this amount to Texas; and
- Apply a tax rate of 0.331%. [4]
Taxpayers will want to keep in mind that, while this E-Z computation bypasses the taxable margin computation, but also necessarily bypasses the deductions permitted under that computation (i.e., $1 million, COGS, or compensation). The E-Z computation is elective, so taxpayers will need to carefully consider whether the E-Z computation is beneficial in their particular situation.
[1] Tex. Tax. Code § 171.002(d).
[2] Texas Comptroller of Public Accounts, Changes to No Tax Due Reporting for 2024 Reports, available at https://comptroller.texas.gov/taxes/franchise/ntd-rpt-updates-2024.php.
[3] Tex. Tax Code § 171.1016(a).
[4] Tex. Tax Code §§ 171.1016(b)(1)-(3).
