The Texas Franchise Tax is due soon… ONealcpa can help!
The Texas Comptroller defines the franchise tax as:
“A privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas.”
Legally, it’s defined as a fee for the right to conduct a substantial amount of business in Texas. In practice, the franchise tax functions like an additional fee on top of your sales tax. It also shares several similarities with Income Tax.
The tax rate varies depending on the annual revenue of your business:
· Businesses with receipts less than $1.18 million pay no franchise tax.
· Businesses with $1.18 million to $10 million in annual receipts are taxed at a rate of 0.575%.
· Businesses with more than $10 million in revenue pay a franchise tax of 1%.
· A foreign taxable entity with no physical presence in Texas now has nexus if, during any federal accounting period ending in 2019 or later, it has
· Gross receipts from business done in Texas of $500,000 or more.
When you compare it to Texas’ 6.25% sales tax rate, tax rates of 0.575-1% seem low. But in context, the total costs are significant. 1% of $10 million is still $100k.
The important question surrounds who is responsible for paying for this. Unlike sales tax, where the consumer is responsible for the expense, franchise tax comes out of your pocket. This means the franchise tax could cost your business more money than sales tax. That is Assuming you are compliant.
