How to Fill Out the Franchise Tax Form in Texas
Simplify your Texas franchise tax obligations. This guide helps businesses accurately prepare, complete, and file their annual state tax report.
The Texas Franchise Tax is an annual obligation for certain entities operating within the state. This tax is imposed for the privilege of doing business in Texas, applying to a broad range of entities including corporations, limited liability companies, and partnerships. Unlike an income tax, this levy is based on a business’s “taxable margin,” which represents a specific calculation of revenue after certain deductions. Businesses often file a Franchise Tax Report and a Public Information Report, Form 05-102.
Information Required for Filing
Before completing the Texas Franchise Tax Report, businesses must gather specific financial data to accurately determine their taxable margin. The taxable margin forms the basis for the franchise tax calculation. Businesses must choose from several methods to calculate their taxable margin, and the required information varies slightly depending on the chosen method.
The primary calculation methods for taxable margin involve starting with total revenue, generally derived from amounts reported for federal income tax purposes. From this, a business can subtract either its cost of goods sold (COGS), compensation paid, or elect to use 70 percent of total revenue. A fourth option allows subtracting $1 million from total revenue, with businesses typically selecting the method that results in the lowest margin.
To perform these calculations, businesses need detailed records of their gross receipts or total revenue. If opting for the COGS deduction, comprehensive documentation of eligible costs related to the acquisition and production of tangible personal property is necessary. Businesses choosing the compensation deduction will require precise payroll records, including wages, salaries, and benefits paid.
It is also important to note the “no tax due” threshold, which is $2.47 million in annualized total revenue for reports due on or after January 1, 2024. Entities with revenue at or below this amount must still file a Public Information Report (Form 05-102) or an Ownership Information Report. Businesses with annualized total revenue between $2.47 million and $20 million may qualify to use the EZ Computation report, which simplifies the calculation process.
Key Sections of the Franchise Tax Report
The Texas Franchise Tax Report calculates the taxable entity’s margin. This process begins with reporting total revenue, generally derived from the business’s federal income tax return. Businesses then apply one of the chosen margin calculation methods, such as deducting eligible cost of goods sold (COGS) or compensation paid. For entities that do not qualify for or choose not to use COGS or compensation deductions, the margin can be calculated as 70% of total revenue.
Once the taxable margin is determined, it is apportioned to Texas. This is especially relevant for businesses operating both inside and outside the state. Apportionment uses a single-factor formula based on the ratio of the entity’s Texas gross receipts to its total gross receipts from all business activities. This calculated Texas-apportioned margin is then subject to the applicable tax rate.
The rate is 0.375% for retail or wholesale businesses and 0.75% for all other businesses. Entities using the EZ Computation method, if qualified, apply a rate of 0.331% to their Texas gross receipts.
The Public Information Report (Form 05-102) requires specific administrative information about the entity. This form includes sections for reporting the name, title, and mailing address of each officer and director. It also details information about entities owned by or owning a 10% or more interest in the reporting entity. This information helps maintain public records.
Filing and Payment Procedures
After completing the Texas Franchise Tax Report and the Public Information Report, submit these documents and make any required tax payments. The primary method for both filing and payment is online through the Texas Comptroller’s Webfile system. Electronic filing is generally encouraged and often mandatory based on prior tax payment amounts.
To access the Webfile system, businesses will need their 11-digit Texas Taxpayer Number and a Webfile number, which is typically provided in correspondence from the Comptroller’s office. Taxpayers can navigate to the franchise tax section to upload their completed report or use the online interface to enter the necessary data. The system provides an instant confirmation once the report has been successfully submitted.
Payment for the franchise tax can be made through various electronic options within the Webfile system. Electronic Funds Transfer (EFT) is a common method, allowing direct debit from a bank account, and credit card payments are also accepted. When filing online, taxpayers have the flexibility to schedule their payment for a future date, as long as it is on or before the due date. If filing by mail, payment can be made via check.
The annual filing deadline for the Texas Franchise Tax Report is generally May 15th. If May 15th falls on a weekend or holiday, the due date shifts to the next business day. Extensions to file the report are available, typically extending the deadline to November 15th.
An extension to file does not grant an extension to pay; any tax due must still be paid by the original May 15th deadline to avoid penalties and interest. Taxpayers requesting an extension must generally pay at least 90% of the tax that will be due with the report, or 100% of the prior year’s tax, by the original due date. Retain copies of the submitted report and payment confirmations for record-keeping purposes.