What Are Texas Gross Receipts and How Are They Calculated?

Businesses operating in Texas are subject to the state’s franchise tax, which is based on gross receipts. Unlike a traditional income tax, this levy considers total revenue before deductions, making it essential for businesses to understand how it’s calculated and what factors impact their liability.

To comply, companies must know what counts toward gross receipts, industry-specific variations, potential exclusions, and how multi-state operations affect apportionment.

Scope and Components

Texas gross receipts include all revenue a business earns from in-state activities, forming the basis for franchise tax calculations. This covers sales of goods, services, rents, royalties, and other income streams. The Texas Comptroller defines gross receipts broadly, requiring businesses to account for nearly all revenue sources unless specifically excluded by law.

Revenue is categorized based on its source, affecting how receipts are reported. Service-based businesses report receipts based on where the service is performed, while sales of tangible goods are sourced to Texas if the item is delivered to a buyer in the state. This distinction determines the portion of a company’s total revenue subject to Texas taxation.

Certain income types, such as interest, dividends, and gains from asset sales, may also be included depending on the business. Financial institutions report loan interest and fees as taxable receipts, while retailers primarily report product sales. Proper classification is essential to accurately determine tax liability.

Certain Industry Variations

Industries have unique considerations when determining taxable gross receipts. Construction companies report revenue based on where the work is performed, not where the contract is signed. A Texas contractor working on an out-of-state project may exclude that income, while an out-of-state contractor performing work in Texas must report it.

Healthcare providers follow specific sourcing rules for patient service revenue. Payments from private insurers, Medicare, or Medicaid are reported based on where the service was rendered. A Texas hospital treating an out-of-state patient still counts that revenue as Texas-sourced. Telemedicine services require businesses to determine whether revenue should be sourced based on the service location or the patient’s location.

Technology companies, particularly those offering software-as-a-service (SaaS) or digital products, must determine how to source revenue. Texas follows a user-location approach for SaaS, meaning sales to Texas customers are included in gross receipts even if the company is headquartered elsewhere. Traditional software sales, however, depend on the delivery location.

Exclusions and Adjustments

Not all revenue is subject to Texas franchise tax, as certain exclusions and adjustments reduce taxable gross receipts. One major exclusion is the pass-through of payments for businesses acting as agents or intermediaries. Travel agencies and real estate brokerages, for example, collect funds on behalf of clients but do not retain them as revenue. Proper documentation allows these amounts to be excluded.

Refunds and reimbursements also adjust taxable revenue. If a company issues a refund or receives a reimbursement for expenses incurred on behalf of another entity, these amounts may be deducted. For example, if a manufacturer refunds customers for defective products, the refunded portion is not taxable. Similarly, companies in joint ventures or partnerships can exclude properly structured reimbursements for shared costs.

Bad debt is another adjustment. When businesses extend credit and later determine certain accounts are uncollectible, they may deduct these losses from gross receipts. Texas tax law allows companies to reduce taxable revenue by the amount of bad debt written off for federal income tax purposes, aligning state tax treatment with generally accepted accounting principles (GAAP).

Apportionment for Multi-State Entities

Businesses operating in multiple states must determine what portion of their revenue is subject to Texas franchise tax. Texas uses a single-factor apportionment formula based solely on gross receipts. A company calculates its Texas gross receipts, divides that by its total gross receipts from all sources, and applies the resulting percentage to its taxable margin.

Revenue sourcing rules are central to this process. Sales of tangible goods are apportioned based on destination, meaning only sales delivered to Texas customers count toward the numerator of the apportionment formula. Service-based businesses apply the “receipts-producing, end-product act” test, which evaluates where the economic benefit of the service is received. If a consulting firm provides strategic advice to an out-of-state client but performs the work in Texas, that revenue is generally included in Texas gross receipts.

Filing Process

Businesses subject to the Texas franchise tax must file an annual report with the Texas Comptroller, detailing their gross receipts and calculating their tax liability. The standard due date for most entities is May 15, though extensions may be available. Late filings result in penalties, including a $50 fee and interest charges on unpaid amounts.

The appropriate filing form depends on total revenue. Entities with annualized total revenue below the no-tax-due threshold—$1.23 million as of 2024—must file a No Tax Due Report but do not pay franchise tax. Businesses exceeding this threshold must submit either a Long Form or EZ Computation Report, depending on their revenue and deductions. Electronic filing is mandatory for entities paying $50,000 or more in franchise tax.

Documentation for Compliance

Maintaining proper records is necessary for businesses to substantiate their gross receipts calculations. The Texas Comptroller may audit businesses to verify reported revenue, making comprehensive documentation essential.

Businesses should retain financial statements, general ledgers, and sales records that detail revenue sources. Contracts, invoices, and bank statements provide further support, particularly for companies with complex revenue streams. Entities claiming exclusions or adjustments, such as bad debt deductions or pass-through income, must maintain supporting documentation, including customer correspondence, refund records, and loan write-off reports.