What Is Zero Gross Receipts for Texas Franchise Tax?

The Texas franchise tax is a levy imposed on most businesses formed or operating within the state. This tax functions as a privilege tax, meaning it is a fee for the authorization to conduct business activities in Texas. Unlike a sales tax, which is collected from consumers, the franchise tax is a direct obligation of the business entity itself.

The calculation of this tax is primarily based on a company’s “margin,” a specific term defined by Texas tax law. “Total revenue,” often synonymous with “gross receipts,” serves as the initial figure in determining this margin. Understanding how gross receipts are defined and their role in the margin calculation is fundamental for compliance with Texas franchise tax requirements.

Defining Gross Receipts for Texas Franchise Tax

For Texas franchise tax purposes, “gross receipts” refers to all revenue a business receives from its activities. This broad definition includes income from the sale of goods, services rendered, interest earned, and dividends received. These are total amounts before any deductions for costs of goods sold, labor, or other operating expenses.

Texas law requires businesses to use the same accounting methods for gross receipts as for federal tax reporting. For businesses operating in multiple states, only the portion of gross receipts attributable to Texas activities is considered. Sales of tangible goods are apportioned to Texas if delivered to a buyer in the state, while service revenue is sourced to where the service is performed.

What Constitutes Zero Gross Receipts

Reporting “zero gross receipts” for Texas franchise tax means a taxable entity generated no revenue from its activities within Texas during its accounting period. This differs from having low revenue that falls below the “no tax due” threshold, which is currently $2.47 million for reports due in 2024 and 2025.

A business could have substantial total revenue from operations outside of Texas but still report zero Texas gross receipts if no income-generating activity occurred within the state. For instance, a company based in another state with Texas registration might have significant overall revenue but no sales or services sourced to Texas. No payments qualifying as revenue were received from Texas-based activities.

Filing Obligations for Zero Gross Receipts

Even with zero Texas gross receipts, taxable entities retain filing obligations with the Texas Comptroller of Public Accounts. For reports due on or after January 1, 2024, the “No Tax Due Report” (Form 05-163) has been discontinued. Businesses with zero Texas gross receipts must now file either the Texas Franchise Tax Report (Long Form, Form 05-158) or the Texas Franchise Tax EZ Computation Report (Form 05-169).

On these forms, businesses must compute their total revenue and report zero on the line designated for Texas gross receipts. In addition to the franchise tax report, most taxable entities must file an annual information report: either the Public Information Report (PIR) (Form 05-102) or the Ownership Information Report (OIR) (Form 05-167). The PIR is for corporations, LLCs, and limited partnerships, while the OIR applies to other entities like general partnerships or trusts.

These reports are due by May 15 each year, aligning with the franchise tax report deadline. Failing to file the required PIR or OIR, even if no tax is due, can lead to penalties, including a $50 fee and potential forfeiture of the entity’s right to transact business in Texas. Adherence to these filing requirements is essential to maintain good standing with the state.