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=History===What is the Texas Franchise Tax?==
Texas Franchise Tax (view source)
Revision as of 13:40, 21 September 2020
, 13:40, 21 September 2020no edit summary
{{Project|Has project output=Content,Guide|Has sponsor=McNair ProjectsCenter
|Has title=Texas Franchise Tax
|Has owner=Cindy Ryoo
|Has start date=October 30, 2017
|Has keywords=Texas, franchise , tax, small businesses, Greg Abbott
|Has project status=Active
}}
=Project Description=
The Texas Franchise Tax is a business tax imposed on all companies and corporations in return for state liability protections for doing business in the state. In 2006, the tax was rewritten in attempts to raise annual state revenue. In 2015, Governor Greg Abbott signed a legislative bill to decrease tax rates by 25%. These changes to the franchise tax make Texas a favorable business climate in terms of taxes, especially for smaller corporations.
=Progress Report=
Currently waiting on feedback from Anne to make edits.
=Project Data Location=
E:\McNair\Projects\Texas Franchise Tax
=OverviewDependencies=The Texas Franchise Tax is a business tax imposed on all companies and corporations in return for state liability protections for doing business in the state. In 2006, the tax was rewritten in attempts to raise annual state revenue. In 2015, Governor Greg Abbott signed a legislative bill to decrease tax rates by 25%. These changes to the franchise tax make Texas a favorable business climate in terms of taxes, especially for smaller corporationsNone.
The Texas Franchise Tax, commonly known as the "margin" tax, is a business tax that has been in place in Texas since the 1880s. Businesses are required to pay this tax as a fee in return for liability protections under state law that allow them to be legal, separate entities from the state. It is also known as the "privilege" tax, to signify the "privilege" of doing business within the state. For most of the 1900s, the amount paid by the business depended on its net taxable capital (taxable capital gain minus loss, such as debt). But in 1991, the franchise tax was changed to include "earned surplus," which not only includes company profits but also compensation for directors and officers. The Texas Franchise tax is based off of specific rates of a business' taxable margin rather than a minimum amount. According to Comptroller.texas.gov, the taxable margin must be computed in one of the following ways:
*total revenue times 70%
*eliminate tax planning opportunities
*raise roughly $3 billion in new state revenue annually
Before these sweeping changes, the franchise tax only applied to corporations and limited liability companies (LLC). After 2006, the tax not only extended to partnerships and professional associations but also became a mixture of a tax on gross receipts as well as income, without fulling transforming into either of the two types of taxes. []
==2015==
**to 0.575% of revenue threshold of $10 million
[Table 2[File: insert comptroller table for 2015 vs 2016/Franchise_Tax_2015.jpg]] [[File:Franchise_Tax_2016-2017.jpg]]
Tables adapted from: https://comptroller.texas.gov/taxes/franchise/ =Competitive Advantages of Doing Business in Texas=
Texas fosters a favorable tax environment by enforcing franchise taxes that are significantly lower than those of other states and not imposing a personal income tax. This is especially helpful for small businesses that are struggling to establish themselves and grow in their first years. Business that earn less than the EZ Computation Total Revenue Threshold of $20 million in annual revenue can instead file taxes through an EZ Computation Form that has a further reduced tax rate than the normal franchise tax (0.331%). Furthermore, Texas has a no-tax-due threshold of $1.1 million, which means that businesses that have a total annual revenue of less than or equal to $1.1 million are not required to pay any franchise taxes.
=Types of Businesses=
This information is adapted taken from Comptrollerhttps://comptroller.texas.gov/taxes/publications/98-806.php:
==Entities Subject to Franchise Tax==
Each taxable entity formed in Texas or doing business in Texas must file and pay franchise tax. These entities include:
*business associations
*joint ventures
*other legal entities.
==Entities Not Subject to Franchise Tax==
*a trust exempt under Internal Revenue Code Section 501(c)(9)
*unincorporated political committees
=Sources=
