Texas Franchise Tax
| Texas Franchise Tax | |
|---|---|
| Project Information | |
| Project Title | Texas Franchise Tax |
| Owner | Cindy Ryoo |
| Start Date | October 30, 2017 |
| Deadline | |
| Keywords | Texas, franchise tax, small businesses |
| Primary Billing | |
| Notes | Sources: Texas Taxpayers and Research Association (TTARA), NOLO |
| Has project status | Active |
| Copyright © 2016 edegan.com. All Rights Reserved. | |
The Texas Franchise Tax is a business tax imposed on all companies and corporations in return for state liability protections. In 2006, the tax was rewritten in attempts to raise annual state revenue. Despite negative effects on large corporations, these changes seem to have a positive effect for small businesses.
Contents
Overview
History
What is the Texas Franchise Tax?
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 to the state in return for liability protections under state law that allow them to be legal, separate entities from 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.
Changes to the Franchise Tax in 2006
In 2006, Texas lawmakers made radical changes to the Franchise Tax in an attempt to raise revenues. According to the Texas Taxpayers and Research Association (TTARA), the franchise tax was rewritten with following policy goals in mind:
- align the tax with a modern economy
- create a simpler business tax
- 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.
