Difference between revisions of "Texas Franchise Tax"
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|Has owner=Cindy Ryoo | |Has owner=Cindy Ryoo | ||
|Has start date=October 30, 2017 | |Has start date=October 30, 2017 | ||
| − | |Has keywords=Texas, franchise tax, small businesses | + | |Has keywords=Texas, franchise tax, small businesses, Greg Abbott |
|Has project status=Active | |Has project status=Active | ||
| − | |Has notes= | + | |Has notes= |
}} | }} | ||
| − | |||
=Overview= | =Overview= | ||
| − | == | + | ==Summary== |
| − | + | 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%. | |
| − | The Texas Franchise Tax | ||
| − | ===Changes to the Franchise Tax | + | |
| + | =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 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. The taxable margin must include at least one of the following: | ||
| + | * | ||
| + | * | ||
| + | * | ||
| + | |||
| + | =Recent Changes to the Franchise Tax= | ||
| + | ==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: | 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 | *align the tax with a modern economy | ||
| Line 20: | Line 27: | ||
*eliminate tax planning opportunities | *eliminate tax planning opportunities | ||
*raise roughly $3 billion in new state revenue annually | *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. | + | 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== | ||
| + | In 2015, Governor Greg Abbott signed into law the legislative bill HB 32 that decreases tax rates by 25% starting from January 1, 2016. | ||
| + | |||
| + | For tax reports due on or after January 1, 2016, these changes reduce rates of the franchise tax: | ||
| + | **from 0.5% to 0.375% of taxable margin for retail and wholesale companies, regardless of size of business | ||
| + | **from 1% to 0.75% of taxable margin for other taxpaying corporations | ||
| + | |||
| + | Before this bill was signed into law, tax rates in 2015 were temporarily lowered to: | ||
| + | **0.475% of taxable margin for retail and wholesale companies | ||
| + | **0.95% of taxable margin for other taxpaying corporations | ||
| + | |||
| + | The HB 32 bill also sets an EX tax rate of 0.331% | ||
| + | |||
| + | ==Competitive Advantages of 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 $20 million in annual revenue can instead file taxes through an E-Z Computation Form that has a further reduced tax rate than the normal franchise tax. Furthermore, Texas has a no-tax-due threshold of $1.1 million; this 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. | ||
=Sources= | =Sources= | ||
*TTARA: http://www.ttara.org/files/document/file-4ea5bda9239ef.pdf | *TTARA: http://www.ttara.org/files/document/file-4ea5bda9239ef.pdf | ||
*NOLO: https://www.nolo.com/legal-encyclopedia/texas-state-income-tax.html | *NOLO: https://www.nolo.com/legal-encyclopedia/texas-state-income-tax.html | ||
| + | *PWC: https://www.pwc.com/us/en/state-local-tax/newsletters/salt-insights/exas-enacts-permanent-franchise-tax-rate-reduction.html | ||
| + | *Texas Legislature Online: http://www.legis.state.tx.us/BillLookup/History.aspx?LegSess=84R&Bill=HB32 | ||
| + | *Investopedia: http://www.investopedia.com/articles/personal-finance/101415/taxes-texas-small-business-basics.asp | ||
| + | *Comptroller: https://comptroller.texas.gov/taxes/franchise/ | ||
Revision as of 11:24, 1 November 2017
| 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, Greg Abbott |
| Primary Billing | |
| Notes | |
| Has project status | Active |
| Copyright © 2016 edegan.com. All Rights Reserved. | |
Contents
Overview
Summary
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%.
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 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. The taxable margin must include at least one of the following:
Recent Changes to the Franchise Tax
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. []
2015
In 2015, Governor Greg Abbott signed into law the legislative bill HB 32 that decreases tax rates by 25% starting from January 1, 2016.
For tax reports due on or after January 1, 2016, these changes reduce rates of the franchise tax:
- from 0.5% to 0.375% of taxable margin for retail and wholesale companies, regardless of size of business
- from 1% to 0.75% of taxable margin for other taxpaying corporations
Before this bill was signed into law, tax rates in 2015 were temporarily lowered to:
- 0.475% of taxable margin for retail and wholesale companies
- 0.95% of taxable margin for other taxpaying corporations
The HB 32 bill also sets an EX tax rate of 0.331%
Competitive Advantages of 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 $20 million in annual revenue can instead file taxes through an E-Z Computation Form that has a further reduced tax rate than the normal franchise tax. Furthermore, Texas has a no-tax-due threshold of $1.1 million; this 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.
Sources
- TTARA: http://www.ttara.org/files/document/file-4ea5bda9239ef.pdf
- NOLO: https://www.nolo.com/legal-encyclopedia/texas-state-income-tax.html
- PWC: https://www.pwc.com/us/en/state-local-tax/newsletters/salt-insights/exas-enacts-permanent-franchise-tax-rate-reduction.html
- Texas Legislature Online: http://www.legis.state.tx.us/BillLookup/History.aspx?LegSess=84R&Bill=HB32
- Investopedia: http://www.investopedia.com/articles/personal-finance/101415/taxes-texas-small-business-basics.asp
- Comptroller: https://comptroller.texas.gov/taxes/franchise/
