Franchise Tax

The Texas franchise tax is a privilege tax imposed on each taxable entity chartered/organized in Texas or doing business in Texas. The Texas Legislature made significant revisions to the tax during the 79th Third called session and the 80th regular session.

For detailed information visit the Texas Comptroller's website.

The franchise tax rates are:

• 1.0% (.01) for most entities

• 0.5% (.005) for qualifying wholesalers and retailers*

• 0.575% for those entities with $10 million or less in Total Revenue (annualized per 12 month period on which the report is based) electing the E-Z Computation

Taxable entities with total revenue (annualized per 12-month period on which the report is based) of $300,000 or less will owe no tax. Taxable entities with tax due of less than $1,000 will owe no tax. Exception: If the entity is a tiered partnership, the calculated amount of tax is due, even if it is less than $1,000. (NOTE: ALL taxable entities, including those that will owe no tax, must file a report.)

Qualification for 0.5% Tax Rate

Taxable Entities primarily engaged in retail or wholesale trades qualify to use the 0.5% tax rate.

Retail Trade: means the activities described in Division G of the 1987 Standard Industrial Classification Manual published by the federal Office of Management and Budget.

Wholesale Trade: means the activities described in Division F of the 1987 Standard Industrial Classification Manual published by the federal Office of Management and Budget.

A taxable entity is primarily engaged in retail or wholesale trade only if:

1. the total revenue from its activities in retail or wholesale trade is greater than the total revenue from its activities in trades other than the retail and wholesale trades;
2. less than 50 percent of the total revenue from activities in retail or wholesale trade comes from the sale of products it produces or products produced by an entity that is part of an affiliated group to which the taxable entity also belongs (this does not apply to Eating & Drinking Places described in Major Group 58 of Division G); and
3. the taxable entity does not provide retail or wholesale utilities, including telecommunications services, electricity or gas.