After writing a business plan, choosing your entity, and opening your doors, your Texas business is up and running. To make sure that your business stays legal, every year you may have to file an annual franchise tax report.
The franchise tax report determines how much tax your Texas limited liability company (LLC) or corporation owes, as well as keeping your information up to date in state databases. Ultimately, your franchise tax report is critical to your business remaining in good standing in Texas.
What is a Texas annual franchise tax report?
Regarded as a “privilege tax,” the annual franchise tax is levied on taxable entities based in Texas or “doing business in Texas.”
That doesn’t necessarily mean every business must pay franchise taxes. At the company’s outset, the state requires every qualifying business to file an annual Texas franchise tax report. That report determines how much tax your company has to pay, or if you have to pay at all.
Reports and payments are submitted to the Texas Comptroller of Public Accounts. Your filing requirements include completing and submitting the following:
- Franchise Tax Report, with one of three designations: ”No Tax Due,” “EZ Computation,” or “Long Form”
- Information Reports, including the public information report and ownership information report
When setting up your business, you’ll also receive a Franchise Tax Accountability Questionnaire from the comptroller. After registering your qualifying legal entity with the Texas Secretary of State, the comptroller’s office will establish your franchise tax account.
Completing the questionnaire enables the comptroller’s office to notify you when it is time to file your report and pay any tax due, as well as send notices if there are any problems with your account or report.
Texas Annual Franchise Tax Report for Corporations vs LLCs
Not every entity has to file a franchise tax report. “Taxable entities” include but are not limited to:
- LLCs (including series LLCs and single-member LLCs)
- Corporations (including both C and S corporations and professional corporations)
A full list of taxable entities can be found here. For more details, see Texas Tax Code Chapter 171, Subchapter B, which also exempts some business entities from having to file a report or pay franchise tax.
Do I have to pay a Texas annual franchise tax?
If your entity has to file a franchise tax report, that doesn’t necessarily mean you have any franchise tax due. You will owe no tax if:
- Your company’s annualized revenue is no more than $1,180,000
- The franchise tax due is less than $1,000
To determine if you have tax due, download the Franchise Tax Calculator. This one-page, four-step interactive PDF walks you through how to work out any tax due.
In order to calculate your Texas franchise tax, you’ll need some company financial data on hand, including the following annualized numbers:
- Total revenue
- Cost of goods sold (COGS)
- Wages and cash compensation
- Employee benefits
- Texas gross receipts
- Everywhere gross receipts
If you have questions about what these categories are, Texas has an easy to access FAQ page that might answer most of your questions.
If my company doesn’t owe tax, do I still have to file a report?
Yes. Not owing tax isn’t the same thing as not having to file. Even if your company has no franchise tax due, if your business is a taxable entity such as an LLC or corporation (or has business activities that meet Texas requirements), you’ll still have to file a report using one of the software providers approved by Texas.
Where do I file my Texas annual franchise tax report?
Texas maintains different report filing and payment requirements, based on how much tax is due, based on the following four categories:
Also remember that some information is publicly viewable in the Comptroller’s Taxable Entity Search and the Texas Secretary of State’s SOSDirect, such as your registered agent’s name and office street address, as well as the title, name, and address for company members or owners.
Filing your franchise tax report
Texas allows franchise tax filings through the following four approved methods:
- Electronic submission from approved providers
- Forms from approved providers
- Texas franchise tax forms
- Online filing through Texas Comptroller eSystems
If your company qualifies for Texas’s No Tax Due threshold, you’ll electronically file a No Tax Due information report. Since 2016, Texas has required electronic filing for all No Tax Due filings.
Paying your annual Texas franchise tax
Depending on how much franchise tax you owe, you may send payment to Texas in one of the following ways.
If you owe $1 to $499,999:
- Credit card via Texas WebFile (American Express, Visa, Discover, or MasterCard)
- Web Electronic Funds Transfer (EFT)
- Approved software providers for electronic payment submission
Online payments are also subject to a $1 service fee.
If your tax due is less than $10,000, you also have the option of paying by check, payable to the “Texas Comptroller.” Checks are not accepted for tax payments over $10,000.
If your tax due is over $500,000, the only payment option is TEXNET.
When is the Texas annual franchise tax report due?
Texas annual franchise tax reports are due by May 15 each year. If May 15 falls on a holiday or weekend, the due date is the next business day.
Filing your report is also important if you are making changes to your business that must be filed with the Texas Secretary of State. For example, if your company is converting its entity, merging with another business, or closing, your business must file its final franchise tax report, and pay any tax due, during the year of the change or closure.
Franchise tax extensions are available if your company needs more time to file. However, you must submit your extension request prior to the May 15 reporting deadline. If the comptroller’s office is to grant an extension, they also require the prior year’s franchise tax to already be paid in full, or 90% of the amount due for the current year’s tax to be paid prior to approving the extension request.
How much does the Texas annual franchise tax report cost?
There is no filing fee for your franchise tax report. The only payment due is any franchise tax owed for that filing year, plus a $1 service fee for online payments.
What information do I need to file the annual franchise tax report?
In order to complete your report, you need to review, verify, and/or update the following information:
- Company name
- Texas taxpayer number
- Mailing address
- State of formation
- Registered agent name and office street address
- Title, name, term expiration date, and address for company members, owners, officers, directors, and/or managers
To calculate any tax due, you’ll need your:
- Entity’s annualized total revenue
- Cost of goods sold (COGS)
- Wages and cash compensation
- Employee benefits
- Gross receipts (both for Texas and outside Texas)
Texas also requires the following information for your Public Information and Owner Information reports:
- Principal office: U.S. location where your company’s records are maintained
- Principal place of business: Address of primary location for day-to-day business
If your business’s address or phone number changes during the report year, you can update your company’s information with this change form. Changes to your registered agent can be filed with this form.
What happens after you file your annual franchise tax report?
Reports are usually processed within five to seven business days. Once your report and any tax payment are successfully processed, the Texas Comptroller’s office will report your company’s “Right to Transact Business in Texas” as “active.” An active status means that in the eyes of the state, your entity’s right to transact business in Texas is intact.
Members of the public may also request copies of your company’s public information report, or PIR, by emailing email@example.com, or by mailing a written request to:
Comptroller of Public Accounts
Open Records Section
PO Box 13528
Austin, TX 78711
What if you miss the deadline to file your franchise tax report?
In Texas, franchise tax reports must be filed every year by May 15. If your company doesn’t meet the filing deadline, the comptroller’s office will:
- Assess a $50 penalty for each report filed after May 15
- Charge a 5% penalty on franchise tax paid 1-30 days after May 15
- Charge a 10% penalty on franchise tax paid more than 30 days after May 15
Additionally, failure to file your report and pay your franchise tax will result in Texas forfeiting your company’s “right to transact business in Texas.” Essentially, in the eyes of the state your business would no longer exist as a corporation or an LLC, and would lose its legal rights and liability protections. If the state plans to take this step, you’ll receive notice that your company will face forfeiture in 45 days unless you complete your report filing and pay all tax owed.
All is not lost, though. Texas also has a process for reinstating your entity.
Who do I contact if I have issues filing my Texas annual franchise tax report?
Texas tries to make the reporting process smooth, but problems can still happen. If you’re having an issue with your report, first check the comptroller website’s franchise tax FAQ.
Or, if you need to speak with someone, comptroller locations are open 8 a.m. to 5 p.m., Monday through Friday, except for holidays. However, due to the pandemic, offices may be closed to the public, as of this writing (December 2020).Franchise tax help is also available by phone, (800) 252-1381, as well as online or via email.
Filing Your Texas Annual Franchise Tax Report FAQs
- Do I have to file an annual report in Texas?
Taxable entities such as LLCs and corporations are required to file an annual franchise tax report. This report verifies or updates company information (such as your principal mailing address, registered agent, and company officers, owners, or members). As part of the filing, your entity will also pay franchise taxes, if any are owed at all.
- How much does it cost to file my Texas annual report?
There’s no filing fee, but online tax payments are charged a $1 service fee.
- Are there any fees or penalties if I don’t file my Texas annual franchise tax report?
Franchise tax reports and payments are due by May 15 each year. If you don’t file or you file after the deadline, your company will be subject to:
Late fee: $50 penalty per report filed
Franchise tax paid 1 to 30 days after May 15: 5% penalty on tax due
Franchise tax paid over 30 days after May 15: 10% penalty on tax due
Forfeiture of your company’s right to do business as an LLC or corporation in Texas