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Franchise Tax

In 2008, Texas replaced its franchise tax with a margins tax in order to establish a broader, fairer tax assessed at a lower rate. The goal of the reformed tax was to provide a level playing field for all businesses, to have a broad base that includes all business entities that receive liability protection from the state, to be competitive with other states, to maintain Texas' reputation for having one of the best business climates in America, and to reflect the realities of a rapidly evolving economy.  Texas consistently ranks among the top business tax climates by the Tax Foundation an independent tax policy research organization.
The reformed margins tax lowered the primary franchise tax rate from 4.5 percent to a tax of .75 percent on a taxable entity's margin and is computed in one of the following ways:
  • total revenue times 70 percent;
  • total revenue minus cost of goods sold (COGS);
  • total revenue minus compensation; or
  • total revenue minus $1 million (effective Jan. 1, 2014).
(Retailers and wholesalers have a rate of 0.375 percent.) Sole proprietorships and general partnerships are exempt, as are businesses with revenue under $1,110,000. Businesses whose total tax liability is $1,000 or less are also exempt.  For more information, please click HERE for the Texas Comptroller of Public Accounts.


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