What Is the Texas Margin Tax Rate

Deductible tax rates, thresholds and deduction limits vary by reporting year. Use the plan that corresponds to the year for which you are applying. In 2008, Texas replaced its franchise tax with a tax based on the taxable company`s “margin.” The amendments amended Chapter 171 of the Texas Tax Code to revise the existing franchise tax by changing the tax base, lowering the rate, and extending coverage to active businesses that have state liability protection. Franchise tax is based on the margin of a taxable company. Unless a taxpayer is eligible and chooses to submit the calculation of the EA, the tax base is the taxpayer`s margin and is calculated in one of the following ways: For information on current and historical tax rates, see Tax Rates. Texas levies a tax based on the taxable margin (the “Margin Tax”). Margin tax is levied on the taxable margin of each taxable entity that operates in Texas or is licensed or organized under Texas law. Almost all legal entities with limited liability protection are considered taxable corporations under the margin tax regime, including crown-owned limited partnerships and commercial trusts. However, certain legal persons are expressly excluded from the definition of a taxable entity and are therefore not subject to margin tax.

The tax rate is 0.75% of the margin for most taxable companies. The tax rate is 0.375% for enterprises operating mainly in retail and wholesale trade (as defined in Divisions F and G of the 1987 Standard Industrial Classification Manual), with the exception of retail or wholesale trade in utilities, including telecommunications services, electricity or gas. Taxpayers with total income of $20 million or less can opt for the E-Z calculation, which is an alternative to the calculation margin. E-Z filers cannot claim credits. For these declarants, the exemption tax due is calculated by multiplying the total turnover by the levy factor and then multiplying the total revenue distributed by a tax rate of 0.331%. Subject companies that are part of a related group that carries on a unified business must submit a combined group report. Members of a combined group must use the same method to calculate the margin. Texas has no corporate income tax. However, Texas has a franchise tax that took a new form in 2008.

The revised tax base is the taxpayer`s “margin”. The margin is equal to the lower value of a taxable business: total income minus cost of goods sold, total income minus compensation, total income minus $1 million, or 70% of total income. The taxable margin is the lowest of the four calculations multiplied by the levy factor. An alternative to calculating the margin is available to taxable businesses with a turnover of $10 million or less (see Tax Rates section below). Margin tax is calculated on a combined basis. The margin tax base is calculated by taking income from the relevant federal income tax form (“Total Income”) and deducting from that amount in a timely return in a timely return the greater amount (“COGS Deduction”); (ii) compensation (“deduction of compensation”); (iii) the flat-rate deduction of 30 %; or (iv) the $1 million deduction. The margin tax base is then spread across Texas using a single gross income factor (income factor) and then multiplied by a tax rate of 0.375% for retailers and wholesalers, or 0.75% for all other taxpayers. Specific provisions apply to the determination of whether a taxable person within the meaning of the 0,5 % tax rate is principally engaged in retail or wholesale trade.

References to margin tax to types of companies (e.B. Companies, partnerships, etc.) generally refer to how the corporation is legally organized under state law, not how the corporation is treated for federal income tax purposes. Accordingly, the controller will focus on how that company is legally organised under state law to determine whether the company is subject to margin tax. Therefore, the classification of a legal entity by the federal government under the checkbox regulations generally has nothing to do with margin tax, but only for the purpose of calculating its taxable margin. `Uniform` means a single economic enterprise composed of distinct parts of a single entity or jointly controlled group that are sufficiently interdependent, integrated and interconnected by their activities to create synergy and mutual benefit leading to a division or exchange of value amounts and a significant flow of value to the different parties. In other words, the group members are in the same industry, vertically integrated, in which they are interdependent, and whether these group members are functionally integrated through the exercise of strong centralized management. You can file your franchise tax return online or request an extension of the filing deadline. .

This information applies to reports originally due on or after January 1, 2008, unless otherwise noted. In addition, a foreign taxable entity holding a Texas user tax permit is considered related and subject to Texas franchise tax. . The tax base is allocated to Texas using a one-factor gross income levy formula – Texas` gross income divided by gross income everywhere. Gross revenues will everywhere be equal to total revenues for almost all taxpayers. This publication is intended to be a general guide and not a complete resource on the topics covered. It is not a substitute for legal advice. Cost of goods sold generally includes costs related to the acquisition and manufacture of tangible and real property.

For some sectors of the economy, there are additional allowances for the cost of goods sold. Taxable businesses that only sell services generally have no deduction from the cost of goods sold. The Texas Comptroller recently updated its rules to determine sales in Texas for allocation purposes, which can impact your business. See the article on these changes to Freeman Law SALT Alert. The annual report on the franchise tax is expected on May 15. If May 15 falls on a weekend or holiday, the due date is the next business day. See Section 171.1011 of the Tax Code and Rule 3.587 for more information on total revenue. There is a penalty of $50 for a franchise tax return filed after the due date, even if no tax is due with that report and even if the taxpayer subsequently files the report.