Taxation

Every attempt has been made to provide current, accurate, and consistent data in this database. There may be some differences due to sources, methodologies, or timing of data-assembly.

Taxation

Corporate Income Tax/Franchise Tax	State	Local	Note - Income/Franchise Tax Effective Until January 1, 2008 The franchise tax is a business privilege tax assessed by the State of Texas and is applicable to all corporations operating in the state. The tax is effectively the greater of 0.25 percent of taxable capital or 4.50 percent of earned surplus apportioned to the state under a single-factor gross receipts test. Taxable capital is a corporation's stated capital (capital stock) plus surplus. Surplus means the net assets of a corporation minus its stated capital. For a limited liability company, surplus means the net assets of the company minus its members' contributions. Taxable capital is apportioned using a single gross receipts factor. Earned surplus basically includes the corporation's federal net taxable income, plus compensation paid to officers and directors of the corporation. S corporations and corporations with fewer than 36 shareholders are generally exempt from the compensation add-back. For the earned surplus calculation, unitary income is apportioned using a single gross receipts factor. In addition, non-unitary income is allocated to Texas if Texas is the corporation's commercial domicile. Many tax-planning opportunities exist to reduce the franchise tax liability. There is no minimum tax and no taxes are due on liabilities of less than $100. In 2008, Texas will replace its franchise tax with a "Margins Tax," a tax of 1% (retailers' and wholesalers' rate will be 0.5%) on gross receipts less (taxpayer's choice of ) compensation or the cost of goods sold. Sole proprietorships and general partnerships are exempt. Businesses are also exempt if revenues are under $300,000.
See Note - Income/Franchise Tax Rate (range)	.25% of surplus or 4.5% of taxable income	No additional Tax
Formula (e.g. Sales, Property & Payroll)	N/A	N/A
Federal Taxes Deductible	No	No
Accelerated Depreciation Permitted (Yes or No)	Yes	Yes
Personal Income Tax	State	Local
Rate (Range)	0	0
Earned Income	0	0
Unearned Income (e.g. Dividend)	0	0
Local Occupation Tax (Paid by Employee)	Rate	Basis
City Residents	0	0
Non-City Residents	0	0
Local Wage Tax (Paid by Employer)	Rate	Basis
City Residents	0	0
Non-City Residents	0	0

Effective January 1, 2008
House Bill (HB)3, enacted into law in 2006, amends Texas Tax Code Chapter 171 to revise the existing franchise tax by changing the tax base, lowering the rate, and extending coverage to active businesses receiving state law liability protection. The changes made by HB3 are effective for franchise tax reports originally due on or after January 1, 2008. The Texas Comptroller has published detailed information on the revision in House Bill 3: Revised Franchise Tax Overview (June 2006) as well as a Franchise Tax Calculator worksheet.

Entities Subject to Tax
The tax applies to partnerships (general, limited and limited liability), corporations, limited liability companies, business trusts, professional associations, business associations, joint ventures and other legal entities with statutory liability protection, except for: sole proprietorships, general partnerships directly owned by natural persons, and other specified entities such as certain financial services businesses, nonprofits, and others. Taxable entities with revenues of $300,000 or less will owe no tax. Taxable entities who calculate their tax due to be less than $1,000 will owe no tax. However, all taxable entities, including those who will owe no tax, must file a return.

Tax Base
The revised tax base is the taxable entity's "margin". Margin equals the lesser of a taxable entity's: total revenue minus cost of goods sold; total revenue minus compensation; or total revenue times 70%. Total revenue is determined based on federal income tax reporting, with certain exclusions. Cost of goods sold is traditionally defined, but excludes officer compensation and includes some specific items for certain industries. It includes up to 4% of overhead costs. Compensation and benifits include: W-2 wages and cash compensation paid to officers, directors, owners, partners and employees; benefits provided to all personnel, including workers' compensation, health care and retirement benefits to the extent deductible for federal income tax purposes. Margin apportioned to Texas in esssentially the same manner as prescribed by current law.

Tax Rate
The tax rate is 0.5 percent for entitys primarily engaged in retail and wholesale trades as well as those businesses under classified as eating and drinking establishments. The rate is 1 percent for all other taxable entities.

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