What you should know about the Texas Franchise Tax
The new gross margin-based Texas Franchise tax became effective for calendar year businesses on January 1, 2007. The Comptroller issued Final Rules in December 2007, so we have some understanding of how the new tax will work.
We will update this column periodically as developments occur which we feel are important to our clients.
Three items to note as of December 20, 2007:
- The Comptroller recently mailed, to virtually all businesses, a form titled: Texas Franchise Tax, Preservation of Temporary Credit. This applies only to businesses which have a business loss carryforward for Texas franchise purposes. The business loss carryforward will be allowed over the next 20 years. The amount allowed annually for the first ten years is 2.25% of the loss carryforward, times 4.5%. For a business with a $100,000 net operating loss, this equates to a credit of $112 annually for the next ten years.
ACTION ITEM--In Order to Preserve the Credit, the form must be filed with the Comptroller prior to May 15, 2008. If you do not have this form, it is available at http://www.window.state.tx.us/taxinfo/taxforms/05-172.pdf, or can be requested at (800) 252-1381. - The new law affects almost all businesses which are operated through a separate legal entity. Generally, businesses which paid the old franchise tax can get an extension to file their return on May 15 by paying either 90% of the actual 2007 tax or 100% of the 2006 tax. However, businesses which did not pay the old franchise tax, in order to get an extension, must pay at least 90% of their 2007 tax liability on or before May 15, 2008, or, be subject to a penalty of 5% for the first month and 10% thereafter.
ACTION ITEM—Provide your accountant sufficient information to calculate the franchise tax prior to April 15, 2008, so that they can have time to accurately estimate the amount due. File the extension and make your payment by May 15, 2008. - General Partnerships and other entities exempt from the new gross margin-based Texas Franchise tax must file a form 2E-012 (5-07) to notify the Comptroller of their exempt status. If the form is not filed, the Comptroller will presume that these entities will be subject to the franchise tax and will have to file an annual franchise tax report by May 15, 2008. The Comptroller sent this form last year and asked for a reply by July 16, 2007, however, they will still accept the form.
ACTION ITEM—File Form 2E-012 (5-07) as soon as possible. If you do not have this form, is available at http://www.window.state.tx.us/taxinfo/special_mailings/gp053107.pdf, or can be requested at (800) 252-1381.
