The Texas Franchise Tax: Are You Liable?

December 30, 2011 by  Filed under: Taxes 

There are various kinds of taxes and the Texas franchise tax is only one of the many types which are charged by the State against certain taxpayers to raise the revenues that are used to properly discharge its duties in the maintenance of an orderly and peaceful society.

Broadly, the taxes is imposed against partnerships and businesses that are organized under the laws of the State of Texas. Other business organizations that are not chartered within the State may also be charged with the franchise tax if it is so provided under the privilege that has granted them the opportunity to operate within the territory.

Specifically, who are liable for the payment?

Under the Texas Tax Code, the revised franchise tax is levied against the three kinds of partnerships, namely, general, limited and limited liability, corporations, limited liability companies or LLC, professional associations, business associations, joint ventures, and business trusts. These are the taxable entities that are expressly required to file their franchise tax reports to the proper officers of the Comptroller of Public Accounts. Other legal entities may also be liable for this kind of tax if the privilege granting them the authority to operate or do business within the territory provides such imposition.

The Texas franchise tax report is prepared by the business entity’s accountant and must be signed by an officer, director, or any other person who has the authority to sign the same. The initial report of every registered business entity must be filed one year and eighty-nine days after it has begun its operations. Thereafter, the organization shall file its annual reports every 15th of May in the succeeding years of doing business within the State of Texas.

The Texas franchise tax is a privilege tax, and as such, the coverage of the liability is called the privilege period. The initial franchise tax report will cover the privilege period from the date of the first day of the business entity’s operation up to the day before its first anniversary date. This is the first privilege period. Then from the anniversary date through the last day of December of the same year, which is December 31, will be the second privilege period.

Simply put, the privilege period for the annual franchise tax report shall be the calendar year when the report is due.

Certain entities, however, are exempt from the payment of this tax, including non-profit corporations and those mentioned under the Internal Revenue Code which are exempted from federal taxation.

The filing of the Texas franchise tax report will preserve the status of the business entity as active and in good standing. Annually, it must file the correct form therefor together with a Public Information Report that has been signed by the appropriate authority of the concerned corporation or other business organization. If, however, the reporting entity has no activity for the present privilege period, it can file a Franchise No Tax Due Information Report to be able to apprise the proper authorities of its current standing.

For more information about Texas franchise tax please visit

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