Franchise Tax

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. The reformed margins tax lowered the primary franchise tax rate to 1 percent on gross receipts for most taxable entities, and 00.5 percent for retailers and wholesalers (less compensation or cost of goods sold). Sole proprietorships, general partnerships, businesses with revenue under $1,000,000, and businesses whose total tax liability is $1,000 or less are exempt.
Under the reformed tax, businesses are rewarded for making good business choices. Every time a business puts a Texan to work, pays for health insurance, or invests in a pension plan, their tax liability decreases. The tax also penalizes bad business practices, such as hiring illegal immigrants.
These fair changes to the business tax code continue to stimulate our state's economy and encourage the entrepreneurial spirit that sets Texas apart.