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Texas Franchise Tax: 2020 Rates, Thresholds, & Deduction Limits

The Texas Comptroller’s Office recently released the 2020 Texas Franchise Tax Report Information and Instructions (Form 05-908). It contains relevant information to assist taxpayers with the proper and timely filing of Texas Franchise Reports for the 2020 report year. The upcoming 2020 report year will be using the same franchise tax rates, along with updates to the No Tax Due Threshold and Compensation Deduction Limit:

2020 Rates, Thresholds, & Deduction Limits

Item

Amount

No Tax Due Threshold

$1,180,000

Tax Rate (retail or wholesale)

0.375%

Tax Rate (other than retail or wholesale)

0.75%

Compensation Deduction Limit

$390,000

EZ Computation Total Revenue Threshold

$20 million

EZ Computation Rate

0.331%

No Tax Due Threshold – Entities that report total revenue of less than $1,180,000 are allowed to automatically file a No Tax Due Report (Form 05-163).

Tax Rate (retail or wholesale) – Qualifying retailers and wholesalers are entities primarily engaged in retail and/or wholesale trade. To qualify, an entity must have at least 50% of total revenue derived from those activities, less than 50% of total revenue from the sale of products it produces or from an affiliated entity, and the taxpayer does not provide retail or wholesale utilities (including telecommunications services, electricity, or gas).

Tax Rate (other than retail or wholesale) – For most entities, this is the tax rate on its taxable margin.

Compensation Deduction Limit – This is the annual limit per officer, director, owner, partner and employee to calculate the margin via the compensation deduction method.

EZ Computation Total Revenue Threshold – Taxpayers with revenue less than the EZ Computation revenue threshold may choose to file Form 05-169 for a potentially more favorable tax outcome. This is a popular choice among taxpayers who are not in manufacturing or service industries.

EZ Computation Rate – The rate is applied against the taxable revenue. No other deduction method is allowed and any credits available for that report year are foregone. As you can see, there are a variety of methods that can be used to calculate an entity’s franchise tax for a particular year. In some cases, the proper reporting method and forms used will vary in order to lessen the potential tax burden.

If you have any questions regarding Texas Franchise Tax including proper reporting methods and potential tax savings, please feel free to contact Jason Creel – jasonc@gmpcpa.com.


Jason Creel, CPA

Jason Creel is a Tax Manager at GMP. He also handles State & Local Tax issues.