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Texas Franchise Tax Update: Key Exemptions and Reporting Changes for Businesses
Sunday, June 9, 2024

Always forgetting to file your Texas Franchise Tax Reports on time? Starting in 2024, you might find yourself exempt from this task. The Texas legislature passed significant changes to the franchise tax reporting requirements in 2023, streamlining how businesses handle their tax reporting and reducing the administrative burden, particularly for small to medium-sized businesses.

Increased Revenue Threshold and the Discontinuation of the “No Tax Due Report”

The “No Tax Due” threshold for Texas Franchise Tax has been raised substantially—from $1,230,000 to $2,470,000. With this adjustment, if your business’s annualized total revenue stays below $2.47 million, you’re exempt from filing the “No Tax Due Report” (Form 05-163). This legislative change, coded in Tex. Tax Code § 171.002(d)(2) and § 171.204, is designed to alleviate the reporting burden on smaller enterprises.

Considerations for Combined Groups

It’s important to note that for businesses operating within a combined group, the combined total revenue is what counts towards the threshold. Individual members of the group who individually fall below the threshold still need to consider the group’s total revenue when preparing tax documents. This measure prevents larger business entities from avoiding tax liabilities by structuring operations across multiple smaller entities, as outlined in Tex. Tax Code § 171.1014.

Continuing Compliance Obligations

Despite the elimination of the “No Tax Due Report,” the requirement for transparency hasn’t completely disappeared. Businesses whose revenues fall below the new threshold are still required to file either a Public Information Report (Form 05-102) or an Ownership Information Report (Form 05-167). These reports are crucial as they ensure businesses continue to provide essential information while complying with state regulations, per Tex. Tax Code §§ 171.0001(13) & § 171.203.

CTA – Keep New Federal Compliance Requirements in Mind

On the federal front, the Corporate Transparency Act (CTA) introduced mandatory reporting requirements for beneficial owners of many companies. This act, which aims to increase transparency and combat financial crimes, requires the filing of Beneficial Ownership Information Reports (BOIR). Entities formed or registered before January 1, 2024, must file their initial reports by January 1, 2025, but entities formed on or after January 1, 2024, have 30-90 days from formation. The requirement to file BOIR adds a significant layer of compliance, involving the disclosure of sensitive information such as names, addresses, dates of birth, and ID numbers of beneficial owners. For more insights on navigating the CTA, you can refer to our details here.

Implications for Texas Businesses

With the state easing some tax reporting requirements, Texas businesses should experience some relief in state-level compliance burdens. However, federal requirements like those imposed by the CTA mean that vigilance and strategic planning remain crucial. Business owners and financial officers must stay informed and adapt their compliance strategies to navigate these changes effectively.

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