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Print Page"Margin Tax" - an overview of the revised Texas Franchise tax
Texas. Summer 2006. Hot as usual. But not business as usual. The state legislature "fixed up" (for lack of a better printable word) our tax system. Property taxes are supposed to go down. Tough chance - if you ask me. New business tax is created to offset the "lost" revenue. Now, this I can believe.
The first reports under the new system are due May 15, 2008, with a grace period until June 16. For instructions on filling out the forms, see my related article.
In a nutshell ("nut" is an appropriate word here), the old franchise tax is gone as of 2006. Starting in 2007, most Texas-registered businesses (but not sole proprietors) became subject to a new system unofficially called "Margin Tax." Officially, it is still "Frnachise Tax." The new system includes many businesses that have been exempt from the old franchise tax, and the rules are completely different.
This table summarizes some key provisions of the new Franchise/Margin tax - as they compare to the old Franchise tax. Can't quite say "enjoy", but at least have a look.
Franchise Tax (old) |
Margin/Franchise Tax (new) |
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| Entities taxed | Corporations and LLCs | Corporations, LLCs, and some partnerships | ||
| Entities excluded | Partnerships | General partnerships and "passive" partnerships (watch the new definition!) | ||
| Grouping of entities | Per entity | Aggregate for related groups of entities (unclear) | ||
| Tax calculated based on | Net profit or, in case of large corporations, net profit plus compensation |
Gross revenue minus either
|
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| Tax rate | 4.5 % |
0.5 % for retail/wholesale 1.0 % for every other business |
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| Exemption for minimum income level | $150,000 | $300,000 | ||
| Exemption for minimum tax amount | $100 | $1,000 | ||
Definition of "passive" entity:
- General or limited partnership
- 90% of income comes from interest, dividends, royalties, partnership income distributions, gains from real estate sales, etc.
- But not from active trade or business and not from rent