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January 8, 2024
2024-0146

Texas franchise tax exemption increases to $2.47 million in 2024 while no-tax-due reports are eliminated

The Texas franchise "margin" tax exemption (the no-tax-due threshold) has increased to $2.47 million for reports originally due on or after January 1, 2024. (See SB 3, Tex. Laws 2023 (Second Spec. Sess.)).1 Starting with that period, taxable entities with annualized total revenue at or below the no-tax-due threshold will no longer be required to file a no-tax-due report (Form 05-163)2 but must still file Form 05-102, "Public Information Report," or Form 05-167, "Ownership Information Report," the Texas Comptroller of Public Accounts explained.

Taxpayers must include all taxable entities in combined group reports, even those with annualized total revenue (on a separate-entity basis) at or below the no-tax-due threshold. If the combined group's annualized total revenue does not exceed the no-tax-due threshold, the group will no longer have to file a no-tax-due report, an affiliate schedule or a common-owner information report for the report year. Each member of the combined group that is organized in, or has nexus with, Texas will have to file a Form 05-102, "Public Information Report," or Form 05-167, "Ownership Information Report."

The Comptroller will discontinue the no-tax-due report in 2024 and after. As such, new veteran-owned businesses are no longer required to file a no-tax due report during their first five years. (See SB 3, 88th Legislature, Second called Session).

Qualifying passive entities and real estate investment trusts must file in 2024 either the Long Form Report (Form 05-158) or the EZ Computation Report (Form 05-169) but will only need to blacken the circle that identifies them as such entities. Taxable entities with zero Texas gross receipts must file either the Long Form Report or the EZ Computation Report to enter total revenue and Texas gross receipts only.

Implications

Entities subject to Texas franchise tax should review the revised filing requirements and determine which forms they must file.

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Contact Information

For additional information concerning this Alert, please contact:

State and Local Taxation Group

Published by NTD’s Tax Technical Knowledge Services group; Chris DeZinno, legal editor

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ENDNOTES

1 The increase to the franchise tax exemption was enacted as part of SB 3 (Tex. Laws 2023 (Second Spec. Sess.)). SB 3, however, included a provision that made the increase taking effect contingent upon voters approving a constitutional amendment (Proposition 4 ( HJR 2)) that would allow the property tax relief provided in SB 2 (Tex. Laws 2023 (Second Spec. Sess.)). On November 7, 2023, voters approved the property tax relief. Accordingly, the increase of the franchise tax exemption will take effect.

2 SB 3 also prohibits the Texas Comptroller of Public Accounts from requiring an information report be filed by a taxable entity that does not owe any tax because of application of the franchise tax exemption.

 

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