What is the corporate tax rate in Texas?

Texas has become one of the nation's business-friendly states concerning taxation, with its most advantageous position being without a state corporate income tax. Instead, Texas enforces something known as the franchise tax; a gross receipts tax levied against businesses and other entities in conducting activities in Texas.

Structure of Franchise Tax

As will be required starting in 2023, entities with total gross receipts surpassing $1.23 million must pay this franchise tax at varying rates per total revenue classification:

• 0.75% for most taxable entities
• 0.375% for businesses involved in wholesale or retail trade
• 0.331% for entities utilizing the EZ Computation Method, available for businesses whose revenues are less than $20 million

Businesses whose total revenue is less than $1.23 million are excluded from having to pay the franchise tax, thus making Texas an appealing place for small and medium-sized businesses.

Tax Compliance and Filings

• Generally, the annual franchise tax is due on May 15th.
• Entities eligible for the No Tax Due Threshold-under $1.23 million in revenue must file an informational report.
• The tax is imposed on the total revenue minus the allowable deductions of the cost of goods sold or compensation.

Conclusion

While Texas does not impose a traditional corporate income tax, businesses are obligated to comply with the franchise tax requirements. Consulting a tax professional will help in making sure compliance is adhered to and optimize tax liabilities based on a company's structure and revenue.