How to File the Texas Annual Report and Franchise Tax

Texas Annual Report and Franchise Tax Overview

The Franchise Tax and the Annual Report are often mistaken as being synonymous. Although they are both required of all business entities doing business in Texas, and they are filed at the same time, they are separate reports.

What Is the Texas Annual Report?

The Texas Annual Report, also known as the Public Information Report (PIR) or the Ownership Information Report (OIR), is a yearly report that every Texas business entity is required to file with the Texas Comptroller of Public Accounts. The report provides essential information about the business, such as its name, registered agent, office address, and details about the directors, officers, or members. It’s crucial for keeping the state informed about your business activities and ensuring your business records are up to date.

What Is the Texas Franchise Tax?

The Texas Franchise Tax is a tax imposed by the State of Texas on businesses that are chartered or do business in Texas. It is essentially a “privilege tax” for doing business in the state. The tax is calculated based on a company’s “margin”, which is generally its revenue minus certain allowable deductions. It’s important to note that not all businesses owe this tax, as there are thresholds and exemptions based on revenue.

Don’t worry, most companies (those with annual revenue under $1.23 million) the franchise tax is zero, and the annual report is simply a way for the state to ensure current contact information is maintained with your business.

How to Calculate the Texas Franchise Tax

You have a couple of choices when it comes to calculating and filing your Texas Franchise Tax.

Step 1. Choose Your Filing Method

Tax Filing Software: Most popular tax software programs, like Turbotax, are approved to calculate and electronically submit the tax. Take a look at the Texas State Approved Software Programs, to see if your preferred program is included.

Calculate Manually and File through the State Site: You can also calculate the tax on your own using the Texas Comptroller website. If you’d like to take this route, you’ll have several options based on how you’d like the taxable amount of your revenue to be calculated. Naturally, you’ll want to pick the method that results in the smallest taxable liability.

Step 2. Calculate Your Taxable Margin

Your margin, in this context, is the portion of your company’s revenue that is subject to the taxation under the TX Franchise tax. There are four options available to calculate your margin:

• Annual revenue multiplied by 70%
• Annual revenue minus cost of goods sold (COGS)
• Total revenue minus compensation
• Annual revenue minus $1 million.

Step 3. Determine Tax Liability

If any of these methods result in a taxable margin of less than $1.23 million then your tax liability will be zero, and you’ll file a No Tax Due Report.

If your lowest margin is between $1,230,000 and $20,000,000 than your tax rate is:

• .375% for retail and wholesale businesses
• .75% for non retail or wholesale business

If your lowest margin is in excess of $20,000,000, you’ll use a slightly different method called the EZ Computation method. Businesses using this method will pay a tax rate of .331% on their margin.

How to File the TX Annual Report and Franchise Tax

Filing online is the quickest and easiest way to complete your annual report and franchise tax.

Step 1. The Franchise Tax Responsibility Letter

When you register your company in Texas, you’ll receive a letter shortly after that contains two important pieces of information:

• Texas Tax Payer ID number: This number is used to identify companies for Franchise Tax purposes.
• Webfile number: You’ll this number when you create your webfile account

Step 2. Create an eSystems Account

To create an eSystems account, you’ll just need a unique username, verifiable email address, and phone number.

Step 3. Complete the Franchise Accountability Questionnaire

Once you’ve created an account and verified your email address, you’ll be taken to the home page of the account. From here, click on, “more” in the bottom right corner, then click, “Franchise Accountability Questionnaire. This will help you determine what your Franchise Tax liability will be.

Step 4. File Your Texas Franchise Tax

Here’s the information you’ll need to have to file your report:

• The tax amount due
• Business taxpayer number.
• Reporting year and due date.
• Business name and mailing address.
• Texas Secretary of State file number. You can find this number by searching the Texas Comptroller Business Database. It will be listed under the heading “Texas SOS File Number.”
• Fiscal year start and end date.
• Standard Industrial Classification (SIC) code AND North American Industry Classification System (NAICS) code. Both codes are used by the US to classify businesses by their industry.
• Total Revenue from the previous year apportioned to Texas

Step 4. File the Annual Report (aka, the Report of Information)

Once you’ve filed your Texas Franchise Tax, you can now file the Report of Information. This will just require you to verify or update the following company information:

• Company name
• Registered agent
• Office address,
• Directors, officers, or members information