And from the company (in advance of the franchise tax filing)...again, compliments of Silverbulletgirl:
Frequently Asked Questions
These questions and answers apply to franchise tax reports originally due before January 1, 2008.
What is franchise tax? The Texas franchise tax is a privilege tax imposed on corporations, including banking corporations and limited liability companies, that are chartered in Texas. The tax is also imposed on non-Texas corporations that do business in Texas.
Where do I go for help with my Texas franchise tax report?
The Comptroller's office maintains a toll-free number to answer your franchise tax questions. Call us at (800) 252-1381, visit the field office nearest you, or email us at <tax.help@cpa.state.tx.us>. You can also write to us at Comptroller of Public Accounts, 111 E. 17th Street, Austin, Texas, 78774.
Who has to report the Texas franchise tax? The franchise tax is imposed on each corporation that is chartered in Texas. Non-Texas corporations doing business in Texas are also liable for the tax. See Franchise Tax Rule 3.546 for a list of some activities considered to be "doing business in Texas."
For franchise tax purposes, the term "corporation" also includes a bank, state limited banking association, savings and loan association, limited liability company, professional limited liability company, a corporation that elects to be an S corporation for federal income tax purposes, and a professional corporation. However, professional associations and partnerships are not subject to the franchise tax.
How is the franchise tax calculated? Corporations pay the greater of the tax on net taxable capital or net taxable earned surplus. The rates and computations discussed below are effective for reports originally due on or after January 1, 1994.
Taxable capital is a corporation's stated capital (capital stock) plus surplus. Surplus means the net assets of a corporation minus its stated capital. For a limited liability company, surplus means the net assets of the company minus its members' contributions. For more details on surplus, see Rule 3.551. Taxable capital is apportioned using a single gross receipts factor.
Taxable capital for an annual report is based on the end of the corporation's last accounting period in the calendar year prior to the calendar year in which the report is due. The tax rate on taxable capital is 0.25 percent per year of privilege period.
Earned surplus basically includes the corporation's federal net taxable income, plus compensation paid to officers and directors of the corporation. S corporations and corporations with fewer than 36 shareholders are generally exempt from the compensation add-back. For the earned surplus calculation, unitary income is apportioned using a single gross receipts factor. In addition, non-unitary income is allocated to Texas if Texas is the corporation's commercial domicile. For more information on the computation of earned surplus, see Rule 3.555.
Earned surplus for an annual report should be reported beginning with the day after the ending date on the previous franchise tax report and ending with the end of the corporation's last federal accounting period in the calendar year prior to the calendar year in which the report is due. The tax rate on earned surplus is 4.5 percent.
Is there a minimum tax? No. Corporations that owe less than $100 do not have to pay any tax, but they must file a report. Also, corporations will not owe any tax if the gross receipts from their entire business for both taxable capital and taxable earned surplus are each less that $150,000 during the period upon which the tax is based.
What are the franchise tax filing requirements? A corporation's first (initial) report is due one year and 89 days after the corporation's beginning date. Preprinted report forms are mailed to the corporation's address on file with the Comptroller's Office in the month of the anniversary of the beginning date. Failure to receive a preprinted report form does not relieve the corporation from the responsibility for filing the report.
After the initial report is filed, the corporation will file annual reports each May 15. Preprinted report forms are mailed to the corporation's address on file with the Comptroller's Office at least a month before the report is due.
Who can sign the Texas franchise tax report? An officer, director, or any other person authorized by the corporation can sign the report.
What is a Public Information Report? The Public Information Report is a listing of the officers and directors of the corporation, and information about "owned" and "owning" companies related to the reporting entity. Public Information Reports must be filed with the initial and annual franchise tax reports. An officer, director, or other authorized person, must sign the Public Information Report.
How are changes to the officers and directors of a corporation reported to the state? Officer and director information is filed with the Comptroller once a year on the Public Information Report. The Public Information Report is mailed to the corporation with the annual franchise tax report packets. When you are filing the Public Information Report, simply cross out any incorrect preprinted information and enter the correct information.
If a person's name is listed on the Public Information Report and that person is not an officer or director of the corporation on the date the report is filed, the person may file a sworn statement with the Comptroller, disclaiming their status as an officer or director as shown on the report. The statement will be made available on request in the same manner as other public information.
Are filing extensions available? Yes. A corporation filing an annual franchise tax report that is not required to pay franchise tax by electronic funds transfer (EFT) may request an extension until November 15 to file the report. The extension request must be filed on or before May 15 and must include 90 percent or more of the tax due with the current year's report, or 100 percent of the tax reported as due for the previous calendar year and filed on or before May 14 of the year for which the extension is requested.
For initial reports, a 45-day extension is available. The extension request must be filed on or before the original due date of the report and include 90% or more of the tax that will be due when the report is filed.
We have three filing methods: WebFile, TeleFile or paper (form 05-110, Extension Request for Texas Corporation Franchise Tax Report). However, TeleFile is not an option for taxpayers who must submit a payment with their extension request.
Corporations required to pay the tax via Electronic Fund Transfer (EFT) may request an extension until August 15 to file the annual report. The request must be filed on or before May 15. If you use WebFile to request the extension, we will link you directly to TexNet to make your payment. Payment must be 90 percent or more of the tax that will be due with the current year's report or 100 percent of the tax reported as due for the previous calendar year on the report due in the previous calendar year and filed on or before May 14 of the year for which the extension is requested.
These corporations may request a second extension until November 15 to file the annual report. This request must be filed on or before August 15. The balance of the amount of tax that will be reported on the franchise tax report for the current year must be sent electronically on or before August 15.
The TeleFile number is 1-888-434-5464.
Because the franchise tax is a privilege tax, what privilege periods are covered by these reports? The privilege period for the initial report extends from the corporation's beginning date through the day before the corporation's first anniversary date (first privilege period); and from the anniversary date through December 31 of that calendar year (second privilege period). Corporations with a beginning date of October 4 through December 31 pay the first annual privilege period (i.e., the calendar year following the second privilege period) as part of their initial report.
The privilege period for the annual report is the calendar year in which the report is due.
How do you compute the accounting year ending date for the initial return? To determine the "ending date" for the taxable capital component (Schedule A), enter the last accounting period ending date that is at least 6 months after the beginning date and at least 60 days before the original due date of the initial report. If your normal accounting period ending date does not fall between 6 months after the beginning date and at least 60 days before the original due date, enter the end of the month closest to the first anniversary of the beginning date.
To determine the "ending date" for the earned surplus component (Schedule B), enter the last accounting period ending date used for federal income tax purposes that is at least 60 days before the original due date of the initial report.
What is a Final Franchise Tax Report? A corporation that for any reason (e.g., dissolution, merger, withdrawal) becomes no longer subject to the earned surplus component of the tax must file a final franchise tax report. The final report must be filed within 60 days of the date the corporation is no longer subject to the earned surplus component. This requirement also applies to a non-Texas corporation that is no longer subject to the earned surplus component of the tax. For more information about the final report, see Sec. 171.0011 of the Texas Tax Code.
Are non-profit corporations subject to franchise tax? Yes, but some non-profit corporations may qualify for an exemption from the franchise tax.
Texas Tax Code Sec. 171.063 recognizes that certain corporations qualifying for a federal exemption may qualify for exemption from the franchise tax. A corporation will qualify for exemption from the franchise tax if it has been granted an exemption from federal taxation under Internal Revenue Code (IRC) Section 501(c) (2), (3), (4), (5), (6), (7), (8), (10), (16), (19) or (25) and submits a copy of its Internal Revenue Service determination letter with a completed Form AP-204, Application for Exemption - Miscellaneous. See Form AP-204, for details about the required documentation to be submitted.
If the corporation has not obtained a federal exemption under IRC Section 501(c) as mentioned above, it may qualify for exemption from the franchise tax under another provision of the Tax Code. See Tax Code Secs. 171.051 through 171.087 for more information about franchise tax exemptions. To apply for exemption from the Texas franchise tax based on one of the other provisions available under Texas law, submit a completed Form AP-204, identifying the section that applies to the corporation, along with all required documentation as explained in Publication 96-1045, Guidelines to Texas Tax Exemptions.
How do we maintain the corporate charter for a corporation with no activity? To keep the corporation active and in good standing, the corporation must file a franchise tax report and a signed Public Information Report annually. If the corporation has no activity, it can file a Franchise No Tax Due Information Report (Form 05-141).
How do we "dissolve" a corporation? The corporation must be current in all franchise tax requirements, including the final franchise tax report. The corporation must also have closed all its accounts for all taxes administered by the Comptroller under Title 2 of the Tax Code. Corporations chartered in Texas must file Articles of Dissolution with the Texas Secretary of State to end the corporation's legal existence. A Certificate of Account Status must be filed with Articles of Dissolution.
To get a Certificate of Account Status, file Form 05-359, or visit one of our field offices, or write to the Account Maintenance Division. There is no charge for the Certificate.
The Comptroller does not maintain Secretary of State forms such as Articles of Dissolution. Secretary of State dissolution forms can be downloaded from their website at <http://www.sos.state.tx.us>.
Because Articles of Dissolution are filed with the Secretary of State, questions about the actual filing requirements and fees should be addressed to them. See their website or call (512) 463-5555.
How do non-Texas corporations legally terminate their existence in Texas? If the corporation has dissolved or merged out of existence in its home state, the corporation simply needs to send a copy of the document filed in the home state to the Texas Secretary of State. The Secretary of State's office will notify the Comptroller and we will close out the franchise tax account as of the date of termination. If the corporation does not have a Certificate of Authority, send a copy of the document filed in the home state to the Comptroller's Office.
If the corporation wants to withdraw its Certificate of Authority in Texas, Applications for Withdrawal must be filed with the Texas Secretary of State. The corporation must be current in the payment of all taxes administered by the Comptroller under Title 2 of the Tax Code. Otherwise, the withdrawal will not be approved. A Certificate of Account Status must be filed with Applications for Withdrawal.
To get a Certificate of Account Status, file Form 05-359, or visit one of our field offices, or write to the Account Maintenance Division. There is no charge for the Certificate.
Because Terminations and Applications for Withdrawal are filed with the Secretary of State, questions about the filing requirements and fees should be addressed to them. See their website at <http://www.sos.state.tx.us> or call (512) 463-5555.
How does a corporation in charter or Certificate of Authority forfeiture status reinstate the charter or Certificate of Authority? If the forfeiture was caused by failure to satisfy franchise tax requirements, the corporation must bring its franchise tax account into current status before filing an Application for Reinstatement with the Texas Secretary of State.
Once the franchise tax requirements have been met, the corporation must obtain a Certificate of Tax Clearance from the Comptroller's office. This is a statement that must be filed along with the Application for Reinstatement with the Secretary of State's office. A Certificate of Account Status (certificate of good standing) cannot be obtained until the reinstatement has been approved by the Secretary of State.
Because Applications for Reinstatement are filed with the Secretary of State, questions about the filing requirements, non-tax forfeitures, and fees should be addressed to them. See their website at <http://www.sos.state.tx.us> or call (512) 463-5555.
How is a change to the registered agent or registered office of a corporation reported to the state? Registered agent and registered office information is maintained at the Secretary of State's office, and changes must be filed with them. You can download the forms you need from their website, <http://www.sos.state.tx.us>. Once the changes have been filed, the Secretary of State will notify the Comptroller of the corrected information.
Changing the registered agent's address does not necessarily change the corporation's mailing address that the Comptroller's Office uses to mail forms and other information to the corporation. Notify the Comptroller's Office separately if you are trying to change the master mailing address for the corporation by calling (800) 252-5555.
--------------------------------------------------------------------------------
Susan Combs
Texas Comptroller of Public Accounts
www.window.state.tx.us/taxinfo/franchise/franfaq.html « Last Edit: Today at 10:51am by mgl »
« Last Edit: Today at 4:50pm by portrush »
