Frequently Asked Questions
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Note: TTC means Texas Tax Code and IRC means Internal Revenue Code
Account and Report Form Information
- 1. My business, a limited partnership, is now subject to the franchise tax. How do I get a taxpayer number?
- All "newly taxable entities" that are registered with the Texas Secretary of State's office, such as limited partnerships, limited liability partnerships, and professional associations, have been added to the Comptroller's records. A taxpayer number was assigned at that time and mailed to the address on file with the Secretary of State. You can search our records by entity name, tax ID number or Secretary of State file number at http://ecpa.cpa.state.tx.us/coa/Index.html.
Taxable entities that are not registered with the Texas Secretary of State, such as general partnerships, should complete the Texas Business Questionnaire (for Texas entities) or the Texas Nexus Questionnaire (for non-Texas entities.) A taxpayer number will be included with our response. (Updated 04/23/08)
- 2. When are the first reports due under the revised franchise tax?
- To accommodate implementation of the new computer system that is needed for the revised franchise tax, taxpayers with initial reports originally due from January 1 through April 30 were automatically extended to May 1, 2008. These taxpayers will not have the option of filing the initial report electronically.
However, the original due date of the initial report should be used to determine the accounting period on which the report is based. The accounting period end date on an initial report must be at least 60 days before the original due date. For example, assume a corporation formed on October 20, 2006, has an initial report originally due on January 17, 2008. The due date for this initial report is extended to May 1, 2008. If the corporation has a December 31 accounting year end, the corporation uses December 31, 2006, as the ending date for the report, since December 31, 2007, is not 60 days before the original date of January 17, 2008.
- 3. On the Texas Business and Nexus Questionnaires, each general partner, each member, and each limited partner with a 10% or more interest in the partnership must be provided. There is a space for each partner to sign. Is each partner or member required to sign?
- Each partner or member must sign, or authorize a person to sign for them. Maintain evidence of the authorization in the entity's records in the event of an audit.
- 4. What form does a non-Texas corporation or LLC use to file a final report if it ended its existence in its home state prior to 11/02/07?
- A final report is due 60 days after the entity ceases doing business in Texas. For a final report due prior to January 1, 2008, as is the case in this situation, you must use the Final Texas Franchise Tax Report Form 05-139.
- 5. What are the rules for an entity, such as a limited partnership, that would have become subject to the franchise tax on 1/1/08 but ended its existence before that date?
- If the entity ended its existence after 06/30/07 but before 01/01/08, they must file a final report based on the margin calculation. The date the entity ceased to exist is the accounting period ending date. The entity should file the appropriate form - E-Z Calculation, No Tax Due, or Long Form - and write "Transition Final" at the top of the report. (Updated 03/31/08)
- 6. What does an entity file if it is ending its existence or no longer has nexus in 2008?
- Entities ending their existence in 2008 must file an annual report, a final report, and the appropriate Information Report - a Public Information Report (05-102) for corporations and LLCs, or an Ownership Information Report (05-167) for other entities. (Updated 03/31/08)
- 7. What accounting period ending date is used for filing the 2008 initial franchise tax report?
- The taxpayer must use the last accounting period end date for federal purposes that is at least 60 days before the original due date of the initial report. The original due date applies even to those entities for whom the Comptroller's office extended the initial report due date to May 1, 2008. (Updated 03/31/08)
- 8. What is franchise tax?
- The Texas franchise tax is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas. (Updated 03/31/08)
- 9. When can I file my franchise tax report electronically?
- WebFile is available now for filing extensions, making extension payments and filing No Tax Due reports. The system will be expanded to allow electronic filing and payments for all franchise tax reports by May 1, 2008. (Updated 04/23/08)
- 10. What does it mean to make an "election" for cost of goods sold or compensation, or 70%, and how do I do this?
- Taxable entities must elect whether to deduct cost of goods sold or compensation when determining taxable margin. If no election is made, the taxable entity's margin will be 70% of total revenue.
Taxpayers filing the long form report will make the election simply by filing the report using one method or the other. No other action is required.
Taxpayers filing the No Tax Due report must make an election by checking the appropriate box on the form. The election is required even though taxpayers filing the No Tax Due report don't actually calculate tax due. The election protects taxpayers who might later have to amend their report, by ensuring they can take the deduction most advantageous to them.
The election for COGS or Compensation must be made by the latest of the due date, the extended due date or the date the report is filed.
Making an election does not apply to taxpayers filing the E-Z Computation, because the E-Z Computation Report is not based on taxable margin. Therefore, neither COGS nor compensation may be deducted when using the E-Z Computation Report. (Updated 04/29/08)
- 11. What is a NAICS code and why does the Comptroller's office require it on the report forms?
- The North American Industry Classification System (NAICS) was developed jointly by the United States, Canada and Mexico to provide new comparability about business activity in North America. States must use NAICS codes when reporting data to the federal government. For federal purposes, NAICS has replaced the Standard Industrial Classification (SIC) codes.
The Comptroller's office uses the data to help us estimate revenue, to answer requests from the legislature and the public about taxable sales by industry, and to provide taxpayers specific information about changes in the tax laws that might affect a particular industry. (Updated 5/15/08)
- 12. Where can taxpayers find their NAICS code?
- The North American Industry Classification System (NAICS) code can be found at the U.S. Census Bureau's Web site.
Once on this site, you will see a box in the upper left called "enter keyword" above a "2007 NAICS Search." In the "enter keyword" box, enter the word or words that best describe your business, and click on "2007 NAICS Search." The search will return the classification choices for you to select the best match for your business. (Updated 5/15/08)
- 13. Why does the Comptroller's office also require a SIC code on the report forms?
- The law that enacted the revised franchise tax, HB3, specified that a tax rate of 0.5% be applied to taxable entities primarily engaged in wholesale or retail trade as described in Division F and Division G of the 1987 Standard Industrial Classification (SIC) Manual. The Comptroller's office uses the SIC code to verify that the appropriate tax rate was used. (Updated 5/15/08)
- 14. Where can taxpayers find their four-digit SIC code?
- The four-digit SIC code can be found on the OSHA (Occupational Safety and Health Administration) Web site. Once on this site, you will see an option to "enter the search keyword." In the box, enter the word or words that best describe your business, and click on "submit." The search will return the classification choices for you to select the best match for your business. (Updated 5/15/08)
- 15. If tax due is more than $1000 but annualized total revenue is less than $300,000, do I owe the tax?
- A taxable entity will owe no tax if the total tax due is less than $1000 or if the entity's annualized total revenue is $300,000 or less. (Updated 06/19/08)