Texas Comptroller Manual of Accounts - Fiscal 2024
Revenue Object 3130 – Franchise/Business Margins Tax

Entities doing business in Texas are required to pay the franchise tax. With exceptions, these include: corporations, savings and loan associations, limited liability companies, partnerships, business trusts, professional and business associations, joint ventures and joint stock companies, holding companies and other legal entities.

A revised franchise tax based on an entity's taxable margin became effective January 1, 2008. The taxable margin equals the lowest of four calculations:

• total revenue minus cost of goods sold;
• total revenue minus compensation;
• total revenue times 70 percent; or
• total revenue minus $1 million.

The tax rate on taxable margin is 0.75% for taxable entities not primarily engaged in wholesale or retail trade and 0.375% for taxable entities primarily engaged in wholesale or retail trade.

Voter approval is required for any rate increase.

Annually, May 15 with an available extension until November 15.

Franchise tax collected prior to January 1, 2008 deposited using revenue code 3131.

From original enactment by H.B. 3, 79th Leg., 3rd C.S. until H.B. 500, 83rd Leg., R.S., the tax rates were 1% for taxable entities not primarily engaged in wholesale or retail trade and 0.5% for taxable entities primarily engaged in wholesale or retail trade.

H.B. 500, reduced tax rates from 1% to 0.975% for calendar year 2014 and 0.95% for 2015. Rates for wholesale/retail businesses reduced from 0.5% to 0.4875% in 2014 and 0.475% in 2015. These lower rates were contingent on the Comptroller certifying actual business margins/franchise tax revenue for 2014-2015 exceeding the estimate in the 2014-2015 Biennial Revenue Estimate to cover any tax revenue loss incurred by the reduced rates. H.B. 500 enacted subtracting $1 million from entities total revenue when computing taxable margin.

H.B. 32, 84th Leg., R.S. lowered rates to 0.75% and 0.375% respectively.