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Franchise Tax

Franchise Tax. April 27, 2005. Frequently Asked Questions. What is franchise tax?. The Texas franchise tax is a privilege tax imposed on corporations that are chartered in Texas and non-Texas corporations that do business in Texas. How is Franchise Tax Calculated?.

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Franchise Tax

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  1. Franchise Tax April 27, 2005

  2. Frequently Asked Questions

  3. What is franchise tax? The Texas franchise tax is a privilege tax imposed on corporations that are chartered in Texas and non-Texas corporations that do business in Texas.

  4. How is Franchise Tax Calculated? Corporations pay the greater of the tax on net taxable capital or net taxable earned surplus. • Taxable Capital is a corporations stated capital plus surplus. The tax rate is 0.25% per year. • Earned Surplus basically includes the corporations net taxable income plus compensation paid to officers and directors. The tax rate is 4.5% per year.

  5. Is there a minimum tax? 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 are less than $150,000 or had total taxable capital less than $40,000.

  6. 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. After the initial report is filed, the corporation will file annual reports due each May 15.

  7. Can you file extensions? An initial filer may request a 45 day extension but the request must be postmarked on or before the original due date and must include 90% of the tax that will be due when the report is filed. An annual filer may request an extension until November 15 but the request must be postmarked on or before May 15 and must include 90% of the tax that will be due when the report is filed.

  8. Are there any penalties? If a franchise tax report is not filed by the due date, a 5% penalty is imposed on the amount of franchise tax due. If any part of the tax is not reported or paid within 30 days after the due date, an additional 5% is added. Interest is also accrued beginning 60 days after the due date. The 2005 interest rate is 6.25%.

  9. Who can sign the Texas franchise tax report? An officer, director, or any other person authorized by the corporation can sign the report.

  10. What is a Public Information Report? The Public Information Report is a listing of the officers and directors of the corporation. 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.

  11. How are changes to the officers & directors of a corporation reported to the state? Since the Public Information Report is filed every year, you simply make changes to this report. When you are filing a preprinted form, just cross out any incorrect preprinted information and enter the correct information.

  12. Procedures for Filing

  13. First, you need to perform a corporation search from the comptroller’s website. This will show if an association is in good standing, when the franchise tax return is due, the information for registered agent, mailing address the comptroller has on file, and if the association is exempt from filling. This website is: http://ecpa.cpa.state.tx.us/coa/ Index.html. (Pages 1-4)

  14. Most of the associations will receive preprinted forms mailed from the comptroller. You can also go to http://www.window.state.tx.us/taxinfo/taxforms/05-forms.html to get the necessary forms in Adobe format. Pages 5-6

  15. If the association has not had their final income tax return filed for the prior year, you must file an extension for the franchise tax. Print a copy of the end of the year financial balance sheet and income statement. Make a copy of the Franchise tax report to figure the amount due. With an extension you are only required to pay 90% of the amount you figure out to be due. **Remember ~ You MUST file the final franchise report once you receive the final income tax return** Pages 7-13

  16. If the association has had their final income tax return filed, use this return to figure out the franchise tax. Pages 14-21

  17. If a corporation’s gross receipts are less than $150,000 or had total taxable capital less than $40,000, you will file a No Tax Due report. Page 13

  18. Whether an extension, final return, or a no tax due report is filed, it must be sent with a Public Information Report. If AMI is not the registered agent, a board member must sign the return. Page 22

  19. Make two copies of the information that you send to the Comptroller. One copy should be filed in the A/P franchise tax file and the other should be given to the administrator for their tax file.

  20. The Comptroller’s office maintains a toll-free number (1-800-252-1381) to answer your franchise tax questions. You can also email them at tax.help@cpa.state.tx.us or you can write to: Comptroller of Public Accounts, 111 E. 17th Street, Austin TX 78774.

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