Texas enacts taxpayer-friendly revisions to franchise tax


Governor Rick Perry has signed into law Texas HB 500, which provides for certain  changes to the Texas franchise tax provisions.  


Among other things, the legislation, signed into law on June 14, authorizes an elective temporary reduction in franchise tax rates imposed on taxable margin.  For reports due in 2014, the rate is reduced from .5 percent to .4875 percent (for retailers or wholesalers) and from 1 percent to .975 percent for other taxpayers.  For reports due in 2015, the elective rates are further reduced to .475 percent and .95 percent, respectively, but only if the Comptroller of Public Accounts certifies that certain revenue estimates exceed prior estimates.  These rates return to current levels for reports due after 2015.


Among other changes adopted by HB 500 is a determination that receipts from Internet hosting activities will only be considered Texas receipts for purposes of applying the margin apportionment formula, if the customer is in Texas. 


In addition, taxpayers relocating their main office or principal place of business from another state to Texas may in some cases claim a deduction from apportioned margin for the amount of the relocation costs. 


Finally, HB 500 permits taxpayers to compute taxable margin by subtracting US$1 million from total revenue in lieu of calculating margin as 70 percent of total revenue or total revenue less costs of goods sold or compensation.  This change may provide a greater benefit to small businesses than the margin calculation under prior law.    

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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