• Texas franchise tax rules may change annually.flag image by jimcox40 from Fotolia.com
  
  The franchise tax is assessed for all companies that are either incorporated or conducting business in the state of Texas. It is considered a privilege tax, or one that is charged for the privilege of doing business in the state. Texas requires companies to file annual reports even if no tax is due.
  
  

Reporting Requirements

• All companies incorporated within the state of Texas, or that are incorporated elsewhere but conduct business in Texas, must file an annual report. For the purposes of franchise tax, banks, professional companies, limited liability companies, and S-corporations are subject to franchise tax regulations. Nonprofit corporations are included, but some may not be required to make a payment. Partnerships and professional associations are not required to report. The report for the first year is due 454 days after the company was formed. Thereafter, Texas franchise reports are due each year on May 15.
  
  

Minimum Taxes

• There is no minimum franchise tax in Texas. However, entities owing less than $100 are not required to pay the tax, but must still file a return. Corporations with gross receipts of taxable capital and surplus of less than $150,000 each also do not have to remit payment.
  
  

Rates

• As of 2010, the rate is 1 percent for corporations, except for those engaged primarily in retail or wholesale as their primary business. Their rate is 0.5 percent. Corporations that receive less than $10 million in total revenue for the year and who use the E-Z Computation method are assessed at a rate of 0.575 percent.
  
  

Method of Computation

• Three calculations are performed to determine the lowest number which will then be used as the basis for calculating the amount of the franchise tax. For the first, the cost of goods sold is subtracted from the total revenue to determine the cost of goods sold margin. For the second computation, the total of cash compensation (including wages) and employee benefits costs are subtracted from total revenue to arrive at the compensation margin. The third computation is to multiply total revenue by 70 percent to arrive at the margin.
  
  Revenue received in Texas is then divided by the total revenue from all states. This amount is then multiplied by the cost of goods sold margin, compensation margin, or margin depending on which is the lowest. This is the result to be multiplied by the appropriate rate. Any discounts or credits are then deducted for the final amount due for Texas franchise tax.
  
  Entities with multiple locations must file a combined report and use the same computation method.