Do you know that Texas is considered the second-largest economy in the United States? The majority of the revenues in this state come from the gas and oil industry, steel, farming, and tourism. Texas promotes business startups by reducing business taxes up to zero percent when their revenues do not exceed a certain threshold. At the same time, businesses get top talent as there is no personal income tax in Texas. Individuals also get attracted to Texas due to the nicer weather year-round compared to the northern states of the United States.
INDIVIDUAL INCOME TAX
Texas does not levy income tax on an individual’s income.
CORPORATE INCOME TAX
Texas does not levy a corporate income tax.
FRANCHISE TAX
Franchise Tax – is a tax you pay for doing business in a particular state of the United States. In Texas, this is a state-level tax. There is no local franchise tax in Texas. This is also not to be confused with the Sales and Use tax. Depending on your business, you may not have a sales tax liability in Texas, but you may need to pay franchise tax in Texas.
The franchise tax amount – is computed based on margins, and the margins can be calculated based on the lesser of the following items:
The franchise tax rate varies based on your total revenue and how you report it.
The following are the rates, threshold, and deduction limit for Texas Franchise Tax
| 2022 and 2023 | |
| Item | Amount |
| No tax due threshold | $1,230,000.00 |
| Retail and Wholesale tax rate | 0.375% |
| Other business | 0.75% |
| Compensation deduction limit | $400,000.00 |
| EZ Computation threshold | $20 million |
| EZ Computation rate | 0.331% |
If your total revenue is below the “No tax due threshold,” you do not need to pay Texas Franchise tax. However, you need to file a nil return. You pay Texas franchise tax annually, and it is due by May 15.
Remote sellers – You may not have Texas franchise tax payable unless you have an economic nexus. An economic nexus is established when you more than $500,000.00 gross receipts from Taxas.
Who pays franchise tax – An individual or a self-employed individual does not pay franchise tax unless that individual has organized an entity that limits his/her liability. For example, A single-member limited liability company filing as a sole proprietor for federal income tax purposes is a taxable entity.
Some of the entities liable to pay Franchise Taxes in Texas may include:
SALES AND USE TAX
Sales and use tax rate in Texas is 6.25% on the sale of tangible personal property and certain services. In addition, there may be levies from Cities, Counties, and transit authorities which combined together will reach up a maximum rate of 8.25%
PAYROLL TAXES
There only levies “Unemployment insurance tax.” The Texas Workforce Commission collects and administers payroll taxes at the state level. The employer pays the Unemployment insurance tax based on the gross wages paid to the employee.
Disclaimer: Information in the blog/post/article has been presented for a broad and simple understanding. This is not legal advice. RKB Accounting & Tax Services does not accept any liability for its application in any real situations. You need to contact your accountant or us for further information.