FAQs: Texas Franchise Tax Updates
Texas has made several changes that apply to Report Year 2024 (calendar year 2023) increasing the “no tax due” revenue threshold from $1.23 million to $2.47 million and the removal of the No Tax Due Report requirements. As we move toward the May 15 Texas franchise tax return/extension deadlines, we wanted to share a few frequently asked questions we’ve received from several clients and local offices.
- Are Public Information Reports (“PIRs”) required?
- Yes! We anecdotally have heard that some clients believe that they no longer have any filing obligations. If the client has an entity that has established nexus with Texas (examples of nexus include economic nexus, employees, physical presence, Secretary of State registration, or other activities the state may deem to establish “sufficient contact”) they still have to file PIRs. Our recommendation is that our clients file the PIRs online instead of using Forvis Mazars to prepare, but we can still assist if our clients would like.
- Ideally Texas wants all reports completed and submitted by May 15 to avoid an influx of notices or processing delays on taxpayers who file returns with tax due.
- Yes! We anecdotally have heard that some clients believe that they no longer have any filing obligations. If the client has an entity that has established nexus with Texas (examples of nexus include economic nexus, employees, physical presence, Secretary of State registration, or other activities the state may deem to establish “sufficient contact”) they still have to file PIRs. Our recommendation is that our clients file the PIRs online instead of using Forvis Mazars to prepare, but we can still assist if our clients would like.
- Are extensions needed even when the taxpayer is not required to file a No Tax Due Report, but needs to file a PIR?
- Yes! If the taxpayer does not file the PIRs by May 15, they technically need to file an extension to avoid any notices.
- Would there be any penalties if the taxpayer does not file an extension by May 15 if all they need to file are the PIRs?
- No. However, the notices will continue until taxpayers file the PIRs and their accounts will go into forfeiture. This could affect clients when doing transactions, getting credit, etc.
- Per conversations with the Texas Comptroller’s office, no penalties will apply; however, if the state does not know that a taxpayer is only filing a PIR and expects a return with payment the state may still issue the $50 penalty in addition to issuing notices until taxpayers file the PIRs and their accounts will go into forfeiture. This could affect clients when doing transactions, getting credit, etc. Do we need to file a second extension by August 15 if we cannot file PIRs by this time?
- No, the extension filed on May 15 will suffice to file until November 15.
In its November 2023 Policy News Alert, the Texas Comptroller of Public Accounts (the Comptroller) discussed Senate Bill 3 (SB3) and the bill’s impact on Texas franchise tax filings due on or after January 1, 2024. SB3 increased the no tax due revenue threshold from $1.23 million to $2.47 million and removed the No Tax Due filing requirement for taxable entities whose annualized total revenue is at or below the revenue threshold. SB3 also repealed a requirement for new veteran-owned businesses to file a No Tax Due Report during a business’s first five-year exemption period.
Prior to SB3’s enactment, the following taxpayers were required to file a No Tax Due Report:
- Taxable entities whose annualized total revenue is at or below the no tax threshold;
- Qualifying new veteran-owned businesses;
- Qualifying passive entities;
- Qualifying real estate investment trusts; and
- Taxable entities with zero Texas gross receipts.
In light of the changes, the Comptroller is discontinuing the No Tax Due Report for 2024 and future reporting years. Since discontinuing the form, the Comptroller clarified each entity’s reporting requirements, beginning with the 2024 report.
While taxable entities with annualized total revenue below the no tax due revenue threshold are no longer required to file a No Tax Due Report, the entity will still be required to file a Public Information Report or Ownership Information Report.
Passive entities, real estate investment trusts (REITs), and taxable entities with zero Texas receipts are required to file either a long form or EZ Computation form. Both REITs and entities with zero Texas receipts are also required to file a Public Information Report or Ownership Information Report.
New veteran-owned businesses are not required to file a Public Information Report or Ownership Information Report during the five-year exemption period.
For combined reporting, if a member of a combined group is under the new revenue threshold, the combined group still includes the entity in reporting. However, if the combined group’s total annualized revenue is at or below the threshold, then the combined group is no longer required to file a franchise tax report, affiliate schedule, and a common owner information report for that reporting year. Each individual member of the reporting group that has a nexus with Texas must still file a Public Information Report or Ownership Information Report.
If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.