The Texas franchise tax system has been significantly reformed by Senate Bill 3, 83rd Regular Legislative Session, via dramatic changes to the state’s franchise tax rules. These changes are effective for reports filed in 2024 and forward. Major alterations to the no tax due threshold, certain reporting entities, and increased exemptions are just some of the elements that have dramatically changed the way businesses interface with the services provided by the franchise tax structure.

Increased No Tax Due Threshold to $2.47 Million

The no tax due threshold for franchise tax reports has increased to $2.47 million in annualized total revenue, more than double the previous exemption threshold of $1.23 million. This change is in accordance with Tex. Tax Code § 171.002(d)(2), which exempts entities with annualized total revenues less than or equal to the newly enacted exemption threshold from certain tax liabilities.

Changes to Taxpayer Filing Requirements

Modifications to the report of no taxes due requirement were made. Taxpayers whose total revenue is less than or equal to the newly adopted threshold are no longer required to submit the No Tax Due Report (Form 05-163), which was discontinued beginning with the 2024 report year. These taxpayers must, however, continue to submit either the Public Information Report (Form 05-102) or the Ownership Information Report (Form 05-167). This change simplifies compliance for many and is especially helpful to nonprofit organizations that are applying for Federal tax exemption with the Internal Revenue Service.

Special Provisions for Combined Groups

There are rules for combined groups. The rule is that all members in the combined group must be in the combined report. It doesn’t matter what the individual income level is. If the combined group’s total revenue is less than the threshold, they are not required file a franchise tax report, Affiliate Schedule, or Common Owner Information Report for that year. But every Texas-based or nexus-having member must still file a Public Information Report or Ownership Information Report.

New Veteran-Owned Businesses

Veteran-owned new businesses meeting the requirements will no longer be required to file a No Tax Due Report during their first five years of operation as a part of a comprehensive initiative to foster and promote veteran entrepreneurship across the State of Texas.

Compensation Limit Increase

There is a new limit on compensation. It used to be $400,000 and is now $450,000. This means under the new limit you can no longer calculate taxable margin the same way.

Specific Filing Obligations for Certain Entities

Furthermore, passive entities and REITs that are not subject to the franchise tax but are required to file have the option to use either the EZ Computation Report (Form 05-169) or the Long Form Report (Form 05-158), which now have separate identification sections, or they may use another approved report for submission. Also, all entities with no Texas gross receipts must now file one of these forms by entering total revenues and zero Texas gross receipts as a amount by category.


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