Small business owners — and even some professionals — frequently overlook or incorrectly prepare this simple but important filing.
These new rules went into effect on June 28, We will begin our discussion by defining what is considered a passive entity in relation to the Texas franchise tax.
We will then move on to discussing what the previous rules required and wrap up with a discussion of the new filing requirements. What is a Passive Entity?
For purposes of the Texas franchise tax to be considered passive the entity must be a general partnership, limited partnership, limited liability partnership, or trust excluding business trusts for the entire period on which the franchise tax is based. Dividends, interest, foreign currency exchange gain, periodic and non-periodic payments with respect to notional principal contracts, option premiums, cash settlements or termination payments with respect to a financial instrument, and income from a limited liability company Distributive shares of partnership income to the extent that those distributive shares of income are greater than zero Net capital gains from the sale of real property, net gains from the sale of commodities traded on a commodities exchange, and net gains from the sale of securities Royalties from mineral properties, bonuses from mineral properties, delay rental income from mineral properties and income from non-operating mineral interests excluding the items described next Note: Rent; or Income received by a non-operator from mineral properties under a joint operating agreement if the non-operator is a member of an affiliated group and another member of that group is the operator under the same joint operating agreement.
To be considered a passive entity, an entity may not receive more than 10 percent of its federal gross income for the period from the conduct of an active trade or business. In regards to conducting an active trade or business, the following activities do not constitute an active trade or business: Ownership of a royalty interest or a non-operating working interest in mineral rights Payment of compensation to employees or independent contractors for financial or legal services reasonably necessary for the operation of the entity Holding a seat on the board of directors of an entity does not, by itself, constitute conduct of an active trade or business Now that we have established what the definition of a passive entity is for Texas franchise tax purposes we can discuss what the previous reporting and filing requirements were for such entities.
As long as the entity remained passive it would not have been required to file subsequent franchise tax reports.
New Reporting and Filing Requirements We will now discuss the amendments to the reporting and filing requirements. The section regarding the reporting and filing requirements was amended in several ways.
First, the section was amended to state specifically that an entity that meets all the qualifications to be considered a passive entity owes no tax; however, the entity may be required to file a No Tax Due Report.
Although the rule requiring a passive entity which receives notification in writing from the comptroller asking if the entity is taxable, the entity must reply to the comptroller within 30 days of notice remains the same it is moved to a new subsection.
To find out more information about these amendments to the reporting and filing requirements for passive entities under the Texas franchise tax please consult a tax professional.The above information is required by Section of the Tax Code for each corporation or limited liability company that files a Texas Franchise Tax Report.
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Foreign entities that are subject to state franchise taxes must file an annual franchise tax report with the Texas Comptroller of Public Accounts. As part of the report, foreign corporations, professional associations, LLCs, and certain limited partnerships that are subject to franchise taxes must file a Public Information Report (PIR) that.
A final tax report and payment of the additional tax are due within 60 days after the taxable entity no longer has sufficient nexus with Texas to be subject to the franchise tax.
See § of this title (relating to Margin: Additional Tax) for further information concerning the additional tax imposed by Tax . Corporation Franchise Tax Reports Tax: The franchise tax rates are: % ) for most entities, % ) for qualifying wholesalers and retailers, and % ) for those entities with $10 million or less in annualized Total Revenue using the E-Z computation.
Texas Franchise Tax Forms Downloadable Report Forms for If you are unable to file using Webfile, use our tranceformingnlp.com reports, designed to work with the free Adobe Reader.