Texas Business Tax
It is easy to register a new business but there are several Texas state requirements that a business has to fulfill in order to enjoy active status. One such requirement is filing of Texas business tax. Along with Florida, Washington, and Nevada; Texas is one of nine states where there is no personal income tax. The most common forms of taxes in the state are the sales tax and franchise tax and then there are business specific taxes including Texas corporation taxes. It is important to note that you need to have an Employer Identification Number (EIN) as a business and Social Security Number (SSN) as a sole proprietor to file taxes in Texas.
What taxes do businesses pay in Texas?
The truth is that no one wants to file annual tax returns but if you form a business in any state including Texas, you may have to file certain taxes. On a better note, entrepreneurs favor Texas to form their new businesses because it is a highly tax friendly state. This is more so, because the state does not have any personal Texas business tax or income tax. The state and local tax burden as a percentage of state income in Texas is 8.0% as compared to some of the other states like Indiana at 8.6%, Wisconsin at 9.4%, and Ohio at 9.2%. At the same time, there are business specific taxes like Texas LLC taxes and business activity specific taxes like the sales tax that a company may be required to file.
Franchise tax is not imposed by the federal government as it is a state tax. The Texas franchise tax is different from other states that impose these taxes. The rule is that any taxable entity conducting its business in Texas is required to register with the state including limited liability companies including series LLCs, partnerships, S corporations, professional corporations, and professional associations among others are liable to pay a franchise tax. It is also important to note that sole proprietorships except for single-member LLCs are not required to file franchise taxes.
Texas business tax is also known as the franchise tax and the primary difference between the traditional corporate income tax and franchise tax is that in the former, the taxes are applicable on the profit while in franchise taxes that is not the case. The Texas business tax calculator for franchise taxes is based on computation of a taxable entity’s margin. There are four ways by which it is computed and they are:
- Total revenue minus the cost of goods sold (COGS)
- Total revenue times 70 percent
- Total revenue minus $1 million effective from Jan 1, 2014
- Total revenue minus the compensation
There are no minimum Texas franchise tax requirements in the state and any entity having an annualized total revenue of less than or equal to $1,180,000 will not be required to file taxes. This is also known as the “The Zero-Tax Threshold”.
You can use a Texas business tax Calculator to compute your franchise tax or based on the tax rates like the rate for retail and wholesale companies is 0.375%. The Texas franchise tax report forms also known as the “EZ Computation Report” is used for filing this tax. It has to be filed with the office of the Texas Comptroller of Public Accounts (CPA). You can also file it electronically using the webfile systems.
Texas income tax
Texas has no state income tax or in other words, the Texas Constitution disallows any personal income tax (there is no income tax code). Instead, Texas relies on other forms of taxes like collecting sales and use tax as well as property tax. There are certain forms of taxes applicable only for business owners and their companies. All business structures except partnerships, which have to file an informational return, must file a Texas business tax annually. Some forms of income taxes filed in Texas are:
- Self-Employment Tax – This type of income tax is applicable for those individuals who are working for themselves like freelancers. This tax covers Social Security and Medicare taxes.
- Estimated Tax – This type of tax is filed on the income and includes self-employment tax. This is a type of Texas LLC taxes or corporation taxes.
- Employment Taxes – This is an integral part of Texas corporation taxes if a corporation has employees. Employment tax includes Social Security and Medicare, Federal income tax withholding, and Federal unemployment (FUTA) tax.
- Excise Tax – This is a form of Texas business tax applicable on those entities that use different types of equipment and facilities. This is also applicable for businesses that receive income through facilitation of certain services, and manufactures or sells specific types of products.
Texas sales tax
One of the most important types of Texas business tax is the sales tax although it is also referred to as the sales and use tax. This tax is applicable if a business sells taxable goods or services in the state. There is a state sales or use tax as well as a local sales or use tax. A business while transacting in the state has to collect 6.25% state sales or use tax.
If a business based out of Texas ships or delivers goods to their customers then such a business is required to collect local sales tax or use tax, or both. The local Texas business tax due should not be more than 2% and the maximum a business can collect 8.25 percent.
A business has to report their state as well as local sales and use taxes on the Texas Sales and Use Tax Return. In order to calculate the tax, businesses can use Texas business tax Calculator or the Comptroller’s online Sales Tax Rate Locator. The sales or use tax has to be filed with the Texas Comptroller of Public Accounts (CPA) and you can also file it electronically using the webfile systems.