Franchise Tax Frequently Asked Questions

Texas Tax Code Section 171.001 imposes franchise tax on each taxable entity that is formed in or doing business in Texas. Taxable entities may need to file franchise tax and information reports each year. See Franchise Tax Rule 3.584 (c) and (i), Margin: Reports and Payments.

When franchise tax reports are filed or payments are made, sometimes errors or omissions occur. Our office sends notices letting the taxpayer know that there is a problem with the account.

You can find information on our franchise tax notices webpage that explains what the error message means and how to resolve it.

An entity registered with the Texas Secretary of State (SOS) must satisfy all state tax filing requirements before it can reinstate, terminate, merge or convert its business. This applies to both Texas-formed and out-of-state-formed entities.

You can find detailed information about how to reinstate or terminate SOS-registered entities on our Reinstating or Terminating a Business webpage.

To end the franchise tax reporting responsibility of an unregistered entity (i.e., an entity not registered with the SOS) that is not or is no longer subject to franchise tax, the unregistered entity must do the following with the Texas Comptroller of Public Accounts:

• satisfy all filing requirements through the date it was no longer subject to the tax; and
• file Form AP-114, Texas Nexus Questionnaire (PDF).

This will provide information required for the Comptroller’s office to end the entity’s franchise tax reporting responsibility, including:

• the entity’s Texas 11-digit taxpayer identification number;
• its legal name;
• its reason for ending its reporting responsibility; and
• the date it is or was no longer subject to the tax.

An entity’s accounting period includes both its accounting year begin and end dates. See Franchise Tax Rule 3.584 (c), Margin: Reports and Payments.

Accounting Year Begin Date

For a first annual report, enter the day the entity became subject to the tax. For a Texas-formed entity, this is its Texas Secretary of State (SOS) registration date. For an out-of-state-formed entity, this may be the entity’s Texas SOS registration date or the day it began doing business in Texas.

For an annual report, enter the day after the end date the entity reported on its previous year’s franchise tax report.

For a final report, enter the day after the end date the entity reported on its current year’s annual franchise tax report.

Accounting Year End Date

For a first annual report, enter the accounting period end date reported for federal income tax purposes that is in the same calendar year as the entity’s accounting year begin date.

For an entity that became subject to the tax during a calendar year and has a federal accounting year end date that occurs before the date the entity became subject to franchise during that calendar year, use the day the entity became subject to franchise tax as its accounting year end date on its first annual report. This will result in a $0 tax due report.

For an annual report, generally an entity should enter the federal accounting year end date that ended in the calendar year before the calendar year in which the report is originally due. If, however, there is no such ending date, which may occur when an entity uses a 52-53-week accounting period, then enter Dec. 31 of the calendar year before the calendar year in which the franchise tax report is due.

For a final report, enter the day the entity ends its Texas nexus as its final franchise tax accounting year end date.

Since Texas Tax Code Section 171.001 imposes franchise tax on each taxable entity that is formed in or doing business in Texas, if you have not filed all required reports for your entity, or the Comptroller’s office could not process the filed report, we may estimate the tax liability due. Paying the estimate DOES NOT resolve your entity’s tax reporting delinquency. To resolve the delinquency, your entity must file its franchise tax report, if required, and the appropriate information report (either the Public Information Report or Ownership Information Report).

You can file your entity’s franchise tax and information reports using:

• our Webfile system;
• approved third-party software; or
• downloadable paper forms that you may complete, print and mail to the Comptroller’s office.

If your entity is a member of a combined group and it received an Original Franchise Tax Report Not Filed notice, your entity is delinquent because the reporting entity:

• has not filed the original tax report;
• did not file the tax report as a combined group report;
• did not list your affiliate member when it filed the tax report; or
• the tax report did process.

Your entity does not need to contact or file anything with the Comptroller’s office. Instead, to resolve the issue, contact the entity that reports your company’s information on the combined group franchise tax report. Your entity’s issue that caused the notice will resolve itself automatically when the reporting entity:

• files the missing tax report with all required schedules such as the listing of affiliates; or
• amends the filed tax report and schedules to provide correct information for all affiliate members of the combined group.

You can find information on our franchise tax notices webpage that explains what the error message means and how to resolve it.

You must amend and submit all franchise tax reports in paper format with

• a cover letter explaining the reason(s) for amending the tax report (and schedules); and
• the word "AMENDED" written across the top of each page submitted.

For more information about amending reports, see

• Rule 3.584 (f) – Margin: Reports and Payments

To determine if your nonprofit organization qualifies for an exemption from franchise tax reporting, please see our Exempt Organizations webpage.

The available information includes:

• types of organizations that qualify for exemption
• types of tax exemptions for which an organization may qualify
• exemption application forms

For more information about tax exemptions for nonprofit organizations, see:

• Publication 96-1045 – Guidelines to Texas Tax Exemptions
• Publication 96-122 – Nonprofit and Exempt Organizations – Purchases and Sales
• Franchise Tax Frequently Asked Questions (FAQs) – Exemptions

Generally, a taxpayer is required to report grant or forgiven loan proceeds as income. However, after passage of House Bill 1195 in the 87th Legislature, Regular Session, taxable entities that received certain COVID-related relief grants or had certain COVID-related relief loans forgiven by the federal government do not have to report those grant or forgiven loan proceeds as income on their franchise tax reports.

HB 1195 added Texas Tax Code Section 171.10131, Provisions Related to Certain Money Received for COVID-19 Relief, which provides that for franchise tax reports originally due on or after Jan. 1, 2021, grant or forgiven loan proceeds from qualifying COVID-related federal programs are not included in total revenue. Furthermore, expenses paid using those grant or forgiven loan proceeds can be claimed as a cost of goods sold or as compensation in the franchise tax calculation, if eligible under current law.

The following are the qualifying federal COVID-related relief programs:

• Coronavirus Aid, Relief, and Economic Security (CARES) Act
• Paycheck Protection Program (PPP) Flexibility Act of 2020
• PPP Extension Act of 2021
• American Rescue Plan Act of 2021
• Consolidated Appropriations Act, 2021

Yes. The Comptroller’s office assigns unique Webfile numbers to each taxpayer for filing its reports with our office. The Webfile number is a Personal Identification Number (PIN) or security code. Our office prints this number on the reports and notices we mail to each business.

A taxpayer (or tax preparer) uses the Webfile system’s XT number for:

• filing franchise tax reports or extension requests;
• making payments; or
• requesting Certificates of Account Status to Reinstate or Terminate.

The FQ number is used for filing Form AP-114, Texas Nexus Questionnaire (PDF) online.

You can find additional information on our Add Webfile Access and Franchise Tax Help Links webpages.

You can update contact information for a taxpayer account using the Change a Business Address/Phone Number webpage.

To protect the security of the account when updating the address, you must provide two pieces of confidential information. The security information options listed include:

• Total sales of last return filed (if new entity, enter zero)
• Total amount paid of last return filed (if new entity, enter zero)
• RT # (Webfile number for filing reports for sales and most other taxes)
• XT # (Webfile number for filing franchise tax reports)

Yes. Unless you are filing your business’s franchise tax report and paying any franchise tax due by the reporting due date, you need to file a franchise tax extension request with the Comptroller’s office. This is because your business’s federal income tax extension is filed with the Internal Revenue Service (IRS), not with our office.

To request and receive a valid franchise tax extension, you must timely submit your extension request:

• online using Webfile or an approved third-party software; or
• by mail; and
• pay with the extension request either
• 100 percent of the tax that was due and payable in the previous reporting year; or
• 90 percent of the tax that will be due and payable with the current year’s report.

Note – filed timely means an entity’s extension request is submitted electronically or mailed with a canceled postmark on or before the due date of the original report.

For more information about filing an extension request, see:

• Franchise Tax Extensions of Time to File
• General Rule 3.13, Postmarks, Timely Filing of Reports, and Timely Payment of Taxes and Fees
• Franchise Tax
  • Rule 3.584 (c)(5), Margin: Reports and Payments
  • Rule 3.585, Margin: Annual Report Extension

The Texas Secretary of State (SOS) maintains and updates Registered Agent and/or Office information. For more information about changing the registered agent’s name or office address, please contact the SOS at 512-463-5555 or visit the SOS website.

A $50 penalty is assessed on taxpayers on each required franchise tax report filed after the report due date. This penalty is assessed regardless of whether any taxes or fees are due for the late-filed report period. This late-filing penalty is in addition to any other penalties assessed for the reporting period. For more information, see Publication 98-918, Late Filing Penalties (PDF).

After filing your tax report and paying the amount due, you may request a waiver of all penalties assessed by downloading, completing and submitting Form 89-224, Request for Waiver of Penalty for Late Report and/or Payment (PDF).

Franchise tax rates, thresholds and deduction limits vary by report year. Use the rate that corresponds to the year for which you are filing. You can find the appropriate tax rate on our Franchise Tax webpage in the Tax Rates, Thresholds and Deduction Limits section.