Texas Changes Franchise Tax Qualifications

February 10, 2020

Out-of-state businesses, with no physical presence in Texas, are now subject to Texas franchise tax if economic nexus is established. The Texas Comptroller’s office extended the state’s economic nexus law to apply to franchise tax for all franchise tax reports due on or after January 1, 2020.

Economic nexus is established by an out-of-state taxpayer with no physical presence in Texas by reaching a total Texas sales revenue of $500,000 during the preceding 12 calendar months.  Since October 1, 2019, out-of-state sellers meeting this economic nexus threshold have been required to collect and remit sales tax to the state. Now, these qualified remote sellers also have franchise tax obligations.

The Texas Comptroller’s office amended Rule 3.586, effective December 29, 2019, to include these new tax provisions. Texas’ franchise tax is a privilege tax imposed on any taxable entity with $500,000 of gross receipts sourced to Texas.

If you have questions about Texas’ new franchise tax obligations, feel free to contact Cathie Stanton or the other state tax experts at Cherry Bekaert.