F R ANCH I S E TAX E N A C T E D 1 9 0 7 The franchise or “margins” tax is the current version of one of the state’s oldest taxes, levied for the privilege of doing business in Texas. The tax due is based on an entity’s apportioned taxable margin.1 In 2006, the Legislature made significant changes to the tax, including transitioning to the taxable margin as the sole base component and expanding the tax to limited partnerships, business trusts and other legal entities. In 2015, the Legislature voted to reduce franchise tax rates by 25 percent. Percentage of Total Tax Collection F I SCA L 20 21 All Funds, Excluding Trusts $4.53 BILLION FRANCHISE TAX COLLEC T IONS All Funds, Excluding Trusts (billions) $0 $1 $2 $4 $5 $3 2011 $4.97 A C T U A L E S T I MAT E D 20 2 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 REVENUE BY SOURC E TAX FUND FISCAL 2021 Franchise/Margins Tax General Revenue Fund2 $3,173,209,102 Property Tax Relief Fund3 $1,358,948,885 Franchise Tax General Revenue Fund4 $(2,328,371) TOTAL5 $4,529,829,616 FOOTNOTES 1 Taxable margin is defined as total revenue less the greater of (1) the cost of goods sold, (2) total compensation, (3) 30 percent of total revenue or (4) $1 million. An apportionment factor based on the portion of receipts that occurred in Texas then is applied. 2 The estimated amount of franchise tax revenues that would have been generated had the 2006 reforms not occurred. 3 All revenue exceeding the estimated amount that would have been brought in under the previous version of the franchise tax. 4 Reflects net payments and refunds related to franchise tax liability from reports due before the 2008 tax year. 5 May not sum due to rounding. 6 A tax rate of 0.375 percent applies to taxpayers in the retail or wholesale trade; other taxpayers pay a rate of 0.75 percent. Firms with less than $20 million in total revenues may elect to file an EZ return. The tax rate for EZ filers is 0.331 percent. 7 There is no federal franchise tax, but a corporate income tax is levied at 21 percent of net income. 8 Estimated initial distribution of total franchise tax revenue in fiscal 2023, as projected in the December 2020 Tax Exemptions and Tax Incidence Report. H I STOR I CAL VOLAT I L I T Y Year-over-year Change, All Funds, Excluding Trusts Compound Annual Growth Rate (Fiscal 2012-2021): -0.1% -20% -15% -10% -5% 0% 5% 10% 15% 4.8% 13.7% 14.4% 2.5% FISCAL 2015 2014 2013 2019 2020 2018 2017 2016 2021 5.1% -16.6% -16.5% -1.4% -1.6% H I G H L I G H T S REVENUE FISCAL 2021 $4.53B STATE RATE 0.75%/ .375%6 LOCAL RATE NONE FEDERAL RATE NONE7 WHO PAYS?8 BUSINESS 100% CONSUMER 0% 7.4% ARE YOU REALLY AS TOP OF MINDWITH YOUR CUSTOMERS AS YOU THINK YOU ARE? DON’T JUST THINK IT, ADVERTISE IN THIS PUBLICATION AND KNOW IT! 801.676.9722 | 855.747.4003 | sales@thenewslinkgroup.com 28
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