FAQ: Exceptions to Texas’s Franchise Tax Report

Businesses in Texas must file a Texas Franchise Tax Report each year to remain “in good standing” with the state. However, some businesses may be tax-exempt. Here are some common questions about tax exemptions in Texas:

Do I file Texas Franchise Tax for a foreign entity?

It depends. If your business was formed outside of Texas but still does business in Texas—i.e. sells goods, rents space, pays employees—that means you have nexus, so yes, you’ll have to file a Texas Franchise Tax Report. However, there are certain income thresholds to be aware of. For example, the Texas Comptroller defines nexus for out-of-state entities as having annual gross receipts of $500,000 or more—if you make less, you may qualify for TX franchise tax exemptions. Texas tax law also includes a No Tax Due Threshold.

What is the ‘No Tax Due Threshold’ in Texas?

The No Tax Due Threshold in Texas refers to a company’s annual income. If your company’s annualized total revenue falls below a certain amount, you can file what’s known as a No Tax Due Information Report. For 2022-2023, the TX No Tax Due Threshold is $1,230,000.

Is real estate exempt from Texas Franchise Tax?

In some cases, yes. Several business entities may qualify for TX tax exemptions. According to Section 171.0002(c)(4) of the Texas Tax Code, tax-exempt businesses may include nonprofit organizations, sole proprietorships, general partnerships, trusts, or certain types of real estate entities. The Texas Comptroller specifies these real estate entities as “real estate mortgage investment conduits and certain qualified real estate investment trusts.” It’s best to check with a business attorney or CPA to establish whether your business would qualify for real estate tax exemptions under Texas state law.

How do I file for tax-exempt status in Texas?

The method for filing with a tax exemption in Texas depends on the reason why your business qualifies as exempt. If your business is a charitable organization, for example, you may need to file an application for exemption. If you business meets the No Tax Due Threshold, you’ll file the No Tax Due Information Report using the TX Webfile system.

Whatever the case, it’s a good idea to consult with a CPA or a business attorney who specializes in Texas tax law to make sure you’re meeting the right qualifications and filing your taxes correctly with the state.