By Jeff Wentworth
State Senator District 25
Published: 11-14-07
State Senator District 25
Published: 11-14-07
The saying that ignorance is bliss might apply in certain situations but not when calculating the amount of a business’s revised franchise or margin tax.Many Texans are still blissfully unaware of the existence and/or the details of the major revisions that this year’s 80th Legislature made to the margin tax. The 79th Legislature created the margin tax in 2005 to offset revenue lost by the one-third local school property tax cut that was part of the school finance reform package.
In 2007 we made changes that will impact how the tax is calculated and we expanded it to include partnerships and other entities not previously subject to the tax. About 200000 new businesses will be subject to the margin tax for the first time when reports based on the new calculation start coming due on or after January 1 2008.
The margin tax was extended to general limited and limited liability partnerships and to corporations limited liability companies business trusts professional associations business associations joint ventures and other legal entities.
The margin tax does not apply to sole proprietorships general partnerships owned by natural persons (except for limited liability partnerships) certain unincorporated passive entities grantor trusts estates of natural persons real estate mortgage investment conduits and certain real estate investments trusts.
This year the Legislature passed House Bill 3928 which makes technical corrections to the margin tax. We modified the calculation of tax for tax entities with total revenue between $300000 and $900000 by applying a sliding discount scale. The scale ranges from 80 percent for taxable entities with total revenues less than $400000 to 20 percent for entities with a taxable revenue greater than $700000 but less than $900000. We also created an EZ filing option for businesses with $10 million or less in total revenue.
Taxable entities with total revenue of less than $300000 will owe no tax.
Before the changes were made small businesses with total revenue over $300000 would have been subject to 100 percent of the margin tax.
Before the changes were made small businesses with total revenue over $300000 would have been subject to 100 percent of the margin tax.
There are three ways to calculate the tax. Total gross revenue times 70 percent and that number times the one percent tax; total revenue minus the cost of goods times the one percent tax; or subtract employees’ compensation from the total revenue and multiply the number by the one percent tax.
Texas Comptroller Susan Combs’ Window on State Government Web site offers more information and an online calculator to help you compute your tax.
Go to www.window.state.tx.us and click on “Texas Taxes” and then on “Franchise.” Questions about the new margin tax calculation may be submitted to tax policy experts by emailing margin.tax@cpa.state.tx.us or by calling (800) 252-1381.
Go to www.window.state.tx.us and click on “Texas Taxes” and then on “Franchise.” Questions about the new margin tax calculation may be submitted to tax policy experts by emailing margin.tax@cpa.state.tx.us or by calling (800) 252-1381.
In addition the Comptroller is hosting free seminars throughout the state and at least one Webinar. Information about the seminars and the Webinar may also be found on the Comptroller’s Web site.
When it comes to calculating taxes being informed may not be bliss but it is better than being ignorant.
