Texas Franchise Tax: Initial Reports

Filing initial reports continues to be confusing for many Texas franchise taxpayers. To simplify the filing process, our agency, with the authority granted in Texas Tax Code Section 111.051, has changed the initial report due date for entities that become subject to the Texas franchise tax on or after Oct. 4, 2009.

Therefore, an annual report is the first franchise tax report that a taxable entity will file. This report will be due May 15 in the year following the calendar year the entity became subject to the tax. Entities that become subject to the franchise tax from Oct. 4, 2009, through Dec. 31, 2009, have a 2010 annual report due on May 17, 2010. Entities that become subject to the franchise tax during calendar year 2010 have a 2011 annual report due on May 16, 2011, and so on.

The first annual report will be based on the accounting period beginning on the date the entity became subject to the franchise tax and ending on the last accounting period ending date used for federal income tax reporting purposes in the calendar year before the year the report is originally due.

Example: A taxable entity is formed on Nov. 1, 2009, and has a calendar year end. The entity's first franchise tax report is due on May 17, 2010, for the privilege period Nov. 1, 2009, through Dec. 31, 2010, and is based on an accounting period beginning Nov. 1, 2009, and ending Dec. 31, 2009. The entity's next franchise tax report is due May 16, 2011, for the privilege period Jan. 1 through Dec. 31, 2011, and is based on an accounting period beginning Jan. 1, 2010, and ending Dec. 31, 2010.

A taxable entity that has a federal tax year end date that is prior to the franchise tax responsibility begin date for the first franchise tax report filed will file a one-day No Tax Due Information Report with zero revenue. (A Public Information Report, Ownership Information Report, Affiliate Schedule, etc. must also be filed as applicable.)

Example: A taxable entity begins doing business in Texas on Oct. 5, 2009, and has a federal tax accounting year end of Aug. 31. The entity's first franchise tax report is due on May 17, 2010, for the privilege period Oct. 5, 2009, through Dec. 31, 2010, and is based on an accounting period beginning Oct. 5, 2009, and ending Oct. 5, 2009, which results in a zero report. The entity's next franchise tax report is due May 16, 2011, for the privilege period Jan. 1, 2011, through Dec. 31, 2011, and is based on the accounting period Oct. 5, 2009, through Aug. 31, 2010.

A taxable entity that ends its franchise tax responsibility in the same year that it became subject to the tax will not owe an annual report the following year; instead, the entity will owe a final report for the year it ends its responsibility, due 60 days after its ending date.

Example: An entity becomes subject to the franchise tax on Oct. 15, 2009, and ends its franchise tax responsibility on Nov. 30, 2009. The entity will not owe a 2010 annual report; instead, the entity will owe a final report, due on Jan. 29, 2010, for the period beginning on Oct. 15, 2009, and ending on Nov. 30, 2009.

Annual extension requirements will apply for all annual reports, including the first annual report. On the first annual report, the option to pay 100 percent of the prior year's tax is not available.

Tax Rule 3.584 will be amended to reflect this new policy.

TAX NEWS - NOVEMBER 2009

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