Texas Margin Tax Rate Reduced by 25 Percent in 2016

June 2015

On June 15, 2015, Texas passed House Bill 32, which permanently lowers the franchise tax rate by 25 percent beginning January 1, 2016.

The Texas Franchise Tax, commonly called the Margin Tax, will be imposed at the rate of 0.375 percent for retail and wholesale trade businesses and 0.75 percent for all other taxpayers. Under the new law, taxable entities for which total revenue from the entire business is not more than $20 million may alternatively elect to pay tax computed by the following method:

  1. Determine the taxable entity’s total revenue from its entire business
  2. Apportion the amount computed under Step 1 to Texas to determine the taxable entity’s apportioned total revenue
  3. Multiply the amount computed under Step 2 by the rate of 0.331 percent

The comptroller of public accounts plans to complete a comprehensive study of the effects of economic growth on future state revenues by September 30, 2016. The report will identify revenue growth allocation options to promote efficiency and sustainability in meeting state revenue needs, including revenues allocated by the above-referenced sections, upon repeal of the franchise tax.

To learn more about how this ruling could affect your organization, contact your BKD advisor.

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