In July 2023, the Texas legislature passed Senate Bill 3, which increased the no tax due threshold and eliminated reporting requirements for certain entities. In response, the Texas Comptroller's office has issued guidance and changed the way some entities have to report for franchise tax purposes starting with the 2024 Reports.
Summary of Changes
No Tax Due Threshold Increased to $2.47 Million
For reports originally due on or after Jan. 1, 2024, the no tax due threshold is increased to $2.47 million doubling the amount of a taxable entity's total revenue that is exempted from the franchise tax from $1.235 million which will remove 67,000 small to medium-sized business from paying the franchise tax.
Taxpayers Under the No Tax Due Threshold
For reports originally due on or after Jan. 1, 2024, a taxable entity whose annualized total revenue is less than or equal to $2.47 million is no longer required to file a No Tax Due Report which will save businesses time and money associated with preparing returns. However, the entity is still required to file Form 05-102, Public Information Report or Form 05-167, Ownership Information Report.
A combined group must include all taxable entities in the combined group report even if any member, on a separate entity basis, has annualized total revenue at or below the no tax due threshold. If a combined group’s annualized total revenue is at or below the no tax due threshold, the combined group is no longer required to file a No Tax Due Report, an Affiliate Schedule, or a Common Owner Information Report for that report year. However, each individual member of the combined group that is organized in Texas or has nexus in Texas must file a Public Information Report or Ownership Information Report.
New Veteran-Owned Businesses
For reports originally due on or after Jan. 1, 2024, a qualifying new veteran-owned business is no longer required to file a No Tax Due Report during its initial five-year period.
The No Tax Due Information Report (Form 05-163) is Discontinued
Because taxable entities whose annualized total revenue is at or below the no tax due threshold and qualifying new veteran-owned businesses are no longer required to file a No Tax Due Report, the Texas Comptroller is discontinuing the No Tax Due Report for the 2024 report year and beyond. The form will not be available for any new reporting periods.
According to the Texas Comptroller there were five types of entities eligible to file a No Tax Due Report. Beginning in 2024, each of these entities will report as follows:
1. Taxable Entities with Annualized Total Revenue At or Below the No Tax Due Threshold
A taxable entity with annualized total revenue at or below the no tax due threshold:
- Does not owe any tax.
- Is not required to file a No Tax Due Report.
- Is still required to file a Public Information Report or Ownership Information Report.
2. Qualifying New Veteran-Owned Businesses
A new veteran-owned business:
- Is not required to file a No Tax Due Report for the initial five-year period that it qualifies as a new veteran-owned business.
- Is not required to file a Public Information Report or Ownership Information Report during this initial five-year period.
3. Qualifying Passive Entities
A qualifying passive entity:
- Must file either the EZ Computation Report or the Long Form.
- Must blacken the appropriate circle that has been added to the taxpayer information section at the top of the form.
- Must sign the report.
- Need not provide information in any other section of the report.
- Need not file a Public Information Report or Ownership Information Report.
4. Qualifying Real Estate Investment Trusts (REITs)
A qualifying REIT:
- Must file either the EZ Computation Report or the Long Form.
- Must blacken the appropriate circle that has been added to the taxpayer information section at the top of the form.
- Must sign the report.
- Need not provide information in any other section of the report.
- Must continue to file a Public Information Report or Ownership Information Report.
5. Taxable Entities with Zero Texas Gross Receipts
A taxable entity with zero Texas gross receipts must:
- File either the EZ Computation Report or the Long Form.
- Complete specific line items on the form to compute the entity’s total revenue.
- Report zero on the Texas gross receipts line.
- Continue to file a Public Information Report or Ownership Information Report.
These updates present an opportunity for qualifying businesses to save on time and money. For more information on how this impacts your reporting for 2024, please contact one of our tax experts.
Evolved is a tax compliance and advisory firm with offices in New York City, Philadelphia and Stamford, serving clients nationally throughout the US. We provide tax provision, private equity and venture capital services alongside advisory for high net-worth tax and family office tax.
