The Texas franchise tax is a privilege tax imposed on each business located or incorporated in Texas or doing business in Texas. The tax base that Texas uses to calculate the franchise tax is the business’s margin. The starting point to calculate margin for Texas franchise tax purposes is total revenue as reported on the federal income tax return. Margin is the lesser of the following:
Total revenue minus COGS
Total revenue minus compensation
70% of total revenue
Total revenue minus $1 million
The margin is then apportioned to Texas using a single receipts factor to determine the tax base. For taxpayers primarily engaged in retail or wholesale trade, the tax base is multiplied by a 0.375% tax rate. For taxpayers not engaged in retail or wholesale trade, the tax base is multiplied by a 0.75% tax rate.