Business Tax Structure

Texas does not have a corporate income tax or an individual income tax. However, Texas does impose a franchise tax, also known as a margin tax, on each taxable entity formed or organized in Texas or doing business in Texas. The tax has a component based on modified gross receipts. In 2008, Texas revised the franchise tax so that the applicable rate is one percent (1%) per year of taxable margin for most taxable entities, and 0.5 percent (0.5%) of taxable margin for taxable entities primarily engaged in retail or wholesale trade. The revised franchise tax does not generally apply to sole proprietorships or most general partnerships. Further, a business is not subject to the revised franchise tax if its total revenue from its entire business is $1,000,000 (for years 2010 and 2011) or less, or if the amount of tax computed is less than $1,000. http://www.cpa.state.tx.us/taxinfo/franchise/index.html

Texas levies a sales and use tax of six and a quarter percent (6.25%) on all retail sales, leases and rentals of most goods, as well as taxable services. Additionally, cities, counties and other taxing jurisdictions may add to the rate for a combined state and local rate not to exceed eight and a quarter percent (8.25%).

Sales and use tax exemptions are offered on machinery and equipment used in the manufacturing process and on natural gas and electricity when sold to commercial businesses that are "predominantly" manufacturing. http://www.cpa.state.tx.us/taxinfo/sales/index.html

The Comptroller of Public Accounts is charged with the administration and collection of state and local sales tax from businesses operating in Texas, and also collects any franchise taxes owed by Texas corporations. The Comptroller maintains field offices in most major Texas cities to provide assistance and aid in complying with tax regulations.

Businesses that employ one or more individuals may be subject to unemployment tax. New employers will pay either 2.7 percent (2.7%) or the applicable industry average tax rate, whichever is higher, on the first $9,000 of wages per employee. A minimum of six quarters is required to obtain an experience rating. http://www.twc.state.tx.us/ui/bnfts/employerinfo.html

The Texas Department of Insurance, Division of Workers' Compensation (Division) is a state agency that regulates the delivery of workers' compensation benefits to injured workers and to eligible family members of employees killed on the job. Benefits are paid by workers' compensation insurance companies, by employers certified by the Division to self-insure, or by self-insured governmental entities. Workers' compensation is not mandatory in Texas. The Texas Department of Insurance publishes a rate guide to assist employers in comparison shopping for worker's compensation and employers' liability insurance in Texas. http://www.tdi.state.tx.us/wc/indexwc.html

The Texas Workforce Commission collects all unemployment taxes for workers employed in Texas. For information regarding these taxes, to obtain a state employer's identification number, and for information on tax credits, contact:

Texas Workforce Commission
Tax Department
101 East 15th Street
Austin, Texas 78778

• New Employer Accounts/Status of Accounts: 512/463-2731 or 800/832-9394
• Quarterly Reports and Rates: 512/463-2407
• Unemployment Insurance Customer Service: 512/463-2542
• Labor Market Information: 512/491-4922
• Work Opportunity Tax Credit (WOTC): 512/463-2488 or 800/695-6879

Further assistance on Texas tax can be viewed on the Texas State Comptroller website which includes information on electronic filing and online assistance through the STAR system.