Re: Question for Ray Alcorn, you said … - Posted by Robert H. Turner
Posted by Robert H. Turner on August 02, 2003 at 16:50:48:
I own and operate properties in Texas. We specifically avoid the State Franchise Tax by using ONLY limited partnerships (even for operating companies). We use a Texas corporation as the general partner, but the 1.0% apportioned to it doesn?t produce enough to tax.
Here is an excerpt from the State Comptroller office pertaining to the franchise calculation:
How the Tax Is Computed
Corporations pay the greater of the tax on net taxable capital or net taxable earned surplus.
Taxable capital is a corporation’s stated capital (capital stock) plus surplus. Surplus means the net assets of a corporation minus its stated capital. For a limited liability company, surplus means the net assets of the company minus its members’ contributions. For more details on surplus, see Rule 3.551. Taxable capital is apportioned using a single gross receipts factor.
The tax rate on taxable capital is 0.25 percent per year of privilege period. For an explanation of “privilege period,” see Tax Code Sec. 171.151.
Earned surplus basically includes the corporation’s federal net taxable income, plus compensation paid to officers and directors of the corporation. S corporations and corporations with fewer than 36 shareholders are generally exempt from the compensation add-back. For the earned surplus calculation, unitary income is apportioned using a single gross receipts factor. Non-unitary income (with the exception of dividends and interest) is allocated to Texas if Texas is the corporation’s commercial domicile. For more information on the allocation of non-unitary income, see Rule 3.576.
NOTE: Dividends and interest are apportioned to the legal domicile of the payor.
The tax rate on earned surplus is 4.5 percent. For more information on the computation of earned surplus, see Rule 3.555.
No Minimum Tax
Corporations that owe less than $100 do not pay any tax. In addition, for reports due on or after January 1, 2000, corporations will not owe any tax if the gross receipts from their entire business for both taxable capital and taxable earned surplus are each less than $150,000 during the period upon which the tax is based. These corporations must file an abbreviated information report.