The Texas Margin Tax
If you choose to create and run your own business, there are many things that will be involved that you may have never had to deal with or think about prior to your business venture. There will be new laws that you will need to familiarize yourself with in order to operate your business without putting it at risk. One of these types of laws that is a recent addition to business law in Texas is the margin tax.
One of the main reasons that the Texas margin tax has been placed into effect is to help maintain the fact that Texas does not collect state income tax from individuals or from businesses. This "margin tax" helps to keep the need for an income tax down. This margin tax will also help to fund the Texas schools. The Texas margin tax is also basically a reworking of the old franchise tax.
Understanding the Margin Tax in Texas - Texas Business Law
You may ask, who then, is required to pay the "Texas margin tax." The answer to this is fairly complex and is based on several factors: any business or organization that has any type of limited liability. Like all tax situations, the Texas margin tax allows for some exceptions to the rule. Some of the exemptions include companies that receive less than $300,000 per year or those who owe less than $1000 in franchise taxes. Tax exempt companies, estates, insurance companies, and non-profit organizations are also exempt from the Texas margin tax.
Understanding the Margin Tax in Texas - Not an Income Tax
Even though the Texas margin tax is not considered a state income tax, it is mostly based on the income of a company. Instead of stating that the tax is an income tax, they instead base the tax on the margin of a company. The Texas margin tax is based on the lower number of the following: the total revenue minus cost of the goods sold, total revenue minus employee pay and benefits, or 70% of the total revenue. The lower amount of these is then divided by the percentage of business that is done in the state of Texas to determine the Texas margin tax that is owed.
Calculating Texas Margin Tax
Different types of business will calculate their revenue total using different tax forms. The revenue that is earned by a corporation will be the total of gross receipts, dividends, interest, rent, capital gains and more. A corporation is allowed to subtract things out of this total such as bad debts, foreign royalties and dividends and other items. A partnership's revenue is calculated similarly by using a different tax form.
Once the revenue is calculated, a business will need to deduct the goods that have been sold by the company. All sold good must be real, tangible property and must have been owned by the business. The cost of the goods includes any fees that were associated with acquiring the goods including incoming shipping and handling charges. Businesses are also allowed to factor in up to 4% of administrative costs in their Texas margin tax calculations. For more questions about the Texas margin tax, contact the lawyers at Texas Legal Entities.
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