Consequences of Not Paying Texas Franchise Tax

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What happens if you don’t pay Texas franchise tax?
In Texas, failure to file your franchise tax returns or pay your franchise tax liability will cause you to lose your limited liability protection. Generally, this happens where a company has failed to file franchise tax returns. The failure then causes the company to forfeit its corporate privileges.
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Businesses operating in Texas, both domestic and foreign, must pay the Texas franchise tax. The tax is based on a company’s taxable margin, which is determined by deducting its cost of goods sold or compensation from its income from sales made in Texas. The minimum tax rate is 0.375% of the taxable margin, although the tax rate varies based on the type of business. For the business, failing to pay the Texas franchise tax might have substantial repercussions.

A company will be charged fines and interest if it fails to pay the Texas franchise tax. For each month that the tax is not paid on time, there is a penalty of 5% of the outstanding tax, up to a maximum of 25%. In addition, until the tax is fully paid, interest will be assessed on the outstanding portion at a rate of 1% per month. The fines and interest fees can quickly mount up, making it challenging for the company to make up missed payments.

In addition, the Texas Comptroller’s office has the right to sue the company for failing to pay the franchise tax. In addition to filing a lawsuit to recover the unpaid tax, fines, and interest, the office has the legal authority to confiscate the company’s property or bank accounts in order to pay the obligation. The operations and reputation of the company could be badly harmed, which would result in a loss of clients and suppliers.

Businesses should make sure they file their franchise tax returns on time and pay the tax due in order to avoid these disadvantages. If a company is unable to pay the tax, it can arrange a payment schedule or negotiate a settlement with the Texas Comptroller’s office. Businesses should keep in touch with the Comptroller’s office and be proactive in resolving any tax problems. Certificates of Exemption

A business can obtain an exemption from specific taxes by presenting an exemption certificate. There are various exemption certificates available in Texas, including the Texas franchise tax exemption certificate and the Texas sales and use tax exemption certificate.

To claim exemption from sales and use tax on purchases made for resale, manufacture, or other exempt purposes, use the Texas Sales and Use Tax Exemption Certificate. To be eligible for the exemption, the certificate must be shown to the seller while making the purchase.

To request exemption from the franchise tax, utilize the Texas Franchise Tax Exemption Certificate. If a company satisfies specific requirements, such as being a non-profit or earning less than $1,130,000 annually, they may apply for an exemption. The following are income tax exemptions: The federal income tax may not be applied to certain forms of income. As an illustration, consider the following:

1. Gifts and inheritances

2. Life insurance proceeds

3. Child support payments

4. Workers’ compensation benefits

5. Disability benefits

6. Municipal bond interest

7. Veterans’ benefits

8. Social Security benefits

The fact that certain of these sources of income can still be liable to municipal or state income taxes should be noted.

Making a Tax Return Despite Having No Taxable Income A firm must still file a tax return with the Texas Comptroller’s office even if it had no taxable income for the year. When submitting a Franchise Tax Public Information Report (PIR), the company should check the item that says there is no taxable margin. Even if there isn’t any tax due, the PIR must to be submitted by May 15 of every year. Penalties and interest fees may apply if the PIR is not filed.