Great News for Veterans!
Have you dreamed of starting your own business? Were you born with an innate entrepreneurial spirit? Are you addicted to shows like Shark Tank and The Profit? Are you a veteran in Texas?
If you answered yes to these questions, I have great news for you! Senate Bill 1049 / House Bill 2111 was passed by the 84th Texas Legislature. These identical companion bills amended portions of the Tax Code and the Business Organizations Code, thereby waiving the Franchise Tax and the Filing Fee for New Veteran-Owned Businesses.
What is the Franchise Tax?
The Texas franchise tax is a tax imposed on each taxable entity that does business in Texas, or that is chartered or organized in Texas.
—See Tax Imposed—Tex. Tax Code §171.001(a)
The franchise tax rates are 0.75% of the taxable margin, or 0.375% of taxable margin for taxable entities primarily engaged in retail or wholesale trade.
—See Rates; Computation of Tax—Tex. Tax Code §171.002
What is the Franchise Tax Veteran Exemption?
The Texas franchise tax is not imposed on a taxable entity that qualifies as a new veteran-owned business until the earlier of: (1) the fifth anniversary of the date on which the taxable entity begins doing business in Texas; or (2) the date the taxable entity ceases to qualify as a new veteran-owned business. Note that this waiver is effective until January 1, 2020.
—See Tax Imposed—Tex. Tax Code §171.001(d)
A taxable entity is a new veteran-owned business only if it is a new business in which each owner is a natural person who: (1) served in and was honorably discharged from a branch of the U.S. armed forces; and (2) provides verification to the comptroller of the person’s service and discharge.
—See Definition of New Veteran-Owned Business—Tex. Tax Code §171.0005(a)
A new business is a taxable entity that: (1) is chartered or organized or otherwise formed in Texas; and (2) first begins doing business in Texas on or after January 1, 2016.
—See Definition of New Veteran-Owned Business—Tex. Tax Code §171.0005(d)
The Texas comptroller may require a New Veteran-Owned Business to file an information report stating its beginning date and any other information the comptroller determines necessary. However, the comptroller may not require the New Veteran-Owned Business to report or compute its margin.
—See Information Report—Tex. Tax Code §171.204(b)
Basically, the Texas legislator decided to save New Veteran-Owned Businesses time and money! This is proof that they get it right sometimes. Remember that this exemption does not apply to any other taxes. The IRS has not waived its taxes, and it will come after you for non-payment.
What Are the Filing Fees?
The Filing Fees vary depending on the type of entity formed, and the different forms required. These range from as low as $5 to as high as $750. The current Formation Filing Fees for some of the more popular entities are:
Non-Profit Corporation—$25
For-Profit Corporation—$300
Professional Corporation—$300
Limited Liability Company—$300
Professional Limited Liability Company—$300
Professional Association—$750
Limited Partnership—$750
—See Texas Secretary of State—Business Filings & Trademark Filing Fees
What is the Filing Fees Waiver?
The Texas Secretary of State shall waive ALL fees imposed for an entity that is a new veteran-owned business, until the earlier of: (1) the fifth anniversary of the date on which the entity was formed; or (2) the date the entity ceases to qualify as a new veteran-owned business.
—See Fee Waiver for New Veteran-Owned Business—Tex. Bus. Org. Code §12.005
This means that all of the filing fees described above (and many more) are waived for new veteran-owned businesses! Not only are you saving on taxes, you get to submit free filings too!
—See Filing Fees—Tex. Bus. Org. Code Subchapter D
What Do I Do Now?
If you are capable, and would like to create a new veteran-owned business in Texas, speak with your business law attorney. She can help you decide on the best entity form, file the proper documentation with the Texas Secretary of State, offer business counseling as you grow, and many other things to address the needs of your business.
–Authored by Carrie A. Harris, Esq.,
Matthew Harris Law, PLLC – Business Law Division
1001 Main Street, Suite 200, Lubbock, Texas, 79401-3309
Tel: (806) 702-4852 | Fax: (800) 985-9479