Taxing the Margins?

By: Labry Welty
Land & Construction News of Texas
Winter 2008

In an attempt to find new funding for public schools, reduce property tax rates, and close loopholes in the Texas Franchise Tax, the Texas legislature enacted a significant revision of the Franchise Tax, commonly known as the Margin Tax. As part of the “loophole” closing, the revised Franchise Tax now taxes previously exempt entities, most notably Limited Partnerships.

Below are some of the highlights of the revised Texas Franchise Tax:

• Effective for tax reports due onor after January 1, 2008. Most tax payers will file May 15, 2008.
• Taxpayers with less than $300,000 in Gross Revenue will owe no Franchise Tax.
• All entities with limited liability protection are affected with a few exceptions - general partnerships, sole proprietorships; and certain passive entities are exempt from the tax.
• Passive entities will be exempt from tax if they are a general or limited partnership or a trust and their federal gross income consists of at least 90% passive income.

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