The Texas Comptroller of Public Accounts has announced that taxable entities will no longer use the federal Internal Revenue Code as it existed as of January 1, 2007 as a starting point to compute Texas franchise tax from amounts taken from federal tax returns.
Beginning with the 2026 franchise tax report (due in 2027), Texas taxpayers will use the federal tax law in effect for the federal tax year of the filing unless the applicable statute specifically references the IRC. This policy will apply to all components of the franchise tax, including the calculation of total revenue, gross receipts for apportionment, and cost of goods sold (COGS). Taxable entities filing the Texas franchise tax report will be allowed a one-time net depreciation adjustment for each qualifying asset on its 2026 franchise tax report.
Under the Texas Constitution, which severely limits taxes on income, the franchise tax is a tax on margin rather than a traditional income tax. Like many other states, Texas has historically disregarded certain federal tax provisions, such as bonus depreciation, in calculating the taxable revenue margin for franchise tax purposes. By adopting the federal rules, the Texas Comptroller intends to reduce the administrative burden of compliance and overall error rate in tax filings.
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