Category: State Tax and Compliance

Educational resources, reporting guidelines, and statutory updates on Texas state tax requirements. These guides cover Texas franchise tax reporting, Public Information Reports (Form 05-102), Ownership Information Reports, and administrative procedures for maintaining good standing with the Texas Comptroller of Public Accounts.

  • Texas Franchise Tax Margin Calculation: Avoid the EZ Computation Fallacy

    Texas Franchise Tax Margin Calculation: Avoid the EZ Computation Fallacy

    When Texas business owners face the annual Texas Franchise Tax Report (Form 05-158 or Form 05-169), many assume the easiest route is the cheapest route. Software frequently push filers toward the E-Z Computation or the standard 70% total revenue method on the Long Form report.

    The Texas franchise tax is a privilege tax imposed on taxable margin, which is a figure based on revenue. The Texas Comptroller gives taxable entities four distinct methods to calculate that margin and choosing the wrong one can result in paying more taxes than necessary.

    The Four Texas Franchise Tax Margin Calculation Options

    Unless an entity qualifies for the No Tax Due threshold or elects the E-Z Computation, taxable margin is determined on the Long Form report by taking total revenue and subtracting the greatest of:

    • 70% of Total Revenue: Taxable margin equals 70% of total revenue (an automatic 30% deduction).
    • Cost of Goods Sold (COGS): Total revenue minus allowable direct costs to produce, acquire, or manufacture goods.
    • Compensation: Total revenue minus allowable cash compensation and benefits paid to officers, directors, owners, and employees (subject to per person compensation cap).
    • Total Revenue Minus $1 Million: Available as a flat statutory deduction for businesses where this subtraction yields a smaller margin than 30%.

    Once the lowest margin is determined and apportioned to Texas, the applicable franchise tax rate is applied, generally 0.75% for wholesale/retail, or 0.375% for retail/wholesale.

    The Fallacy of the E-Z Computation

    Businesses with annualized total revenue within the statutory E-Z threshold often choose Form 05-169 because it requires minimal schedule preparation.

    However, the E-Z Computation uses a flat tax rate applied directly to apportioned total revenue with zero deductions for COGS or compensation per the Long Form report. It may save thirty minutes of paperwork, but can significantly increase the actual check written to the Comptroller.

    A Direct Comparison: Manufacturing & Labor-Heavy Scenarios

    Consider a Texas business generating $3,000,000 in gross revenue with significant direct operational costs.

    • Scenario A: A High COGS Company (e.g., Fabricator or Commercial Contractor)
      • Gross Revenue: $3,000,000
      • Allowable Texas COGS: $1,800,000
      • Option 1 (70% Method): Margin = $2,100,000 ($3,000,000 × 70%)
      • Option 2 (COGS Deduction): Margin = $1,200,000 ($3,000,000 − $1,800,000)
      • The Result: The COGS deduction slashes the taxable margin by $900,000 compared to the 70% default.
    • Scenario B: A High Payroll Service Provider (e.g., Specialized Engineering or Field Services)
      • Gross Revenue: $3,000,000
      • Total Qualifying Compensation & Benefits: $1,600,000
      • Option 1 (70% Method): Margin = $2,100,000 ($3,000,000 × 70%)
      • Option 2 (Compensation Deduction): Margin = $1,400,000 ($3,000,000 − $1,600,000)
      • The Result: Using allowable compensation cuts the taxable margin by $700,000 below the 70% revenue figure.
    • Scenario C: Electing the E-Z Computation
      • Electing the E-Z rate on the entire $3,000,000 without deducting COGS or payroll produces an artificially inflated tax base. Even with a lower stated rate, taxing 100% of revenue almost always yields a higher tax liability than applying the standard rate to a substantially reduced margin under the COGS or Compensation methods.

    Strategic Margin Selection Protects Capital

    Filing a Texas Franchise Tax Report requires evaluating the structure of your general ledger:

    • Capital intensive and inventory heavy businesses should run the numbers under the statutory Texas COGS definitions (which differ from federal tax COGS).
    • Labor heavy firms must calculate qualifying wages, healthcare, and retirement benefits up to the statutory cap.
    • Defaulting to the 70% standard or the E-Z form without running the parallel calculations leaves money on the table.

    Texas Franchise Margin Calculation Frequently Asked Questions

    Who qualifies to use the Cost of Goods Sold (COGS) deduction in Texas?

    The COGS deduction is restricted to entities that produce, manufacture, acquire, or sell tangible personal property in the ordinary course of business. Pure service businesses (e.g., consulting, legal, accounting, marketing) generally cannot claim COGS unless they qualify under narrow statutory exceptions (such as certain computer hardware/software development or direct construction labor).

    What is the margin cap under the Texas franchise tax COGS method?

    An entity’s taxable margin cannot exceed 70% of total revenue. Even if you calculate margin using Cost of Goods Sold (COGS), compensation, or the standard $1 million subtraction, the 70% threshold acts as an absolute statutory ceiling on your taxable margin. If your revenue minus COGS results in an amount greater than 70% of your total revenue, your margin is automatically capped at 70% of total revenue.

    What is the officer and employee compensation deduction cap for Texas franchise tax?

    Texas caps the deductible cash compensation and W-2 wages per person, adjusted biennially for inflation. For 2026 and 2027 reports, the compensation cap is $480,000 per person (it was $450,000 for 2024 and 2025 reports). When electing the compensation deduction method, any single officer or employee paid more than this cap has their deduction limited to the statutory maximum.

    When must a business file the Texas Franchise Tax Long Form (Form 05-158)?

    A business is required to file the Long Form if its annualized total revenue exceeds $20 million, as it is legally disqualified from using the EZ Computation. For entities with revenue between the filing threshold and $20 million, the Long Form is used when electing to take margin deductions (Cost of Goods Sold, compensation, 70% of revenue, or $1 million subtraction) or when claiming statutory franchise tax credits that cannot be taken on the EZ Computation.

    Ensure Your Margin Calculation Serves Your Bottom Line

    If your entity has crossed the filing threshold, has multiple business lines, or carries significant payroll and direct material expenses, you need an accurate, logic driven review of your general ledger before filing Form 05-158.

    Andris Financial Services will review your financial records, analyze all four statutory margin calculations, and ensure your business claims every allowable deduction while staying strictly compliant with the Texas Comptroller. Contact my firm today to review your franchise tax filing posture, resolve past due reporting issues, or defend your standing before the state.

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  • Stop Handing the Texas Comptroller Free Money: Texas Franchise Tax EZ Computation vs. Long Form

    Stop Handing the Texas Comptroller Free Money: Texas Franchise Tax EZ Computation vs. Long Form

    If you own an LLC, corporation, or partnership in Texas, you know that May 15 brings the annual Texas Franchise Tax deadline. Even though Texas passed legislation exempting businesses earning under the no-tax-due threshold from paying tax or filing a tax report, many entities that exceed the threshold face an important decision when filing: Which franchise tax report will produce the lowest tax due, the EZ Computation Form or the Long Form?

    Choosing the wrong form can mean overpaying on your Texas Franchise Tax or spending unnecessary hours untangling complex accounting calculations. Here is a clear breakdown to help you understand how each form works and which one fits your business.

    What Is the Texas Franchise Tax EZ Computation Form (Form 05-169)?

    The EZ Computation Form is designed for businesses that exceed the no-tax-due threshold but want a streamlined, low-friction way to calculate and pay their tax. Instead of taking detailed deductions for Cost of Goods Sold (COGS) or Compensation, the EZ Computation takes total revenue, applies the Texas apportionment factor, and multiplies the apportioned margin by a reduced flat tax rate (currently 0.331% for most businesses).

    The EZ Computation Form is fast and straightforward because it has fewer line items therefore less time is usually spent preparing the return.  It also requires minimal accounting preparation.  You do not need to do deep cost accounting or categorize detailed wage/benefit metrics.

    On the other hand, if an entity has heavy inventory costs or a large payroll expense, the EZ rate might result in a higher tax bill than the Long Form.  Also, the entity is not able to deduct cost of goods sold, compensation, or use the 70% revenue standard deduction.

    Visit the Texas Comptroller for Downloadable Forms

    What Is the Texas Franchise Tax Long Form (Form 05-158)?

    The Long Form is the standard Texas Franchise Tax report. It requires more detailed financial data, but it unlocks the full taxable margin calculations allowed under Texas law. Under the Long Form, franchise tax is calculated using the entity’s margin, which is the lowest of four potential calculations:

    1. Total Revenue minus Cost of Goods Sold (COGS)
    2. Total Revenue minus Compensation (subject to per-person statutory caps)
    3. 70% of Total Revenue
    4. Total Revenue minus $1 Million

    Once the lowest margin is determined and apportioned to Texas, the standard tax rate (typically 0.75% for general businesses or 0.375% for qualified retailers/wholesalers) is applied.  A benefit of using the Long Form is the tax savings for high-cost businesses. Capital-intensive businesses, manufacturers, companies with high inventory costs, or firms with heavy payroll usually pay significantly less tax using Long Form deductions. An entity needs to have well-organized bookkeeping, precise profit and loss statements, and accurate payroll summaries to justify the deductions.

    As a general rule of thumb:

    • Consider the EZ Form if you run a lean, high-margin service business where your main expense is software or overhead rather than heavy inventory or payroll, and you want a quick, clean filing.
    • Consider the Long Form if you sell physical products, carry significant inventory, or pay substantial wages that would lower your taxable margin enough to offset the standard tax rate.
    • The $20 Million Cap: Under Texas Comptroller rules, the EZ Computation is only available to businesses with annualized total revenue between $2.65 million and $20 million. If your business generates over $20 million, Texas requires you to file the Long Form. However, if your revenue is under $20 million, don’t let the EZ Form trick you. You can file using the Long Form as this is often where the real tax savings are.
    • Note on Public Information Reports (PIR): Regardless of whether you file the EZ Form or the Long Form, every active Texas LLC or corporation must file a Public Information Report (Form 05-102) or Ownership Information Report annually to maintain good standing with the Texas Secretary of State.

    Frequently Asked Questions: Texas Franchise Tax EZ Computation vs. Long Form

    Can I switch back and forth between the EZ Computation and the Long Form each year?

    Yes. You make the election annually on your original, timely filed franchise tax report. You are not locked into one method; you can file the EZ Computation (Form 05-169) one year and switch to the Long Form (Form 05-158) the following year if your cost structure changes. However, once you file for a given year, you cannot amend to switch between the Long Form and EZ Computation after the statutory due date.

    Can I file the Long Form even if my revenue qualifies for the EZ Computation?

    Yes. Even if your annualized total revenue is below the $20 million EZ threshold, you are never required to use the EZ Computation (Form 05-169). If your business has high Cost of Goods Sold (COGS) or high compensation expenses, calculating your margin on the Long Form (Form 05-158) will often result in a lower tax liability than the flat EZ tax rate applied to your gross receipts.

    What deductions can I take on Texas Form 05-169 (EZ Computation)?

    None. The EZ Computation does not allow deductions for Cost of Goods Sold (COGS) or compensation. Tax is calculated by taking your apportioned Texas gross receipts and multiplying directly by the statutory EZ tax rate (0.331%). If deductions are necessary to reduce your taxable margin, you must file the Long Form (Form 05-158) instead.

    Does the EZ Computation report use total revenue or Texas-sourced revenue?

    Both. Form 05-169 starts with your total gross revenue from all sources everywhere. It then applies an apportionment factor calculated by dividing your Texas gross receipts by your total everywhere gross receipts. The flat EZ tax rate is then assessed only against that apportioned Texas revenue.

    What is the difference between thte Texas Public Information Report and EZ Computation Report?

    All Texas entities must file the Public Information Report whether the entity made $20 million in revenue or $0. The EZ Computation Report is filed by entities that earned more than the minimum statutory revenue and do not elect to take any deductions.

    Need Help Clearing Up Texas Compliance Issues?

    Filing the wrong report or missing Texas Franchise deadlines can lead to severe penalties, interest, and even the administrative forfeiture of your LLC’s legal standing.

    If your entity has fallen behind on state reports, received a Comptroller notice, or needs strategic oversight on Texas tax filings, my firm offers entity restoration services and state compliance advisory.

    Request an Entity Status Review

    Submit your entity details through the secure intake form for a direct review by a Texas CPA. Andris Financial Services examines public state records and emails a diagnostic breakdown of missing filings along with a flat fee proposal the same business day!

  • Stop Flirting with Generic Tax Advice: Five Texas Franchise Tax Myths

    Stop Flirting with Generic Tax Advice: Five Texas Franchise Tax Myths

    There is a lot of generic Texas Franchise Tax information online.  In order to stay in good standing and avoid unnecessary penalties and interest, business owners should consult with a tax professional to determine the best filing options to minimize tax liability.   Below are five Texas Franchise Tax myths I found online and the result of following generic tax advice.

    Myth #1 – The Texas Franchise Tax Filing Threshold

    • What they write: The threshold to file a Texas Franchise Tax report is $2.47 million
    • The Reality: The state of Texas updated the franchise tax filing threshold to $2.65 million for the 2026 filing.
    • The Result:   Any business relying on the old $2.47 million threshold will end up filing unnecessary tax reports.  For a business with $2.50 million in revenue, this would involve filing the franchise tax report when it is not required.  If the business ends up owing once the calculation is completed and the business pays any tax due, the business will have to file an amended return for a refund.  Once that is filed by a tax professional, the business will have to endure an administrative hassle with the Texas Comptroller to receive the refund.

    Myth #2 – Misleading Explanation of the EZ Computation

    • What they write: If a business earns between $2.65M and $20M, they must file an EZ Computation report.
    • The Reality: Filing the EZ Computation is not a requirement.  A business within the revenue parameter can choose to file franchise taxes using the EZ Computation form or file the Long Form.
    • The Result: The tax rate is a flat 0.331% on total revenue with zero margin deductions allowed on the EZ Computation form. For a service business or contractor with high payroll or cost of goods sold (COGS), forcing the business onto the EZ Computation form instead of running the Long Form with the Compensation or COGS method could cost thousands in overpaid tax.

    Myth #3 – Businesses Need to File a No Tax Due Report

    • What they write: If a business’ revenue is under the $2.65M threshold, they must file a No Tax Due Report with the Texas Comptroller
    • The Reality: Starting in 2024, the Comptroller completely eliminated the No Tax Due Report for entities under the threshold. These entities only file a Public Information Report (PIR) or Ownership Information Report (OIR).
    • The Result: This false tax advice leads a Texas business down an unnecessary hunt for reports that no longer exist and face penalties for missing the PIR or OIR filing.
    Read my blog for more information on penalties and interest for missed filing deadlines.

    Myth #4 – The One Size Fits All Texas Franchise Tax Extension

    • What they write: If a business files their Texas Franchise Tax extension by May 15, they are automatically granted a six-month extension to file.
    • The Reality: If a business is a mandatory EFT payer and paid $10,000 or more in franchise tax the prior year, Texas puts them on a two-step extension track. The May extension only buys the business time until August 15.
    • The Result: If the business does not pay the remaining tax balance and request a second extension by August 15, they will face late penalties and interest even if they thought they were fully extended.

    Myth #5 – Texas Has No State Income Tax Therefore No State Return

    • What they write: Texas does not have a state income tax.
    • The Reality: Many misinterpret this to mean Texas has no annual filing requirement.
    • The Result: Missing any filing requirement, whether it is the franchise tax return, Public Information Report, or Owner Information Report, will eventually result in penalties, interest, and potentially losing the right to transact business in the state.

    Stop Guessing with Texas Franchise Taxes. Put a Texas CPA in Your Corner.

    From choosing the right deduction method to navigating strict extension timelines, accurate filing requires dedicated Texas knowledge. Partner with a Texas CPA who will keep your business in good standing year after year. Book your consultation with Andris Financial Services and gain complete peace of mind for May 15th and beyond.

    Book Texas Franchise Tax Consultation

    Prefer to send a confidential message? Submit your inquiry below.

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  • The Steep Penalties for Overdue Texas Franchise Tax Reports

    The Steep Penalties for Overdue Texas Franchise Tax Reports

     Franchise Tax Reports Due Date

    If you have not filed your Texas Franchise Tax Reports yet, the late fee and interest penalties are already accruing.  If you have not filed your Public Information Report, the clock is ticking on your liability protections for your business.  Both reports were due on May 15 and the penalties for failing to file or pay taxes are significant.   Find out why failing to file either report can lead to fees and loss of your right to transact business in the state of Texas.

    Who is Required to File Texas Franchise Tax Reports?

    If you are not sure whether you are required to file franchise tax reports or which reports you need to submit, below are the three filing requirements per the Texas Comptroller:

    1. If the total annualized revenue for your business was under $2,650,000, you are not required to file a franchise tax return.  You are, however, required to file a Public Information Report.
    2. If your business did meet the $2,650,000 threshold, you are required to file a Franchise Tax Return and also file the Public Information Report.
    3. If you complete the Franchise Tax Report and your tax due is less than $1,000, your business does not owe any tax to the Comptroller.  Even though you do not owe any tax to the Comptroller, you are still required to file the Franchise Tax Report to show your calculations, and you are also required to file the Public Information Report.

    Franchise Tax Late Filing Penalties

    The state charges a $50 penalty for a late filed Franchise Tax Report.  The fee is assessed whether you subsequently file the report or any tax is due.  Meaning if you file your franchise tax report late and did not request an extension, the penalty is still due. For example, if your Franchise Tax Report is filed on May 20 and the Comptroller has not yet assessed the late filing penalty, you will be able to file the report and pay the amount due but the late penalty will be added later if not there already.  There is no grace period for filing the late report; it is due on May 15, no exceptions. 

    More Late Penalties and Interest

    On top of the $50 late filing penalty, the Comptroller also imposes a 5% penalty on the tax due if the tax is not paid when due.   If after 30 days the taxes are still unpaid, the Comptroller charges another 5% on top of the $50 late filing fee and the 5% for nonpayment when the report was due.  Sixty after the taxes are unpaid, interest begins to accrue.  The rate charged is 1% plus the prime at the beginning of the calendar year.

    No Annual Texas Franchise Tax Fee

    The state of Texas does not charge a franchise fee for doing business in the state.  Since there is not an annual franchise tax fee, the minimum requirement for all businesses in Texas is the Public Information Report.  Even though a business does not owe any tax, the state still has the ability to impose penalties for late or non-filers of the Public Information Report.   The penalty is the loss of liability protections for individual members of the business entity and loss of the business’ ability to defend itself against lawsuits.

    Falling into Forfeiture

    The Comptroller will mail a Notice of Intent to Forfeit Right to Transact Business if the business entity has not filed the Franchise Tax Return, Public Information Report. or has not paid the past due taxes, penalties, and interest.  The business has 45 days after receiving the forfeiture intent notice to make the account current.  If the business does not file or pay and is forfeited by the Comptroller, it has 120 days after the forfeiture to pay or file. Failure to pay or file results in Involuntary Termination by the Texas Secretary of State.

    Next Steps to Get Back in Good Standing

    As you can tell by the process above, simply missing a Public Information Report with the state can lead to losing corporate privileges and the right to transact business in Texas.  If you need to file Franchise Tax or Public Information Reports, it is never too late to file.  While your account may have incurred penalties, you can stop any further assessments on your account and potentially remove some of the fees.

    Contact Andris Financial Services for a consultation to determine which reports your business needs to file to erase compliance headaches.

    Schedule a Consultation Today!
  • Is Your Texas LLC Closed or Terminated?

    Is Your Texas LLC Closed or Terminated?

    Find out why termination is not always a bad thing.

    How does an entity enter delinquency status?

    In 2024, the state of Texas eliminated the No Tax Due report for franchise tax.  This led to many business owners failing to file their required annual Public Information Report.  If this annual report is not filed, the Comptroller will send out an intent to forfeit notice.  One of the following is the reason for this notice:

    • Failure to file franchise tax returns
    • Failure to pay franchise tax due to the Texas Comptroller
    • Failure to file the annual Public Information Report (PIR) or Owner Information Report (OIR)

    The Change to Forfeited Status

    If the reports are not filed or taxes are left unpaid after the notice is sent, the status of the LLC is updated to forfeited. This status means your Texas LLC is no longer is in good standing with the state and has lost its liability protection.  Legally the entity still exists, but it has lost the liability protections such as the following:

    • right to sue or defend in a court of this state
    • directors or officers of the LLC are liable for a debt of the corporation

    To get back in good standing, the LLC must file any delinquent franchise tax returns, pay any penalties and late fees, and file the Public Information Reports.

    Involuntary Termination and Reinstatement

    A Texas LLC is involuntarily terminated after the Secretary of State administratively ends the entity. This occurs after the forfeiture is not resolved.  

    To get an LLC back in good standing after getting involuntarily terminated by the Secretary of State, the process is called reinstatement.  The entity must request a Tax Clearance Letter from the Texas Comptroller.  The Comptroller will confirm whether the LLC has paid all taxes and fees and all tax returns are filed and current.  A request to set aside the tax forfeiture is then filed with the Secretary of State along with the Tax Clearance Letter to get back in good standing. The filing fee is $75.00.

    Voluntary Termination and Closed LLC

    The confusion among some business owners is the term termination.  The process to close or dissolve an LLC is called termination but this termination is voluntary and initiated by the business owner unlike the involuntary termination following forfeiture.

    If a business owner wants to dissolve or close their LLC in Texas, they must request a Certificate of Account Status with the Comptroller.  The Comptroller will certify that all taxes are paid and all state tax returns are filed.  Once the certificate is received, the LLC must file a certificate to terminate the LLC with the Secretary of State.  The certificate of termination request has to state why the LLC is being dissolved.  The application will be rejected if this is not included.  The filing fee for the certificate of termination is $40.00.

    Below is a summary of the actions needed for each step listed above.

    StatusAction NeededResulting Status
    Forfeited LLCPay Fees/File Franchise Tax Returns/File Public Information ReportActive
    Involuntarily Terminated LLCRequest Tax Clearance Letter/File to Set Aside ForfeitureActive
    Terminate/Dissolve/ Close LLCRequest Certificate of Account Status/File Certificate of TerminationFranchise Tax Ended

    Next Steps: How to Resolve Your Texas LLC Status

    Whether you need to revive your forfeited business or cleanly shut down an inactive entity, resolving your status with the State of Texas requires a specific multi-step administrative process.

    • Step 1: Account Audit & Delinquency Review – Review your Texas Comptroller WebFile ledger to identify all unfiled Franchise Tax Reports, Public Information Reports (PIR), and outstanding statutory late fees.
    • Step 2: File All Past-Due Reports – Prepare and submit all missing annual franchise tax filings up through the current report year (or final report year for dissolutions).
    • Step 3: Secure Your Official State Tax Clearance
      • To Reinstate: Request Form 05-377 (Tax Clearance Letter for Reinstatement).
      • To Terminate: Request Form 05-359 (Certificate of Account Status for Termination).
    • Step 4: Submit Final Filings to the Texas Secretary of State – File your tax clearance document with the Secretary of State along with Form 801 (Application for Reinstatement) or Form 651 (Certificate of Termination).

    Closed or Terminated LLC FAQ

    Can I dissolve a Texas LLC that is already forfeited?

    No. The Texas Secretary of State rejects termination filings for forfeited entities. You must first resolve all back franchise tax reports, pay any penalties with the Comptroller, and secure Form 05-359 (Tax Clearance Letter) before filing your Certificate of Termination.

    What is the difference between “Inactive/Forfeited” and “Forfeited Existence”?

    “Inactive/Forfeited” is a Comptroller status meaning your tax reports are delinquent and your right to transact business or use Texas courts is suspended. “Forfeited Existence” is a Secretary of State action that happens roughly 120 days later, officially dissolving the legal charter and exposing owners to personal liability.

    Why shouldn’t I just abandon my LLC and let the state shut it down?

    Under Texas Tax Code § 171.255, once an entity is forfeited, directors and officers can be held personally liable for debts, taxes, and penalties incurred during forfeiture. The Comptroller also keeps the unfiled reports and late penalties permanently attached to the organizers.

    What does “Franchise Tax Ended” mean on the Comptroller website?

    It means the active franchise tax account has been closed. This occurs when the business completed a formal dissolution.

    Who issues the Tax Clearance Letter?

    The Texas Comptroller issues the Tax Clearance Letter (Form 05-377), not the Secretary of State. Once the Comptroller verifies all back returns and fees are satisfied, you submit that certificate to the Secretary of State alongside your reinstatement forms.

    If you file bankruptcy on a Texas business LLC, will it show up on the Texas Secretary of State website?

    No. Bankruptcy is governed entirely by federal law and handled through the U.S. Bankruptcy Courts, not state filing offices. The Texas Secretary of State does not track, receive, or display federal bankruptcy filings or automatic stays on its entity search portal.

    Need Help Resolving Your Texas Entity Status?

    Navigating past due franchise tax reports, statutory forfeiture penalties, and state clearance letters can be time consuming and detailed process. Any missed step can derail a property sale, delay a closing, or leave your business stuck in administrative limbo for weeks.

    I handle the entire administrative process from start to finish beginning with auditing your Comptroller ledger, preparing required back filings, obtaining your official tax clearance letter, and filing with the Secretary of State so you can regain good standing or cleanly close out your business records.

    (Note: I provide administrative tax compliance and state filing services. I do not provide legal advice or internal dispute resolution.)

    Request an Entity Status Review

    Submit your entity details through the secure intake form for a direct review by a Texas CPA. Andris Financial Services examines public state records and emails a diagnostic breakdown of missing filings along with a flat fee proposal the same business day!

    Visit the Texas Comptroller to view your account status.

    View Your Account Status
  • How To Register An Out Of State (Foreign) LLC In Texas: Texas Secretary of State Form 304 Guide

    How To Register An Out Of State (Foreign) LLC In Texas: Texas Secretary of State Form 304 Guide

    Texas Foreign LLC Compliance

    Registering a foreign LLC in the state of Texas does not end with filing one form. A professional in the state of Texas will keep you in compliance every year. This step by step guide is just the first step for a business formed in a state outside of Texas. You must register your foreign LLC with the Texas Secretary of State. The document to complete this task is Form 304.  The penalties and late fees are steep if the foreign LLC is not registered correctly with the state.

    What is a Foreign LLC in Texas?

    The legal name of Form 304 is Instructions for Application for Registration of a Foreign Limited Liability Company.  Most people assume a foreign LLC is out of the country.  In the state of Texas, a foreign LLC is any business with an initial registration outside the state of Texas.  The most common states I have encountered for initial registration are Delaware, Wyoming and Nevada.  These states have favorable liability and privacy laws for business owners, but Texas has recently enacted favorable laws to protect the liability shield of business owners.  

    Did your out-of-state business transact business in Texas before registering or has your existing registration lapsed? Review the Out of State Compliance Services page to resolve state tax holds, clear back penalties, and restore your active standing.

    Penalties for Failing to Register the Out of State LLC

    A business cannot perform business functions such as sign contracts, hire employees, or sell products without first registering with the Secretary of State.  As a CPA in the state of Texas, I have witnessed businesses suffer penalties for failing to register the LLC. Not registering the LLC results in the following:

    • not being able to transact business in the state of Texas by action of the attorney general
    • may not maintain an action, suit, or proceeding in a court until registered in the state
    • Is subject to a civil penalty equal to the all fees and taxes that would have been imposed if the entity has registered when first required

    The late fee for failing to register an LLC in Texas is equal to the registration fee for each or part of the year that the LLC transacted business in the state without registering.  The current registration fee is $750.  The state also grants a grace period of 90 days once the entity begins transacting business in the state.  Once the 90 days passes and the LLC is still unregistered, the business is subject to penalties and fees.

    How to Complete Form 304

    Download Form 304 from the Secretary of State

    Foreign Entity Name and Type

    Enter the full legal name of the out of state LLC as stated in the entity’s formation document.  The name must meet the following:

    • must contain a recognized term of organization for the entity type
    • must not contain any words or phrases that implies the entity is engaged in a business the entity is not authorized to pursue
    • entity name must not be the same or deceptively similar to the name of an existing entity, whether domestic or foreign, already filed with the Secretary of State.  This also includes entity names already reserved.

    The Secretary of State will provide a preliminary determination on name availability.  Do not make financial expenditures or execute documents based on this preliminary clearance.

    Assumed Names

    If the out of state LLC does not contain the LLC designation, the entity name must be updated to include acceptable abbreviations such LLC or LC.

    If the name of the out of state entity is not available for use in the state of Texas, the business must complete Texas Secretary of State Form 503 to register an assumed name and subsequently list the assumed name on Form 304.

    Federal Employee Identification Number (FEIN)

    The out of state’s Federal EIN is not required for the form to be processed by the state of Texas but if provided it does assist the Texas Comptroller with establishing the tax account with the state.  If the entity has not received the EIN at the time of submission, check the box on the form. The EIN isssued by the IRS.

    Jurisdiction Information & Certification of Existence

    Provide the state of formation and date the LLC was originally organized.  The certification of existence is a statement that is certified with the signing of Form 304.  It states that the out of state LLC is in good standing in the state of formation.  In the state of Texas, you do not have to submit a certificate of good standing from the state of formation.

    Statement of Purpose

    The application must state the business activity or activities the LLC will pursue in Texas.  The Secretary of State suggests the phrase “any lawful business or activity under the law of this state.”  Using this phrase keeps the options flexible.  If a business purpose is listed and the LLC changes its business purpose, an amendment may need to be filed to change the purpose.

    The application must also contact a statement that the entity is authorized to pursue the same business or activity under the laws of the LLC’s state of formation.   This statement is included on the application itself therefore the signature on the application certifies this statement. No separate statement is needed.

    Beginning Date of Business

    Provide the date the out of state LLC began or will begin to transact business in the state.  If the entity transacted business in Texas for more than 90 days before the application is submitted, a late filing fee will be assessed.

    Principal Office Address

    Provide the street or mailing address of the principal office of the out of state entity.  The principal office address can be a P.O. Box.  It does not have to be a physical address.

    Registered Agent 

    The out of state LLC must submit a registered agent name.  The person designated as the registered agent must have consented in written or electronic form to serve as the registered agent.  The consent does not need to be submitted with the application for registration.  The registered agent for the out of state LLC can be either of the following:

    • Texas entity registered to do business in the state of Texas
    • Another out of state or foreign entity that is registered to do business in the state of Texas
    • An individual resident of the state of Texas

    The out of state LLC cannot act as its own registered agent.

    Registered Office

    Unlike the principal office address, the registered office address must be a street address where service of process may be personally served during normal business hours.  The registered office address may not be a mailbox or telephone answering service.

    Appointment of Secretary of State & Texas Secretary of State Form 401

    The signature on the application is consent to allow the Secretary of State to act as an agent if the provided registered agent is not available to be served paperwork.  The out of state entity could end up not being able to defend itself if the registered agent is not available.  It is important to select a dependable registered agent and to update registered agent information.  File Texas Secretary of State Form 401 if the registered agent or registered office needs to be changed to keep your records updated.  Failure to maintain a registered agent and registered office may result in the revocation of the out of state entity’s registration.

    Governing Persons 

    The name and address of each person serving as part of the governing authority of the out of state LLC.  This is usually the group of persons who are entitled to manage and direct the affairs of the out of state LLC.  A minimum of one person is required.  Do not use prefixes.  Suffixes are allowed for lineage (e.g., Jr., Sr.) but not for professional titles (e.g., M.D., Ph.D.)

    The governing person can be a name or organization but not both.  An address is required for each governing person.  If privacy concerns are an issue, a P.O. Box is permitted for the governing person.

    Effectiveness of Filing & Texas Secretary of State Form 805

    The application for registration becomes effective when filed by the Texas Secretary of State.  The effective date may be delayed to a date no more than 90 days from the date the application is signed. The effective date of the application may be delayed by the occurrence of a future event or fact other than the passage of time which must be stated on the application. Within 90 days of the filing of the certificate, file Texas Secretary State Form 805 Statement of Event or Fact in order for the certificate to take effect.

    Signature & Payment

    The application does not need to be notarized but an authorized person must sign the application.  This person is generally a governing person or managerial official.

    The filing fee is $750 and can be paid by personal checks, money orders, and credit cards.  Credit cards are subject to a 2.7% convenience fee.  The application can be filed online or mailed to the Secretary of State.

    💡 Corporate Compliance: Looking Down the Road

    Registering your foreign LLC with Form 304 is just step one. Texas has very strict annual filing requirements and missing a deadline can result in the state involuntarily dissolving your right to do business in the state. As a licensed CPA in the state of Texas, I have extensive knowledge of the regulatory compliance the state of Texas imposes on foreign LLC’s.

    To understand how to protect your active status, or to see how the state handles corporate closures and cleanup down the line, explore the comprehensive guide on Texas Business Reinstatements and Entity Terminations.

    Ready to Work With a Texas CPA to Register Your Business in Texas Without the Stress?

    Schedule a Strategy Session

  • Is Your Texas Asset at Risk? The High Cost of Forfeited Out of State Entities

    Is Your Texas Asset at Risk? The High Cost of Forfeited Out of State Entities

    Why Out of State Owners are Getting Forfeited (And How to Fix It)

    Operating an out of state business in Texas offers tremendous commercial opportunity, but out-of-state owners frequently run into strict regulatory compliance hurdles.

    If your business was formed in another state such as Delaware, Nevada, Wyoming, or California and conducts business in Texas, the Texas Secretary of State (SOS) legally classifies your company as a foreign entity.

    When a foreign entity fails to maintain annual compliance with the Texas Comptroller of Public Accounts, the state revokes its registration. For out-of-state owners holding Texas real estate, managing commercial contracts, or securing financing, a forfeited status creates immediate legal and financial exposure.

    What Triggers the Requirement to Register in Texas?

    Under the Texas Business Organizations Code (BOC), a foreign entity must submit an Application for Registration (Form 304 for LLCs or Form 301 for for-profit corporations) and pay the state filing fee ($750 for most for-profit entities; $25 for nonprofits). The state provides a 90-day grace period to complete this registration after initially transacting business in Texas.

    While the statute does not provide a single definition of transacting business, Texas Business Organizations Code § 9.251 specifically outlines activities that do not constitute transacting business. Common exceptions include:

    • Maintaining, defending, or settling an action, lawsuit, arbitration, or administrative proceeding.
    • Holding meetings of managerial officials, directors, owners, or members.
    • Maintaining bank accounts in Texas.
    • Securing or collecting debts, or enforcing rights in property securing those debts.
    • Creating or acquiring indebtedness, mortgages, or other security interests in real or personal property.
    • Owning, without more, real or personal property located in Texas.
    • Conducting an isolated transaction completed within 30 days that is not part of a repeated series of similar transactions.

    If your entity’s operations extend beyond these statutory safe harbors such as maintaining physical operations, hiring Texas-based employees, holding active rental income property, or executing ongoing retail/service contracts formal registration is required.

    The Penalties for Unregistered or Forfeited Foreign Entities

    Operating without registration or allowing your registration to lapse carries severe consequences:

    1. Cumulative Statutory Late Fees: Under the Texas Business Organizations Code, an entity that transacts business in Texas without registering is liable to the state for an amount equal to the registration fee ($750) for each calendar year (or partial year) it operated without active registration, plus statutory late penalties.
    2. Loss of Court Access: A foreign entity cannot maintain any action, suit, or proceeding in a Texas court until it registers and restores active standing.
    3. Injunction by the Texas Attorney General: The Attorney General may enforce compliance and enjoin an unregistered entity from conducting any business within the state.
    4. Transaction Halts: Title companies, escrow officers, and commercial lenders regularly check the Texas Comptroller’s franchise tax database. If your entity status shows as forfeited, lenders will pause loan closings, and title companies will refuse to clear deed transfers or refinancing packages until full reinstatement is verified.

    How to Reinstate a Forfeited Foreign Entity in Texas

    Restoring a revoked or forfeited foreign entity requires a structured, multi-agency procedure between the Texas Comptroller of Public Accounts and the Texas Secretary of State.

    Step 1: Resolve Comptroller Tax Compliance & Clear Delinquencies

    The Secretary of State will not process a reinstatement until the Texas Comptroller confirms all reporting obligations are satisfied.

    • File All Delinquent Reports: You must submit all past-due Texas Franchise Tax reports and Public Information Reports (PIR) for every delinquent year.
    • Understand Comptroller Penalties: If your annualized total revenue is at or below the state’s no tax due threshold, you only need to submit the missing Public Information Report (PIR) for each report year. The Comptroller does not assess a $50 late-filing penalty for late filed zero revenue PIRs. However, if your entity exceeded the revenue threshold, all calculated tax, applicable statutory late fees, and interest must be paid in full.
    • Obtain Form 05-377 (Tax Clearance Letter): Once all reports are processed and accounts are current, submit a formal request to the Comptroller for Form 05-377, Tax Clearance Letter for Reinstatement.

    Step 2: Prepare the Correct Secretary of State Reinstatement Filing

    Once the Comptroller issues your Form 05-377 Tax Clearance Letter, file the appropriate reinstatement documents with the Secretary of State:

    • Form 801 (Application for Reinstatement): Used if the foreign entity’s registration was revoked specifically for tax forfeiture under Chapter 171 of the Texas Tax Code.
    • Form 811 (Application for Reinstatement and Set Aside of Revocation): Used if the revocation occurred for non-tax administrative reasons, such as failing to maintain an active registered agent or registered office in Texas.

    Step 3: Pay State Filing Fees

    The state filing fee for Form 801 is $75. If you are facing an urgent real estate closing, banking deadline, or legal proceeding, expedited processing is available through the Secretary of State for an additional fee to secure prompt approval.

    Restore Your Texas Business Entity Standing

    Resolving a forfeited foreign entity involves navigating state agency backlogs, preparing delinquent reports correctly, and coordinating state clearance.

    I provide direct CPA representation to handle the entire reinstatement process from start to finish. I work with the Texas Comptroller to file past due reports, remove state holds, secure Form 05-377 Tax Clearance, and file formal reinstatement paperwork with the Texas Secretary of State.

    If your out of state LLC or corporation has been forfeited or revoked in Texas, contact Andris Financial Services today to review your entity status and restore active standing.

    Request an Entity Status Review

    Submit your entity details through the secure intake form for a direct review by a Texas CPA. Andris Financial Services examines public state records and emails a diagnostic breakdown of missing filings along with a flat fee proposal the same business day!