Texas does not impose a corporate income tax – but that doesn't mean businesses don't pay any taxes to the state. Texas collects gross receipts taxes, which are assessed based on the total amount of money a business takes in.
Gross receipts taxes apply to sales and services associated with utilities, mixed alcoholic beverages and motor vehicle rentals. The state's franchise tax, which has key characteristics of a gross receipts tax, applies to all business except sole proprietorships. Here's what you should know about the different Texas gross receipts tax types
Texas Miscellaneous Gross Receipt Tax
Utility companies must pay a miscellaneous gross receipt tax if they are located in incorporated cities and towns with populations of 1,000 or more. The population is determined from the last federal census – companies incorporated after that census do not pay the tax until they are counted in the next census. A utility company is one that provides electric power, gas or water.
As of 2021, the rates for this Texas gross receipts tax are: 0.581 percent for business done in cities with a population of 1,001 to 2,499 people; 1.07 percent for cities of 2,500 to 9,999; and 1.997 percent for business in cities with 10,000 or more people.
Taxes are due four times a year, on the last day of the month following the end of the calendar quarter. For example, taxes for the January-through-March quarter would be due April 30.
Gross Receipts Tax on Mixed Beverages
Bars, restaurants and other establishments that sell and serve mixed alcoholic drinks must pay the mixed beverage gross receipts tax. Receipts to be used in figuring the tax include those for ice and any nonalcoholic beverages that are mixed with alcoholic beverages. The tax is levied only on the establishment selling or serving the drinks. It is illegal to pass these charges on to the customer either as a separate charge, or by adding it to the price of the drinks.
As of 2021, the rate for this Texas gross receipts tax is 6.7 percent. Each month's tax is due by the 20th day of the following month.
Tax on Motor Vehicle Rentals
Motor vehicle rentals in Texas are subject to the motor vehicle gross rental receipts tax. As of 2021, the rate was 10 percent for rental periods of up to 30 days. The rate is paid on the gross amount of the rental, minus stated fees for insurance, damage assessments and gas. For rentals from 31 to 180 days, the rate was 6.25 percent.
Rental agencies must pay the tax monthly, quarterly or annually, depending on their operations. The tax is due by the 20th day of the month following the end of the tax period.
Texas Franchise Tax
The Tax Foundation, among many analytical groups, considers the Texas franchise tax a gross receipts tax, even though it is not labeled as such. It is imposed on a business's "taxable margin," which can be one of three things, whichever is lowest: gross receipts minus cost of goods sold; gross receipts minus compensation paid to employees; of 70 percent of gross receipts.
In general, as of 2021, the tax is 0.375 percent for qualifying wholesalers and retailers and 0.75 percent for other types of businesses. Sole proprietors are not subject to the tax. The taxes are due once a year on May 15.