Texas Lawmakers Eliminate $1 Million Tax Cliff for Small Businesses

Profit upA new tax law goes into effect this year which will benefit small businesses in Texas whose gross annual receipts exceed $1 million.

Prior to the change, businesses faced what was known as the “cliff.” If a business earned less that $1 million annually in gross receipts, it paid no franchise or business margins tax. If gross receipts exceeded the $1 million mark, even if only by one dollar, the entire amount of gross receipts was subject to the tax, sometimes the to the tune of thousands of dollars.

Business owners avoided the cliff

It is easy to see why the regressive tax hampered businesses —business owners and managers were better off closing the doors near the end of the year if gross receipts were getting too close to the tax cliff.

Under the new law, businesses with between $1 million and $3.3 million in annual gross receipts are subject to a gradual franchise tax, which applies only to the portion of gross receipts over $1 million. The new law doesn’t affect companies with gross annual receipts over $3.3 million.

The law is expected to affect as many as 26,000 small businesses in Texas.

Of course, lowering taxes for small businesses may result in less tax revenue collected by the state. On the other hand, small businesses no longer have a reason to stop generating revenue near the end of the year, so it’s possible any lost tax revenue will be offset by greater sales tax receipts — in addition to the margin taxes small businesses will pay on gross annual receipts in excess of $1 million.

Call our business law attorneys for advice

Let our experienced Bryan-College Station, Texas business law attorneys advise you in matters related to the growth and management of your business, including important compliance issues. At Peterson Law Group, we provide assistance and answer your legal questions so you can get on with business. Call 979.703.7014 for an appointment or fill out our online contact form.

About Chris Peterson

Chris Peterson is an attorney and the owner and founder of Peterson Law Group, a Texas law firm with offices in Bryan/College Station and Kingwood. He mainly practices in the areas of Estate Planning and Business Planning. Chris is also a Certified Estate Planner. Besides his law practice, Chris is a serial entrepreneur and community volunteer. He is known for his cutting edge law practice that utilizes technology to deliver efficient, excellent work.