Texas Reinstates Veterans Franchise Tax Exemption

Big News for 2022! Texas has reinstated the franchise tax exemption for veterans. This will save veterans who want to form an LLC, veterans who want to form a corporation, and so forth, on their franchise taxes for that entity that would otherwise be due to the State of Texas. For more details, read below:

Veterans Franchise Tax Exemption in Texas Has Been Reinstated 

As of the first of this month, the Texas Comptroller has reinstated some important veteran-owned business benefits, which were in effect from 2016 through 2020. The new benefits are similar to the old ones, and will expire on January 1, 2026. Veterans who quality may benefit from a refund for filing fees as well as an exemption from Texas franchise taxes for the first five years of the existence of the business. The franchise tax is a privilege tax that is imposed on any entity that is formed, organized, or does business in the State of Texas. This tax exemption for veteran-owned businesses can potentially save veterans a sizable amount of money, depending on the business’s profitability.

Qualifying for the Exemption

In order to qualify, a business must be considered a “new veteran-owned business”. This requires that the business must
  • Have been formed or organized in Texas either on or after January 1, 2016 and before January 1, 2020, or on or after January 1, 2022 and before January 1, 2026;
  • Be 100 percent owned by a natural person or persons, each of whom must have been honorably discharged veterans from a branch of the United States Armed Services – proof of veteran status may be obtained by providing a copy of the DD214 to the Texas Veterans Commission;
  • Request a Letter of Verification of Veteran’s Honorable Discharge for each owner from the Texas Veterans Commission.
Once all the owners of the company have received their honorable discharge verification letter, they each must complete Comptroller Form 05-904, enter their name, alpha-numeric identification code from the verification letter, and their percentage of ownership in the company. Once the business owner(s) have the forms necessary to certify their veteran status, they can proceed with the formation of the business through the Texas Secretary of State. This process typically takes about a month depending on the volume of requests. If the company no longer meets the qualification criteria during the first five years of operation, the business must notify the Comptroller’s office and they will no longer be qualified for the exemption.

What if You Formed Your Business During the Last Exemption Period and Did Not Take Advantage of the Franchise Tax Exemption?

If you owned a veteran-owned new business between January 1, 2016 and January 1, 2020, you may be able to still benefit from that exemption. You must fulfill all the steps above and send the information to the Secretary of State at corpcert@sos.texas.gov with a cover letter giving all the pertinent information. If you meet the requirements for qualification, you will receive a refund.

How Does Waiving the Franchise Fee Help Veteran Business Owners? 

The original bill was put into effect to help assist veterans with forming small businesses by waiving some of the fees and taxes for them in the first five years of the company’s existence. While there are some extraneous hoops that must be jumped through, this exemption can represent substantial tax savings, particularly if the business becomes very profitable. In addition to this tax exemption, the Texas Veterans Commission offers veteran entrepreneurs valuable resources, counseling, and direction for starting new businesses. From writing a business plan to offering free business assistance, training, and financing ideas, the commission is a wealth of information for veterans who are considering starting businesses of their own. If you have questions about the new veteran’s franchise tax exemption or would like assistance with the formation of your business, we would love to help you. Contact the Law Offices of Ryan Reiffert to get some individualized help and your questions answered.