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Editorial 8 MIN READ

Texas in September 2020: what the fee schedule still says

A $300 Certificate of Formation, a franchise-tax threshold that keeps the small LLC off the tax roll, and a deadline that moved once this year

The Editors
Staff, Incorporator.org
8 min read Updated
Contents 7 sections
  1. The formation fee did not move
  2. The no-tax-due threshold ticked up
  3. The Public Information Report is still the failure mode
  4. The July 15 extension, and what it did and did not do
  5. Economic nexus and the 2019 rule revision
  6. Who the current schedule still works for
  7. Sources

he Texas Secretary of State still charges $300 to form an LLC, and the Texas Comptroller still draws the no-tax-due line at $1,180,000 in annualized total revenue for 2020 reports. Those are the two numbers that have governed every new Texas LLC this year, pandemic or not, and they are the ones worth pinning down before the year closes.

This is a mid-2020 review of the Texas fee schedule for the entity that files its own paperwork, or pays someone to, and wants to know what the state actually costs right now.

The formation fee did not move

Form 205, the Certificate of Formation for a limited liability company, still costs $300 to file with the Secretary of State. That number has held through the last several legislative cycles and was not touched in the 86th Legislature's 2019 session. The filing goes through SOSDirect, the state's online portal, or by mail to the Corporations Section in Austin. SOSDirect adds a 2.7% convenience fee on credit-card submissions, which most filers absorb without much complaint.

Related fees on the Secretary of State's schedule are steady too. A name reservation under Form 501 is $40 and holds the name for 120 days. A certificate of fact under Form 621 is $15 plus $1 per page certified. A $25 expedite fee pushes a mail or fax filing to the front of the queue, though the online channel has generally been quicker on its own even before remote work pushed everything digital. Foreign-entity registration under Form 304, the filing a non-Texas LLC submits when it starts doing business in the state, is $750. That gap, between $300 for a Texas-born LLC and $750 for a foreign qualifier, is the single most persuasive argument the state makes to non-residents who thought they could form in a cheaper state and then operate in Texas anyway. You can do it; it just costs more than forming here in the first place.

For the reader forming this quarter, the mechanics have not changed from the walkthrough in our 2016 Texas formation guide: file the Certificate with a Texas registered agent's address, get your EIN from the IRS, draft a company agreement, and wait three to five business days. What has changed is almost entirely on the Comptroller's side.

The no-tax-due threshold ticked up

For franchise-tax reports originally due in 2020, the no-tax-due threshold is $1,180,000 in annualized total revenue. That is up from $1,130,000 for 2018 and 2019 reports, and up from $1,110,000 for 2016 and 2017 reports. The threshold is adjusted biennially for inflation under Tex. Tax Code § 171.002(d), and the 2020 figure was published in the Comptroller's franchise-tax forms bundle when the season opened in January.

The rate structure behind the threshold is the one HB 32 left in place in 2015, which our 2017 franchise-tax review walked through in detail. Above the threshold, the rate is 0.75% of taxable margin for most entities and 0.375% for those primarily engaged in retail or wholesale trade. Entities with $20 million or less in total revenue can elect the EZ computation on Form 05-169 at a 0.331% rate. Taxable margin is the least of total revenue minus cost of goods sold, total revenue minus compensation, total revenue minus $1 million, or 70% of total revenue. The compensation cap for 2020 reports is $390,000 per person under 34 Tex. Admin. Code § 3.589, up from $370,000 for 2018 reports.

The operational upshot of the threshold adjustment is the same as it has been: the overwhelming majority of Texas LLCs, which are single- member entities with revenue well under a million dollars, owe nothing. They still have to file.

The Public Information Report is still the failure mode

Every Texas LLC filing a No Tax Due Report (Form 05-163) also files a Public Information Report (Form 05-102), and corporations and LLCs above the threshold file the PIR alongside whatever computation they use. The PIR lists the governing persons, the registered agent, and the principal office. Its normal due date is May 15. Missing it is the single most common reason a small, otherwise-compliant Texas LLC shows up on the Comptroller's delinquent list and eventually gets its right to transact business forfeited.

Forfeiture carries a $75 reinstatement fee through Form 801, on top of bringing the missed filings current. Directors and officers of a forfeited entity can also be held personally liable under Tex. Tax Code § 171.255 for debts the entity incurs after forfeiture, which is the piece that turns a paperwork mistake into a personal-finance question. The statute has been on the books since the 1907 franchise-tax act and has survived every subsequent restructuring, including the 2008 margin- tax overhaul.

The Comptroller's notice that triggers a May filing looks like a postcard. It does not look urgent. In practice, the calendar is the single hardest part of Texas compliance for a small LLC, which is why every formation checklist worth reading tells the founder to set a recurring May reminder the same day they get the Certificate back.

The July 15 extension, and what it did and did not do

This year the May 15 date moved once. On April 2, 2020, the Comptroller issued guidance extending the 2020 franchise-tax report deadline to July 15, 2020, aligning the state deadline with the IRS's COVID-era federal extension under IRS Notice 2020-18. The automatic extension applied to all taxable entities and did not require a separate extension request. Entities that needed additional time past July 15 could request an extension to August 17, and EFT payers could extend to January 15, 2021, under the standard mechanics with the required first-payment math done against the July date instead of May.

The extension covered the filing itself and the first extension payment. It did not change the rate card, the threshold, or the information-report requirements. A No Tax Due filer still had to file both Form 05-163 and Form 05-102; the entity simply had an extra two months to do it. Penalty-and-interest relief ran through the new July deadline, after which the regular regime resumed.

The volume consequences of the extension are visible in the Comptroller's and Secretary of State's reporting. Formations held up through the spring at roughly the prior year's pace and then ran hot from June onward, as small-business reorganizations, freelancer incorporations, and an unusually large wave of side-business filings started landing in the queue. The Secretary of State has not published a full-year 2020 number yet, but monthly LLC formations through the summer ran well above 2019's monthly cadence. The postponement of the franchise-tax deadline freed up Comptroller capacity to keep up with the SOS-side inflow, which mattered more than it sounds: forfeiture letters for prior-year delinquencies went out on roughly the usual schedule despite the mid-stream deadline shift.

Economic nexus and the 2019 rule revision

The other quiet change on the Comptroller's side this year is not a fee change; it is a jurisdictional one. Effective for reports due on or after January 1, 2020, an entity with more than $500,000 in Texas gross receipts has nexus for franchise-tax purposes regardless of physical presence. The threshold lives in 34 Tex. Admin. Code § 3.586, which the Comptroller amended and adopted in December 2019 to extend economic-nexus reasoning from the sales-tax side, where it had been pinned in post-Wayfair revisions, into the franchise tax.

This matters for the out-of-state seller who had been operating on the assumption that no Texas employees and no Texas inventory meant no Texas franchise obligation. For 2020 reports, that entity has to calculate Texas-apportioned receipts, determine whether it crosses $500,000, and file if it does. The threshold is a bright line, and the Comptroller's position is that the rule's effective date controls reports due in 2020 regardless of when the underlying receipts were earned.

For a Texas-based LLC with only in-state customers, § 3.586 changes nothing. For a Texas LLC with substantial out-of-state business, the apportionment side of the computation is the same as before. The entities most affected are the ones that never thought they were Texas filers, and those entities are going to meet the Comptroller's Audit Division over the next two filing cycles whether they file on their own or not.

Who the current schedule still works for

The Texas fee schedule in September 2020 reads substantially the way it read in 2016. The $300 formation fee is mid-pack nationally, below Massachusetts's $500 and well below Tennessee's per-member LLC fee, and above Kentucky and Arkansas at the $50 to $100 floor. The franchise tax's no-tax-due threshold continues to scrape most small operators off the revenue side of the roll, leaving the information- report calendar as the real maintenance burden. The pandemic did not reshape the schedule; it moved one deadline and accelerated a formation surge that was already running.

For the reader forming a Texas LLC in the fourth quarter of 2020, the immediate work is unchanged: file the Certificate, calendar May 15 for next year (with the PIR attached), and decide whether the registered agent is going to be a commercial provider or the owner's home address. Add one item for 2020: if the entity has or expects material out-of-state receipts, model the § 3.586 apportionment in January rather than May, because the math takes longer to run than a founder expects the first time through.

The state will raise the threshold again in 2022, because the inflation adjustment is statutory. The Legislature will again consider, in the 87th session opening this January, whether to phase the franchise tax out entirely. Neither change affects the 2020 report or the LLC formed next week. The present schedule is the one you plan against.

Sources

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