Bringing a Delaware Corp to Texas
When you register a Delaware C-Corporation to do business in Texas as a foreign entity, understanding Texas franchise-tax triggers helps you anticipate annual filing obligations and associated costs. Proper planning avoids unexpected liabilities.
Relevant Code & Tax References
- Texas Tax Code §171.002(4) defines “doing business” in Texas, including maintaining an office, employees, or sales within the state.
- Texas Tax Code §171.101 imposes franchise tax on every taxable entity “doing business” in Texas.
- IRC §897 (FIRPTA) alerts that foreign corporations owning Texas real property must consider withholding—though not directly a franchise-tax issue, it underscores additional state tax considerations for foreign entities.
Relevant Forms & Filings
- Texas Franchise Tax Report (Form 05-158) – required annually upon registration as a foreign corporation.
- Texas Public Information Report (Form 05-102) – filed concurrently to maintain SOS records.
- Certificate of Account Status (Form 05-230) – obtained after payment to confirm good standing.
- Detailed Example
“DelCorp Inc.,” incorporated in Delaware, opens a Houston office and hires staff in January 2025:
- Trigger Events: physical office lease in Texas; Texas W-2 payroll; Texas sales revenue exceeding nexus thresholds.
- 2025 Franchise Tax:
- Total U.S. revenue $2 million; Texas-sourced revenue $500
- Option: gross-receipts margin method → taxable margin = $500 × 70% = $350
- Tax due: $350 × 0.375% = $1,312.50
DelCorp registers as a foreign entity, files its first Form 05-158 by May 15, 2026, and pays $1,312.50 via ACH.
Step-by-Step Guide
- Assess Nexus
- Evaluate whether your activities (office, employees, property, sales) constitute “doing business” per Tax Code §171.002.
- Register as a Foreign Entity
- File Application for Registration (Form 301) with the Texas SOS; pay $750 fee.
- Obtain a Texas Franchise Tax Account
- Enroll in WebFile at comptroller.texas.gov/e-file/webfile/.
- Determine Texas-Sourced Revenue
- Allocate revenue using market-based sourcing rules (4 Texas Admin Code §3.591).
- Complete Form 05-158
- Report Texas-sourced revenue, choose margin method, and calculate tax.
- File Form 05-102
- Submit Public Information Report listing principal office addresses and officers.
- Remit Payment & Obtain Status
- Pay via ACH; request Form 05-230 to confirm zero balance after payment (or show payment).
Conclusion
Registering your Delaware C-Corp in Texas triggers franchise-tax obligations once you “do business” in the state. By identifying nexus events, timely registering, and calculating Texas-sourced revenue, you ensure compliance and avoid penalties.
Schedule a Consultation
Discuss foreign-entity registration and franchise-tax planning with our CPA, Anshul Goyal:
https://calendly.com/anshulcpa/
Disclaimer
This blog provides general guidance on Texas franchise-tax triggers for foreign corporations and does not constitute legal or tax advice. Always verify the latest requirements with the Texas Comptroller and Secretary of State. For personalized support, consult Anshul Goyal, CPA EA FCA—a licensed CPA in the United States and Enrolled Agent before the IRS—who specializes in multistate tax nexus and compliance.
About Our CPA
Anshul Goyal, CPA EA FCA, has deep expertise in multistate corporate tax planning, helping Delaware and other out-of-state corporations navigate Texas franchise-tax registrations, filings, and nexus analyses.
Top 5 FAQs
1. What activities create Texas nexus?
Leasing property, having employees or agents, or generating Texas sales revenue.
2. When is the first franchise-tax report due?
May 15 following the year you register and begin Business in Texas.
3. How do I source revenue to Texas?
Use market-based sourcing: sales to Texas customers, regardless of where billed.
4. Can I file combined reports with related entities?
Only if you have an approved combined-group election; otherwise, report separately.
5. Are there exemptions for small revenue?
If total annual revenue < $1.23 million (2025 threshold), you may file a “No Tax Due” EZ report.