Annualized Revenue Test
If your Texas franchise-tax reporting period isn’t a full 12 months—because you formed or acquired the business mid-year, changed your fiscal year, or operate on a short tax period—you must annualize your total revenue to determine:
- Whether you fall under the $2.47 million no-tax-due threshold, and
- Whether you qualify for the E-Z Computation (0.331 % rate) under the $20 million cap.
Failing to annualize correctly can trigger surprise tax bills or cause you to miss out on simpler filing options. Here’s how to run the test, compare to the thresholds, and file properly.
Applicable Tax Authority & Code References
- No-Tax-Due Threshold: If your annualized total revenue is ≤ $2.47 million, you owe no franchise tax. This threshold is set in Tex. Tax Code § 171.002(d)(2).
- Total Revenue Definition: “Total revenue” for franchise-tax purposes is defined in Tex. Tax Code § 171.1011.
- Annualization Requirement: When your accounting period isn’t exactly 12 months, Texas requires you to annualize total revenue by dividing your period revenue by the number of days in that period, then multiplying by 365.
- E-Z Computation Cap: Entities with annualized total revenue ≤ $20 million can elect the 0.331 % E-Z Computation under Tex. Tax Code § 171.1016.
Who Uses the Annualized Revenue Test?
- Newly Formed or Acquired Entities: Businesses that begin or end operations mid-year.
- Entities Changing Fiscal Year: Companies that switch from a calendar year to a fiscal year (or vice versa).
- Combined-Group Members: Affiliates joining or leaving a combined report during the year.
- Short-Period Filers: Any entity whose federal accounting period is other than 12 months.
Detailed Examples
Example 1: Over the No-Tax-Due Threshold
- Period: Sept 15, 2023–Dec 31, 2023 (108 days)
- Total Revenue: $750,000
- Annualized Total Revenue:
$750,000÷108×365=$2,534,722 \$750,000 \div 108 \times 365 = \$2,534,722
- Conclusion: $2,534,722 > $2.47 million ⇒ must file a franchise-tax report. Because $2.53 million ≤ $20 million, you may use the E-Z Computation (Form 05-169).
Example 2: Below the No-Tax-Due Threshold
- Period: July 1, 2024–Dec 31, 2024 (184 days)
- Total Revenue: $1,000,000
- Annualized Total Revenue:
$1,000,000÷184×365≈$1,984,783 \$1,000,000 \div 184 \times 365 \approx \$1,984,783
- Conclusion: $1.98 million ≤ $2.47 million ⇒ no franchise tax due; file only the Public Information Report (Form 05-102) and Ownership Information Report (Form 05-167) as applicable.
Step-by-Step Compliance Guide
- Confirm Short-Period Filing
- Check if your reporting period ≠ 12 months (initial, final, combined-group, or fiscal-year change).
- Gather Period Data
- Total revenue for the period (per § 171.1011).
- Number of days in the period (include both start and end dates).
- Calculate Annualized Revenue
- Annualized Total Revenue = (Period Revenue ÷ Days in Period) × 365.
- Compare to Thresholds
- ≤ $2.47 M: no tax due ⇒ file PIR (05-102) ± OIR (05-167).
- > $2.47 M but ≤ $20 M: tax due; E-Z Computation (Form 05-169).
- > $20 M: full franchise-tax report (Form 05-158) with chosen margin method.
- Select & File the Correct Forms
- No-Tax-Due: Form 05-102 (PIR) and 05-167 (if ≥ 10 % owner).
- E-Z Computation: Form 05-169 + 05-102/05-167 + 05-170 (voucher).
- Full Report: Form 05-158 + supporting schedules + 05-170.
- Meet the Deadline
- File or postmark by May 15, 2025 (or next business day).
- Retain Records
- Save calculation workpapers, confirmation receipts, and filed forms.
Conclusion
The Annualized Revenue Test ensures businesses with short tax periods aren’t unfairly advantaged or penalized. By correctly annualizing your period revenue and comparing it to the $2.47 million and $20 million thresholds, you’ll know exactly which Texas franchise-tax forms to file—and whether you owe any tax at all.
Schedule a Meeting to verify your annualization calculations and ensure rock-solid compliance for your 2025 Texas filings.
About Our CPA
Anshul Goyal, CPA, EA, FCA, is a licensed Certified Public Accountant in the United States and admitted to practice before the IRS as an Enrolled Agent. He represents clients in tax litigation, specializes in cross-border tax compliance for U.S. businesses and Indian nationals, and delivers precision-driven tax strategies.
Disclaimer
This blog is for general informational purposes only and does not constitute tax, legal, or accounting advice. Consult a qualified professional regarding your specific circumstances before taking action. Anshul Goyal, CPA, EA, FCA, and Kewal Krishan & Co. disclaim any liability for actions taken based on this content.
FAQs
1. How is annualized total revenue calculated?
Divide the revenue earned during your short-period by the number of days in that period, then multiply by 365.
2. What filings are required if annualized revenue is under $2.47 M?
No franchise tax is due—file Form 05-102 (PIR) and Form 05-167 (OIR) if you have owners with ≥ 10 % interest.
3. What if annualized revenue is above $2.47 M but under $20 M?
You must file a full franchise-tax return but can elect the E-Z Computation (Form 05-169) at 0.331 %.
4. Does annualizing change the revenue I report?
No. You report your actual period revenue on the form; annualized revenue is only used to test threshold eligibility.
5. When should I use the annualized test?
Any time your federal accounting period is not exactly 12 months—initial reports, final reports, or fiscal-year changes.