What Form 05-158 Is For
Form 05-158, also known as the Texas Franchise Tax Report (Long Form), is the comprehensive tax document that most Texas businesses must file annually to pay their franchise tax. Think of the franchise tax as the price of admission for doing business in Texas—it's a privilege tax rather than an income tax. Unlike the federal tax system, this isn't based purely on profits; instead, it's calculated using your business's "margin," which can be determined in several different ways depending on what's most favorable for your situation.
The form itself comes in two pages (05-158-A and 05-158-B) and captures everything the Texas Comptroller needs to know about your business's revenue, deductions, and the resulting tax liability. This Long Form version is specifically designed for entities that either don't qualify for simpler reporting options or choose not to use them. If your business had annualized total revenue exceeding twenty million dollars in 2016, or if you want to take advantage of deductions like cost of goods sold or compensation expenses, this is your form.
Nearly every business entity operating in Texas must deal with franchise tax, including corporations, limited liability companies (even single-member LLCs), partnerships (limited and limited liability), professional associations, banks, trusts used for business purposes, and joint ventures. The main exceptions are sole proprietorships without LLC status and general partnerships owned entirely by individuals. If your business was formed in Texas or conducts business activities within the state, you're likely on the hook for this report.
When You’d Use Form 05-158
Late Reports
The standard deadline for Form 05-158 is May 15 each year. If that date falls on a weekend or legal holiday, you get until the next business day. Your 2016 report, due May 15, 2016, covered your business's accounting period that ended in 2015.
If you realize on May 16 that you forgot to file, you can still submit a late report. The consequences include:
- A mandatory fifty-dollar late filing penalty (even if no tax is owed)
- Additional penalties if tax is due:
- 5% if 1–30 days late
- 10% if more than 30 days late
- Interest accrues from the original due date
The Comptroller may waive penalties in certain cases, but you must submit a formal request.
Amended Reports
Amended reports are used to:
- Correct mathematical errors
- Change deduction methods
- Claim missed credits
- Request refunds for overpayment
Businesses that filed simpler forms can switch to the Long Form if it reduces liability. If the amendment results in lower tax, it is treated as a refund claim and must meet legal requirements.
Key Rules or Details for 2016
Revenue Thresholds
- No Tax Due threshold: $1,110,000
- EZ Computation eligibility: ≤ $20,000,000
If your accounting period isn’t 12 months, you must annualize revenue:
- Divide revenue by days in period
- Multiply by 365
Margin Calculation Methods
You can choose one of four options:
- 70% of total revenue
- Cost of goods sold (COGS)
- Compensation deduction
- Flat $1,000,000 deduction
Choose whichever results in the lowest taxable margin.
Apportionment and Tax Rates
- Apportionment: Based on Texas receipts ÷ total receipts
- Tax rates:
- 0.75% (standard)
- 0.375% (wholesale/retail)
Electronic Filing Rules
- Mandatory for:
- No Tax Due Reports
- Entities paying ≥ $100,000 in prior year
- Electronic payment required if ≥ $500,000 owed
Step-by-Step (High Level)
1. Gather Required Documents
- Federal income tax return
- Income statement
- Payroll records (if using compensation deduction)
- COGS documentation (if applicable)
2. Complete Entity Information
On Form 05-158-A:
- Texas taxpayer number
- Legal business name
- Mailing address
- Accounting period dates
3. Calculate Total Revenue
- Start with federal revenue
- Subtract allowable Texas exclusions
- Determine:
- Total revenue
- Texas gross receipts
- Everywhere gross receipts
4. Choose Margin Method
Select the most beneficial:
- COGS
- Compensation
- 70% method
Subtract chosen deduction to calculate margin.
5. Apportion to Texas
On Form 05-158-B:
- Divide Texas receipts by total receipts
- Multiply by margin
6. Apply Tax Rate
- Apply 0.75% (or 0.375%)
- Subtract credits if applicable
7. Submit Required Companion Forms
- Form 05-102 (Public Information Report), or
- Form 05-167 (Ownership Information Report)
If paying by mail, include Form 05-170.
Common Mistakes and How to Avoid Them
Incorrect Revenue Annualization
Failing to annualize short periods can lead to incorrect filing type.
Confusing Revenue vs. Gross Receipts
- Total revenue = margin calculation base
- Gross receipts = apportionment calculation
Miscalculating Compensation Deduction
- Subject to per-person caps
- Excludes:
- 1099 contractors
- Employer payroll taxes
Ignoring Combined Reporting Rules
Affiliated groups must file a combined report. Failure can trigger audits.
Missing Information Reports
Failure to include required reports results in penalties—even if tax filing is correct.
What Happens After You File
Processing
- Paper filings: slower (weeks)
- Electronic filings: faster confirmation and processing
Account Status
Maintaining compliance ensures:
- Ability to conduct business
- Eligibility for Certificate of Account Status
Notices and Corrections
You may receive notices for:
- Math errors
- Missing documents
- Additional tax owed
Respond promptly to avoid penalties.
Audits
The Comptroller may review:
- COGS
- Compensation deductions
- Apportionment
Keep records for at least four years.
Refunds
If overpaid:
- File a claim
- Provide supporting documentation
- Interest may apply in some cases
FAQs
Can I file Form 05-158 if I qualify for simpler forms?
Yes. Even if you qualify for the EZ Computation or No Tax Due Report, you can still file Form 05-158 to take advantage of deductions or credits. The Long Form offers more flexibility and may reduce your tax liability depending on your situation.
Do I need to file if my business lost money?
Yes. Franchise tax is based on revenue, not profit. Even if your business operates at a loss, you may still need to file if you exceed the threshold. Losses may qualify for credits but do not eliminate filing requirements.
Can I get an extension?
Yes. File Form 05-164 by May 15. You must:
- Pay at least 90% of estimated tax
- Submit request on time
The extension moves the filing deadline, not the payment deadline.
How do I choose between COGS and compensation deduction?
Calculate your margin using all methods and choose the lowest result. Product-based businesses often benefit from COGS, while service-based businesses benefit from compensation deductions.
What qualifies as “doing business in Texas”?
You may have nexus if you:
- Have a physical presence
- Earn Texas-based revenue
- Maintain economic activity in Texas
Certain remote activities may not qualify, but physical or operational presence usually does.
Can I change my accounting period?
Yes, but it must align with your federal tax year. Transition periods may require revenue annualization and careful reporting adjustments.
What if I get a notice saying I didn’t file?
Verify your submission:
- Electronic: confirmation number
- Mail: certified receipt
Contact the Comptroller to resolve discrepancies. If necessary, refile with proof to avoid penalties.
