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Texas governor signs 25% franchise tax rate cut into law

Texas Gov. Greg Abbott signed legislation on June 15 that will permanently reduce the Revised Texas Franchise Tax (RTFT) rates by 25%. As a result of the enactment of this law, beginning with 2016 reports (generally based upon business done during federal income tax periods ending in 2015), the tax rate will be reduced from 1% to 0.75% for businesses other than retailers and wholesalers. The tax rate for businesses primarily engaged in the retail or wholesale trades will be reduced from 0.5% to 0.375%. Further, the alternative E-Z tax rate available to certain taxpayers will be significantly reduced. The reduced rates raise immediate tax accounting issues that should be addressed in order to properly reflect the RTFT in an entity’s financial statements.

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