Bulletin: TX2013003

Dear Associates:

You have probably come across the changes in franchise tax account status that became effective May 5, 2013. The Comptroller’s website has an excellent explanation of the changes and the reasons for them.

From the Texas Comptroller of Public Accounts Website: 

The Comptroller has historically issued Certificates of Account Status (“good standing”) in response to inquiries about the status of an entity’s franchise tax account. The ability to search the franchise tax status of an entity is also available on the Comptroller’s public website, Window on State Government. 

In the past, being “in good standing,” or being able to obtain a Certificate of Account Status, meant that all franchise tax filing requirements had been met and no franchise tax was due. 

With the revision of the franchise tax in 2008, businesses found themselves “in bad standing” for franchise tax purposes due to a paperwork error or omission, rather than a failure to file the report or pay the tax due. The Comptroller worked with companies and business organizations to discuss the problems this caused. A key issue was that franchise tax status was posted online possibly before the affected company received notice in the mail. Another was that bad standing could complicate a company’s ability to complete a business transaction. As a result of these discussions, the Comptroller has refined how it determines franchise tax account status. 

Effective May 5, 2013, an online search on “franchise tax account status” will return whether that entity’s right to transact business in Texas is intact. 

The Comptroller is required by law to forfeit a company’s right to transact business in Texas if the company has not filed a franchise tax report or paid a franchise tax required under Chapter 171. The law also requires the Comptroller to give at least 45 days after the notice of pending forfeiture is mailed before the actual forfeiture. Any franchise tax deficiencies must be cured during that period to avoid the forfeiture of the right to transact business in Texas. 

As noted in the January Tax Policy News, we are making conforming changes to our franchise tax account status page. You will be able to print the results page from a search. 

To request a certificate required by the Business Organizations Code for filing termination and similar documents with the Secretary of State, complete Form 05-359 (PDF, 225KB). 

Right to Transact Business in Texas: 

Right to transact business in Texas indicates an entity's franchise tax account status. 

If Right to Transact Business is...    Then... 

Active. The entity's right to transact business in Texas is intact.
Active. Eligible for termination/withdrawal. The entity has met franchise tax requirements to file for termination or withdrawal with the Texas Secretary of State.

Forfeited. The entity's right to transact business in Texas is forfeited. Not Established. The entity has not completed a franchise tax accountability questionnaire with the Comptroller.

Franchise Tax Ended. The entity's franchise tax responsibilities ended because the entity has ceased to exist in its state or country of formation or has ceased doing business in Texas.

Franchise Tax Involuntarily Ended. The entity's registration or certificate was ended as a result of a tax forfeiture or an administrative forfeiture by Texas Secretary of State.

STG Policy: 

With the changes discussed above, only an entity with Active status should be considered to be what we previously called “good standing”. Any other status requires discussion and approval with a Texas underwriter. 

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter. 

For on-line viewing of this and other bulletins, please log onto www.vuwriter.com.