Tax Policy Newsletter April 2026: Coastal Fee Suspension and Franchise Tax Updates

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Tax Policy News

April 2026

The Texas Comptroller of Public Accounts publishes this newsletter to keep you informed about Texas taxes. Tax Policy News provides general information and is not legal or professional advice.

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In This Issue...

ANNOUNCEMENT

Coastal Protection Fee

The General Land Office certified that the Coastal Protection Fund has reached the maximum balance allowed. Therefore, by law, the Coastal Protection Fee is suspended (PDF) effective May 1, 2026. Crude oil transferred through a marine terminal on or after May 1, 2026, is not subject to this fee.

The April 2026 report, which is due June 1, 2026, is the last report that must be filed until the fee is reinstated. Reports are not required while the fee is suspended. The Coastal Protection Fee may be reinstated if the fund falls below the minimum allowed by law and we will issue notification at that time.

REMINDERS

Annual Franchise Tax Reports Due May 15

Annual franchise tax reports are due May 15, 2026. Beat the rush to file your franchise tax report or request an extension of time to file – Webfile is available now!

Webfile makes it easy to submit tax reports, make payments, request extensions, file final reports, request tax clearance letters, and view a summary of your transactions. You can find your franchise tax Webfile number (which starts with "XT") on the franchise tax upcoming due date reminder letter we mailed in January.

You can also call 800-442-3453 at any time to get your XT number via our automated system. When you call, be sure to have your 11-digit taxpayer number and identifying information, such as total revenue from a previous report or the amount of the last tax payment you made (cannot be zero).

View our Webfile video tutorials for help getting started. New videos include " Create a User Profile " and " Navigate Webfile and the eSystems Dashboard."

Franchise Tax No Tax Due Threshold and Filing Requirements

For the 2026 franchise tax report, the no-tax-due threshold is updated to $2,650,000, as required under Tax Code Section 171.006, Adjustment of Eligibility for No Tax Due, Discounts, and Compensation Deduction.

No Tax Due Report (Form 05-163) Discontinued

We discontinued the No Tax Due Report for the 2024 report year and beyond. The form is not available for any new reporting periods. Below are the five types of entities that previously could file a No Tax Due Report, and how each entity now reports (beginning with the 2024 report):

• Taxable entities whose annualized total revenue is less than or equal to the no tax due threshold do not owe any tax and are not required to file a franchise tax report. They are, however, required to file a Public Information Report (PIR) or Ownership Information Report (OIR).
• Qualifying new veteran-owned businesses are not required to file a franchise tax report for the initial five-year period that they qualify as a new veteran-owned business. For new veteran-owned businesses, no PIR or OIR is required during this initial five-year period.
• Qualifying passive entities must file either the long form or the EZ Computation form and darken the circle for passive entities in the taxpayer information section at the top of the form. Other than signing the report, passive entities need not provide information in any other section of the report and no PIR or OIR is required.
• Qualifying real estate investment trusts (REITs) must file either a long form or EZ Computation form and darken the appropriate circle in the taxpayer information section at the top of the form. Other than signing the report, REITs need not provide information in any other section of the report. REITs must file a PIR or OIR.
• Taxable entities with zero Texas gross receipts must file either a long form or EZ Computation form and complete specific line items on the form to compute the entity’s total revenue and report zero on the Texas gross receipts line. Entities with zero Texas gross receipts must file a PIR or OIR. The long form, EZ Computation form, PIR, OIR and instructions for each tax year are available at Texas Franchise Tax Forms.

Beneficial Owner Information (BOI) Reports Under Federal Corporate Transparency Act

Don't confuse Beneficial Ownership Information (BOI) reports with Public Information Reports (PIRs) or Ownership Information Reports (OIRs). Beginning Jan. 1, 2024, the U.S. Department of the Treasury began accepting BOI reports as required under the Corporate Transparency Act. A BOI report contains information about individuals who own or control companies doing business in the U.S. If required, BOI reports should be filed with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) through its online BOI E-Filing System. The reports cannot be filed through the Comptroller’s office or the Texas Secretary of State and do not serve as a substitute for PIRs or OIRs. For more information on BOI reports go to the Treasury Department’s website.

Validate Your Business Location

Sales tax filers should validate their business location address(es) to ensure local tax is accurately reported. Collecting and paying the correct local tax rate is the taxpayer’s responsibility and inaccurate local tax collection can cost you money. If you have moved and your business location address is no longer correct, visit Move or Add a Business Location and complete the online form.

Update Your Mailing Address

It is extremely important for all taxpayers to ensure the mailing address we have on file is accurate and up to date. Without an accurate mailing address, your mail goes undelivered and you will miss important information from the Comptroller’s office. This could lead to your account slipping into a delinquent status without your knowledge. Check your address on our Franchise Tax Account Status Search and/or Sales Taxpayer Search webpages and visit our Change Mailing Address/Phone Number webpage to update your address online.

Sign Up for Webfile eSystem

For convenient access to taxpayer notices and billings, the Comptroller’s office is developing a platform called "Message Center" within our confidential Webfile system. Many taxpayers have CPAs and consultants that handle their tax filings and have not signed up for Webfile. You must sign up for Webfile and add your taxpayer account using your unique Webfile number to view your account and any important notices that will be in Message Center. Visit our Getting Started with Webfile webpage for information on signing up for Webfile and locating your Webfile number.

Annual Independently Procured Insurance Premium Tax Reports Due May 15

The 2025 independently procured insurance tax report (PDF) and supplement (PDF) are due on or before May 15, 2026. To qualify as independently procured insurance, you must obtain the insurance policy directly from a non-admitted insurer and you must not use the services of an agent or broker in the procurement of coverage. If an agent is involved in the placement of the insurance, the policy may be surplus lines insurance with taxes due to the home state of the insured. If Texas is the home state of the insured and the agent does not hold a surplus lines license in Texas, the transaction may be considered unauthorized insurance.

The Comptroller’s office sent an email reminder in April about the filing deadline.

For any questions regarding insurance tax reports, please contact us at insurance.tax@cpa.texas.gov.

Emergency Preparation Supplies Holiday (April 25-27, 2026)

During the 2026 Emergency Preparation Supplies Sales Tax Holiday, prepare yourself for hurricanes, flash floods, wildfires, and other emergencies that can cause serious damage. You can purchase certain emergency preparation supplies tax-free during the sales tax holiday. There is no limit on the number of qualifying items you can purchase, and you do not need to give the seller an exemption certificate to claim the exemption.

This year’s holiday begins at 12:01 a.m. on Saturday, April 25, and ends at midnight on Monday, April 27.

Taxpayers can refer to the Pub. 98-1017, Emergency Preparation Supplies Sales Tax Holiday for additional information.

ENERGY STAR ® Sales Tax Holiday (May 23-25, 2026)
Water-Efficient Products Sales Tax Holiday (May 23-25, 2026)

Texas taxpayers can save money on tax-free purchases of certain ENERGY STAR ® energy-efficient products and certain water-efficient and water-conserving products during the annual ENERGY STAR ® Sales Tax Holiday and Water-Efficient Products Sales Tax Holiday.

The 2026 holidays begin at 12:01 a.m. on Saturday, May 23, and end at midnight on Monday, May 25.

There is no limit on the number of qualifying items you can buy, and you do not need to give the seller an exemption certificate to buy items tax free.

Taxpayers can refer to Pub. 96-1331, ENERGY STAR ® Sales Tax Holiday and Pub. 98-1018, Water-Efficient Products Sales Tax Holiday for additional information.

Volunteer Fire Department Assistance Fund Assessment Billing

The Comptroller’s office will mail invoices to insurers by the end of May for the Volunteer Fire Department Assistance Fund Assessment. Payment is due Aug. 1, 2026. This assessment applies to property and casualty insurers writing homeowners insurance, fire insurance, farm and ranch owners’ insurance, private passenger auto physical damage insurance, commercial auto physical damage insurance and the non-liability portion of commercial multi-peril insurance.

FRANCHISE TAX

Franchise Tax and IRC Conformity

Beginning with the 2026 franchise tax report, a taxable entity will determine amounts taken from its federal tax return under the federal tax law in effect for that federal tax year, unless the Texas statute or rule specifically references the Internal Revenue Code (IRC). Where the statute or rule references the IRC, a taxable entity must compute such amounts under the 2007 IRC. This change applies to all components of the franchise tax.

Total Revenue

A taxable entity calculates total revenue by adding specific line items from its federal tax return and subtracting or excluding certain categories of income or expense (see Tax Code Section 171.1011, Determination of Total Revenue from Entire Business). Because the IRC is not directly referenced in relation to the line items on the mentioned Internal Revenue Service forms under Section 171.1011, a taxable entity will use the line items as they are reported on its federal tax return calculated under the federal tax law in effect for that federal tax year.

For those certain categories of income or expense that specifically reference the IRC, such income or expense is determined under the 2007 IRC. For example, Section 171.1011(c)(1)(B)(ii) subtracts from total revenue foreign royalties and foreign dividends, including amounts determined under Section 78 or Sections 951-964 of the IRC. Any foreign royalties and foreign dividends are determined under current federal tax law. By contrast, amounts under Section 78 and Sections 951-964 are determined under the 2007 IRC and do not include the current IRC Section 951A global intangible low-taxed income (GILTI) as GILTI was added to the IRC after Jan. 1, 2007.

The Comptroller’s office adopted amendments to Rule 3.587, Margin: Total Revenue, effective March 1, 2026, to address the IRC conformity.

Cost of Goods Sold

A taxable entity may include in its cost of goods sold (COGS) depreciation, depletion, and amortization reported on its federal tax return, to the extent associated with and necessary for the production of the goods, including recovery described by Section 197, IRC (see Tax Code Section 171.1012(c)(6), Determination of Cost of Goods Sold). As this section only references the IRC in relation to recovery under Section 197, a taxable entity will include the depreciation reported on its federal tax return for each asset qualifying under Section 171.1012(c)(6). This amount may include federal bonus depreciation claimed on its federal tax return for such assets. A taxable entity that elects to expense certain depreciable assets on its federal return may also include such amount in its cost of goods sold if otherwise qualified under Section 171.1012(c)(6). However, any recovery under Section 197 must be computed under the 2007 IRC.

Additionally, a taxable entity may include in its COGS research or experimental expenditures that are directly related to production and described by Section 174, IRC [see Tax Code Section 171.1012(c)(9)]. As this provision specifically references the IRC, any amounts under this section must be computed under the 2007 IRC. Under Section 174 of the 2007 IRC, a taxpayer could elect to expense or capitalize its research or experimental expenditures. Although a taxable entity generally must use the same methods it uses on its current federal tax return, as Section 171.1012(c)(9) ties the amounts under Section 174 to the 2007 IRC, a taxable entity may use either method allowed under Section 174 of the 2007 IRC.

Lastly, on its 2026 franchise tax report a taxable entity may calculate a one-time net depreciation adjustment for each qualifying asset. Qualifying assets are those placed in service prior to the accounting period on which the 2026 report is based, provided that the assets have not been disposed of prior to this date and are associated with and necessary for the production of goods under Section 171.1012(c)(6).

The depreciation adjustment for a qualifying asset for a given year is the difference in the depreciation claimed on the federal tax return and the depreciation claimed for Texas franchise tax COGS. A taxable entity will calculate the one-time net depreciation adjustment as follows:

1. For each tax year the qualifying asset was in service (through the accounting period end date on the 2025 report), calculate the difference in the depreciation claimed on the federal tax return and the depreciation claimed for Texas franchise tax COGS. This amount may be negative if depreciation claimed for Texas franchise tax purposes exceeded the depreciation claimed for federal tax purposes. If no depreciation was claimed as part of COGS for Texas franchise tax purposes, the depreciation adjustment for that year for that qualifying asset is zero.
2. Add together the depreciation adjustment for each year to arrive at the net depreciation adjustment for that qualifying asset. The net depreciation adjustment cannot be less than zero. If the sum of the yearly depreciation adjustments is less than zero, the net depreciation adjustment is zero.
3. After a taxable entity has included in its COGS qualifying costs under Section 171.1012, the entity will include in its COGS the net depreciation adjustment to the extent the adjustment does not take the taxable entity’s margin below zero. In this instance, the taxable entity will include in its COGS the net depreciation adjustment until the taxable entity’s margin is reduced to zero. Any unused net depreciation adjustment may be carried forward to consecutive reports until exhausted. The Comptroller’s office proposed amendments to Rule 3.588, Margin: Cost of Goods Sold, to address the IRC conformity.

Apportionment

A taxable entity will calculate gross receipts for apportionment based on amounts reported on its federal tax return, without adjustment to the 2007 IRC, except where the statute or rule specifically references the IRC.

The Comptroller’s office will amend Rule 3.591, Margin: Apportionment, to address the IRC conformity.

Also see STAR Accession No. 202512012M.

RULES

Proposed Rules

The Comptroller’s office proposed the following rules for public comment through the Texas Register:

Franchise Tax

Rule 3.588 – Margin: Cost of Goods Sold Publication date – April 3, 2026
Comment period end date – May 3, 2026 The Comptroller’s office proposed amendments to Rule 3.588, Margin: Cost of Goods Sold. The amendments implement legislation that allows a taxable entity to include expenses in its cost of goods sold, as allowed under Section 171.1012, when paid for with qualifying grant proceeds received for broadband deployment in Texas or with qualifying loan or grant proceeds received for COVID-19 relief (see Senate Bill [SB] 1243, 88th Legislature, 2023; SB 1405, 89th Legislature, 2025; and House Bill 1195, 87th Legislature, 2021). The amendments also clarify that the cost of goods sold provisions apply to television or radio broadcasting and provide a definition for television or radio broadcasting (see SB 263, 89th Legislature, 2025). Lastly, the amendments address the franchise tax conformity to the Internal Revenue Code (IRC). For details on IRC conformity, see the article "Franchise Tax and IRC Conformity" in this newsletter.

Adopted Rules

The Comptroller’s office filed the following rules for adoption with the Secretary of State:

Franchise Tax

Rule 3.587 – Margin: Total Revenue Publication date – Feb. 20, 2026
Effective date – March 1, 2026 The Comptroller’s office adopted amendments to Rule 3.587, Margin: Total Revenue. The amendments were adopted with changes to the proposed text, and incorporate exclusions from total revenue passed by the 82nd Legislature, First Called Session, 2011, through the 88th Legislature, 2023. The amendments provide guidance on the required adjustment to the cost of goods sold or the compensation deduction for the portion of the actual cost of uncompensated care excluded from total revenue. Additional guidance is provided regarding flow-through funds in connection with real property improvements. Lastly, the amendments address the franchise tax conformity to the Internal Revenue Code (IRC). For details on IRC conformity, see the article "Franchise Tax and IRC Conformity" in this newsletter.

STATE TAX AUTOMATED RESEARCH (STAR) SYSTEM

STAR Watch

To see the latest items added to our State Tax Automated Research (STAR) system, use the New Documents link on the STAR home page in the blue menu bar.

The Monthly Updates Search Form defaults to the current month and "All Taxes." Use the pull-down menu to choose a different month or a particular tax. Selecting "All Taxes" brings up the documents organized by tax type.

More Information

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Resources for Texas Taxpayers

The Comptroller’s office offers video tutorials on filing and paying sales tax through Webfile. View them on our Video Tutorials webpage.

Our office also offers virtual Sales and Use Tax Seminars conducted via Webex Events. New taxpayers are especially encouraged to attend these overviews of tax responsibilities for buyers, sellers, and service providers. For more information, visit the Taxpayer Seminars webpage.

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Agency Calendars

• Tax Due Dates
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