Texas franchise tax on LLCs

General Real Estate Investing
1

Texas has a franchise tax that it imposes on corps and LLCs. This is similar to a state income tax.

A CPA friend of mine suggested that instead of an LLC, folks doing business in that state should consider using an LLP (Limited Liability Partnership) where 95% of the interest is controlled by a limited partner (you) and 5% is controlled by the general partner (an S-Corp owned by you) to minimize the franchise tax hit.

According to him, the limited partner is exempt from this tax, and the corp would only pay the franchise tax on its 5% interest. You need an S-Corp (or something besides yourself) as the general partner because the general partner assumes full liability for the LLP.

Any comments on this approach would be welcomed.

2

A lot of commercial real estate here is held in an LP. I was told by CPAs and lawyers that the protection and benefits are worth the higher costs.

3

I didn’t think about the costs. I’ll check on that.

Does anyone know what the ramifications are of using an LLC instead of an S-Corp as the general partner in an LLP? Also does the franchise tax apply if your LLC is formed out of state (say in Nevada)?

Thanks

4

contact a local realestate law firm they would most of the time help you with basic info like that.
in there best interest to help get the corp docs drawn up for you

5

The Franchise tax does apply to an out of state LLC. In other words if I have a NY LLC doing business in TX then the NY LLC has to file in TX and pay the franchise tax.