If an LLC dissolves mid-year, is any of its Texas franchise tax for the full privilege period refunded?

Plain-English summary

A taxpayer asked: if a single-member LLC dissolves by June 30, 2006, will part of the franchise tax paid for the privilege period January 1, 2006 to December 31, 2006 be refunded? The Comptroller answered no:

• An LLC that dissolves must pay all franchise tax through the end of the privilege period that contains the effective date of the dissolution.
• No refund will be paid, and no credit given, for the portion of the privilege period from the dissolution date through the end of that period.
• Authority: Comptroller's Rule 3.568(b).

In other words, dissolving mid-period does not prorate the tax — the entity owes the full privilege-period tax.

Important currency note: This letter applies the pre-2008 franchise tax. The 2007 legislation (House Bills 3 and 3928) replaced it with the current margin tax. Confirm the current dissolution, final-report, and refund rules before relying on this.

What this means for you

Owners winding down a Texas entity

Plan for the full privilege-period tax even if you dissolve early in the period — you will not get money back for the months after dissolution. Timing a dissolution to fall in the next privilege period, rather than partway through the current one, is where the planning lives.

Accountants and tax professionals

The rule is a bright line: no proration, no post-dissolution refund or credit (Rule 3.568(b)). This addresses the pre-2008 tax; re-verify the margin tax's final-report and refund mechanics.

Common questions

Q: If an LLC dissolves mid-year, is its franchise tax prorated?
A: No. It must pay the tax through the end of the privilege period containing the dissolution date.

Q: Can the LLC get a refund for the months after dissolution?
A: No. No refund is paid and no credit is given for the post-dissolution portion of the privilege period (Rule 3.568(b)).

Citations and references

Statutes and rules:

• Franchise Tax Rule 3.568(b) (a dissolving entity pays tax through the end of the privilege period; no refund or credit for the post-dissolution portion)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/200606693L

Original ruling text

June 1, 2006

To: **

Dear **:

Thank you for your Tax Help inquiry concerning Texas franchise tax.

You ask if a single member limited liability company (LLC) dissolves by
6/30/06, will a portion of the tax paid for the privilege period 1/1/06 to
12/31/06 be refunded?

The rule I mention below, as well as other related information, is available
online at http://www.window.state.tx.us/taxinfo/franchise/index.html.

An LLC that dissolves is required to pay all franchise tax through the end of
the privilege period containing the effective date of the dissolution. A
refund will not be paid nor credit given for the period from the date of the
dissolution through the end of the privilege period. See Comptroller’s Rule
3.568(b).

This response is based on the facts presented and current law. If there are
different or additional facts, the response may change.

Our goal is to provide you with prompt, professional service. Please take a
moment to complete our on-line survey at
http://aixtcp.cpa.state.tx.us/surveys/tpsurv/.

If you have questions about this, my email address is
[email protected], or you may call toll-free at 1-800-531-5441,
extension 59952.

Sincerely,

Teresa Bostick
Tax Policy Division