“Good Standing” Account Status – Changes Are Coming

Businesses have been reporting under the revised franchise tax since 2008. Due largely to the complications of combined reporting, companies can be “not in good standing” due to a reporting error, not a tax delinquency. A “not in good standing” status can be costly to a company conducting a business or financial transaction.

The Comptroller took another look at good standing in the light of concerns from businesses. The result of that review is that being “in good standing” for franchise tax will mean that the company’s right to transact business in Texas is intact.

Being in good standing has evolved over the years, as we made changes to accommodate processing times and filing requirement changes. There are also different types of good standing, and this office may not be able to issue a certificate under certain good standing conditions. In short, it’s become complicated.

The decision to simplify and update the franchise tax good standing status definition was based on several factors:

  • Fairness. The good standing calculation is done by the certificate of account status application in real time. If a report processes that is missing a schedule, for example, the website will show the company to be “not in good standing” immediately – even before the company has been notified of the problem.
  • Transparency. The term “good standing” is misleading in that it addresses only franchise tax, although a company in good standing could have liabilities in multiple other taxes.
  • Clarity. A good standing can be confused with a certificate of existence, which is issued by the Secretary of State and attests to the status of an entity’s registration in Texas.

What’s Next?

A project team is looking at the procedural and programming changes necessary to replace good standing with the status of the entity’s right to transact business in Texas. See Texas Tax Code 171.251 – 171.259. This new definition means that a business will receive a written notice of any issues with its franchise tax filing, and will have at least 45 days to cure those issues, before the business is not in good standing.

*Originally published in Tax Policy News; a monthly newsletter about Texas tax policy at http://www.window.state.tx.us/taxinfo/taxpnw/tpn2013/tpn1301.html#issue1.