Did converting a Texas corporation to an LLC by filing articles of conversion require final franchise- and sales-tax returns?

Plain-English summary

A statutory corporation-to-LLC conversion required no final franchise- or sales-tax return because the entity continued; dissolution and new formation required full closing and opening filings.

If the corporations filed articles of conversion with the Texas Secretary of State, Texas treated each converted LLC as the same legal entity. The Secretary of State would transmit the new name and charter information, the Comptroller would update its records, and new sales-tax permits would be mailed.

If the corporations instead dissolved and then formed new LLCs, they had to file final franchise-tax reports, close sales-tax accounts using a return marked final, apply for new sales-tax permits, and obtain a certificate of account status for the articles of dissolution.

What this means for you

Businesses changing legal form

The filing path—not just the end-state entity type—controlled whether the old entity closed for tax purposes.

Tax professionals

Confirm whether the transaction is a statutory conversion or a dissolution/new formation before preparing final returns.

Common questions

Q: Did articles of conversion require a final franchise-tax report?
A: No.

Q: What if the corporation dissolved first?
A: Final reports and new-entity registrations were required.

Q: Did the statutory conversion preserve the legal entity?
A: Yes, according to the letter.

Citations and references

• The response cites no statute or rule number; it distinguishes the Texas Secretary of State articles-of-conversion process from dissolution and new formation.

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=FIT
• Opinion: https://star.comptroller.texas.gov/view/9806542L

Original ruling text

June 17, 1998

Subject: RE: Question

Dear Ms. **,

Mr. Sharp passed along your email and asked that I contact you. You indicate
that you are changing three Texas corporations to Limited Liability Companies
(LLC's).

If the change from corporation to LLC is accomplished by actually filing
Articles of Conversion, it will not be necessary to file any final franchise
tax returns or final sales tax returns for the corporation. This is because
the entity will be considered to be the same legal entity. When the Articles
of Conversion are filed with the Texas Secretary of State, they will send us
the changed information, such as the new corporate name and new charter number,
and we will update our records. New sales tax permits, bearing the new name,
will be mailed to you.

On the other hand, if the corporations are actually being dissolved and new
LLC's are subsequently being formed, then final sales and final franchise tax
reports must be filed. If this is the case, you can download the forms you
need from our Web site at

www.window.state.tx.us

On the sales tax forms, be sure to mark the necessary information for closing
out the sales tax accounts. There is no "final" sales tax return; just
download the one you need, short or long form, and mark it as FINAL. You can
also download sales tax applications for the new LLC's.

On the franchise tax forms, download the franchise tax final report and the
form to request a Certificate of Account Status, as a Certificate of Account
Status must be filed with Articles of Dissolution.

If you would prefer that the forms be mailed to you, please call me at
1-800-531-5441, extension 3-4147, or email me at the address below.

Sincerely,

Karen Specht
Tax Policy Division
[email protected]

cc: JOHN SHARP