Texas has no corporate income tax, which is why founders move entities there and why so many of them miss the filing that replaces it.
That filing reaches most Texas entities whether or not they owe a cent, and the reporting rules changed in 2024 in a way that still has not filtered through most guidance. Here is the current position.
TL;DR
- What it is: a privilege tax on entities formed in or doing business in Texas, charged on margin rather than income.
- Who files: corporations, LLCs, partnerships and similar entities, plus out-of-state businesses crossing $500,000 in Texas receipts.
- The threshold: $2,650,000 of annualized revenue for report years 2026 and 2027. Below it you owe nothing but still file an information report, because the No Tax Due Report was discontinued in 2024.
- The rate: 0.375% of margin for retail and wholesale, 0.75% for everyone else, or 0.331% of revenue under the EZ computation.
- The forms: 05-102 or 05-167 below the threshold, with 05-158 or 05-169 on top of that above it, all filed with the Comptroller rather than the Secretary of State.
- Deadline: May 15, extendable to November 15, with separate rules for mandatory electronic payers.
- If you miss it: $50 per report regardless of tax owed, then percentage penalties, then loss of your right to do business in Texas.
What Is the Texas Franchise Tax?
The Texas franchise tax is a privilege tax on entities formed, organized or doing business in Texas. You pay it for the right to operate there, and profit does not enter the test.
Two common readings of the name are both wrong:
- It has nothing to do with franchises in the commercial sense, so no McDonald's or Subway connection applies
- It is not an income tax, which Texas does not levy on businesses or individuals
What it taxes is margin. The calculation starts from total revenue and subtracts one of several permitted amounts, which is why practitioners often call it the Texas margin tax.
Anyone comparing states should register that difference. Texas appears on "no income tax" lists accurately, and businesses then meet a separate annual obligation with its own threshold and deadline.
Who Has to File a Texas Franchise Tax Report
Most formal business entities with a Texas connection are covered. The tax reaches the entity type before it reaches the profit, so a dormant company with no revenue is usually still a filer.
Entities generally subject to the franchise tax include:
- Corporations, including S corporations
- Limited liability companies, including single-member LLCs
- Limited partnerships and professional associations
- Business trusts and professional corporations
- Banking institutions and savings and loan associations
Sole proprietorships and general partnerships directly owned by natural persons sit outside the tax. Forming an LLC to hold what was previously a sole proprietorship therefore creates a filing obligation that did not exist before.
Out-of-State and Foreign-Owned Entities
You do not need a Texas address to owe Texas franchise tax. An out-of-state entity with $500,000 or more in gross receipts from business done in Texas has economic nexus, meaning a tax connection created by sales volume alone, with no office or staff in the state required.
That catches remote sellers, SaaS companies with Texas customers and service businesses billing into the state. It applies per federal income tax accounting period, so a single strong year can pull you in.
Foreign founders meet the rule from the other direction. A Texas LLC formed by an overseas owner is a Texas entity from day one, and its franchise tax obligation runs regardless of where the owner lives or whether the business ever generates US profit.
The No Tax Due Threshold, and What Changed in 2024
Below the threshold you owe no franchise tax. The figure is adjusted periodically, and using last cycle's number is the most common way founders get this wrong.
| Report year | No-tax-due threshold |
|---|---|
| 2026 and 2027 | $2,650,000 |
| 2024 and 2025 | $2,470,000 |
Annualized total revenue is what gets tested against the figure, meaning revenue scaled up to a full 12 months. An entity in business for part of a year annualizes before testing, so a short first year does not automatically keep you under.
Owing nothing and filing nothing are different things, and this is where 2024 changed the process.
Important: the No Tax Due Report (Form 05-163) was discontinued for the 2024 report year and later. Entities at or below the threshold no longer file it, and instead file an information report.
Plenty of third-party guidance still describes filing a No Tax Due Report. If your process was built before 2024, or from an article written then, it is pointing you at a form that no longer exists.
How the Tax Is Calculated
The franchise tax is charged on taxable margin, and the rate depends on what your business does.
| Business type | Rate on taxable margin |
|---|---|
| Retail or wholesale | 0.375% |
| All other taxable entities | 0.75% |
| EZ computation election | 0.331% of apportioned total revenue |
Margin is not profit. You compute it four different ways and use whichever produces the lowest figure, then apportion that result to Texas, meaning you keep only the share tied to Texas gross receipts.
The four computations are:
- 70% of total revenue
- Total revenue minus $1 million
- Total revenue minus cost of goods sold
- Total revenue minus compensation
Only one applies, and which one wins depends on your cost structure. A product business with real inventory usually lands on cost of goods sold, while a services firm with a large payroll usually lands on compensation.
Each deduction has its own definition in the Texas Tax Code, and they are narrower than their accounting equivalents. A salesperson's compensation, for instance, counts as a selling cost and cannot be included in cost of goods sold.
Worth knowing: the four computations are not a menu you pick once. Recheck which one wins each year, because a change in headcount or inventory can move the answer.
Long Form or EZ Computation?
Entities with total revenue of $20 million or less can elect a simplified calculation that skips the deduction analysis entirely. It is faster, and it is not always cheaper.
| Long Form (05-158) | EZ Computation (05-169) | |
|---|---|---|
| Who can use it | Any taxable entity | Total revenue of $20 million or less |
| Rate | 0.375% retail and wholesale, 0.75% other | 0.331% |
| Applied to | Taxable margin after a deduction | Apportioned total revenue |
| Deductions | Four options, lowest wins | None |
| Usually better for* | Heavy cost of goods sold or large payroll | Low-cost, high-margin operations |
*General guidance based on how the two calculations behave, not a Comptroller rule. Your own numbers decide it.
That simplicity has a cost. The EZ computation allows no deduction at all, so a business with real inventory or a big payroll can pay more under it than under the long form. Run both before electing.
Which Forms You Actually File
Every filer submits an information report. Only entities over the threshold add a tax report on top of it.
| Form | What it is | Who files it |
|---|---|---|
| 05-102 | Public Information Report | Corporations, LLCs, limited partnerships, professional associations and financial institutions |
| 05-167 | Ownership Information Report | All other taxable entities |
| 05-158 | Long Form report | Entities over the threshold using the full margin calculation |
| 05-169 | EZ Computation Report | Entities electing the simplified calculation |
Below the threshold, the information report is the whole filing. You submit Form 05-102 or Form 05-167 and nothing else, a lighter obligation than the old No Tax Due process but still a mandatory one.
Which information report you file follows entity classification rather than size. Corporations, LLCs, limited partnerships, professional associations and financial institutions file the Public Information Report, and every other taxable entity files the Ownership Information Report.
Two exemptions sit outside that. An entity qualifying as passive is not required to file either information report, and new veteran-owned businesses have their own exemption during an initial five-year period.
How Filing Actually Works
Reports are filed with the Comptroller electronically through its Webfile system. Electronic filing has been the expectation since 2016, when it became mandatory for the No Tax Due reports the information reports have since replaced.
Before May you need three things in hand:
- The entity's 11-digit Comptroller taxpayer number
- A Webfile number, issued to the entity and not to whoever is doing the filing
- Current officer, director and manager details for the information report
Retrieving a lost Webfile number takes time, so confirm access weeks before the deadline. Approved tax preparation software is the other route, and larger filers often use it because the long form carries more detail than a browser form handles comfortably.
Whichever route you take, the information report and the tax report are part of one submission. An entity over the threshold that files the tax report and overlooks the Public Information Report has not finished filing.
Due Dates and How Extensions Work
The annual franchise tax report is due May 15. Where May 15 falls on a weekend or holiday, the deadline moves to the next business day.
Texas extensions are separate from federal ones, and this catches people every year. A federal extension does nothing for your franchise tax report, and the request goes to the Comptroller on its own.
| Situation | Request by | Report then due |
|---|---|---|
| Standard annual report | Not applicable | May 15 |
| Extension, not a mandatory electronic payer | May 15 | November 15 |
| Mandatory electronic payer, first extension | May 15 | August 15 |
| Mandatory electronic payer, second extension | August 15 | November 15 |
Mandatory electronic payers are entities that paid $10,000 or more in franchise tax during the previous state fiscal year. They run the two-step route above, with an August 15 request in the middle.
An extension moves the filing date, not the payment. To hold it you must pay either 90% of the tax that will be due, or 100% of the tax reported on the prior year's report, provided that report was filed on time.
The Comptroller Handles This Filing, Formation Goes to the Secretary of State
The franchise tax report goes to the Texas Comptroller of Public Accounts. The Secretary of State handles entity formation and registration, and the two offices are not the same counter.
| Texas Comptroller | Texas Secretary of State |
|---|---|
| Franchise tax report | Entity formation |
| Public and Ownership Information Reports | Registration of out-of-state entities |
| Franchise Tax Account Status | Registered agent record |
That confusion is understandable, because the Public Information Report filed alongside your franchise tax report is what keeps officer, director and manager details current. In many other states that update is an annual report filed with the Secretary of State, so founders arrive in Texas looking for the equivalent.
Checking Where Your Entity Actually Stands
The Comptroller publishes a Franchise Tax Account Status search, and it is the fastest way to find out whether an entity has a problem. You can look an entity up by any of:
- Its 11-digit Comptroller taxpayer number
- Its 9-digit federal EIN
- Its legal name
- Its Secretary of State file number
Run it before you assume everything is in order, particularly on an entity you inherited or formed years ago. Account status is public, so a lapse is visible to counterparties and lenders at the moment they look you up.
If the status is not what you expected, the fix is usually the missing filings plus any penalties rather than anything structural. Dealing with it before a transaction is considerably easier than during one.
The Other Texas Taxes People Confuse This With
Texas levies no corporate income tax and no personal income tax. The franchise tax is the state's main business-level tax, and it does not replace the other filings a Texas business may have.
| Tax | Does Texas levy it? | Filed with |
|---|---|---|
| Corporate income tax | No | Not applicable |
| Personal income tax | No | Not applicable |
| Franchise (margin) tax | Yes | Comptroller |
| Sales and use tax | Yes, where applicable | Comptroller, under a separate permit |
Sales tax is the one most often conflated with franchise tax, and they run on separate tracks. A business selling taxable goods or services in Texas needs a sales and use tax permit and files on its own schedule, whether or not it owes franchise tax.
Being under the franchise tax threshold therefore tells you nothing about sales tax. A business with $400,000 of Texas revenue owes no franchise tax and may still have a monthly sales tax obligation.
Penalties, Interest and Losing the Right to Do Business
Late filing costs you money before it costs you anything else. A $50 penalty applies to every franchise tax report filed after the due date, whether or not any tax is owed, so a below-threshold entity filing an information report late still pays it.
| What happened | What it costs |
|---|---|
| Any report filed after the due date | $50, whether or not tax is owed |
| Tax paid late | 5% penalty, rising to 10%, plus interest |
| Obligations left unmet | Notice of intent to forfeit, then forfeiture of your right to do business in Texas |
A waiver of penalties can be requested using Form 89-224, though the Comptroller grants it on the facts, and a request alone does not carry it.
The escalation that matters most is not financial. Where obligations stay unmet, the Comptroller can move to forfeit your right to conduct business in Texas, issuing notice of intent to forfeit and then the forfeiture itself.
Forfeiture reaches well beyond the tax. It can affect your ability to defend a lawsuit in Texas courts, and a lapsed account status is visible to anyone who looks your entity up.
Four Mistakes That Cost Texas Filers
Four errors account for most Texas franchise tax filing problems, and each one comes from a reasonable-sounding assumption.
You Still File in a Year You Owe Nothing
Revenue under the threshold removes the tax while leaving the report in place. An information report is still due on May 15, and the $50 late penalty applies to it in full.
The wording does the damage. "No tax due" sounds like a status you occupy rather than a report you file, and since 2024 the form carrying that name no longer exists, which has left some founders assuming the obligation went with it.
Cost of the misunderstanding runs out of proportion to the work involved. An information report for a small entity takes minutes, while missing it starts a penalty clock and eventually puts your account status at risk over a filing that carried no tax.
Your Form 7004 Extension Does Nothing in Texas
Two conditions have to hold for a Texas extension to survive:
- Request it with the Comptroller by May 15, because Form 7004 does nothing here
- Pay 90% of current-year tax or 100% of last year's, or the extension is void
Missing the payment condition invalidates the extension even when the request itself was timely, which converts what felt like a safe deferral into a late filing with penalties attached.
Mandatory electronic payers have a further step to miss. Their route runs May 15 to August 15 to November 15, so treating November as the single extended deadline skips a request they were required to make in August.
The Threshold You Memorized Has Already Moved
The figure went from $2,470,000 to $2,650,000 for report years 2026 and 2027, and it is adjusted periodically rather than fixed.
An outdated number cuts both ways. Reading a lower one can push a business into preparing a full tax report it did not need, while reading a higher one can leave a real liability unreported.
Check the figure for the specific report year you are filing rather than the year you are filing in. A 2026 report filed in 2026 uses the 2026 figure. A late 2025 report filed in 2026 does not.
The LLC You Formed and Forgot Is Still a Filer
A Texas LLC formed to reserve a name or receive a little income is a filer from the year it exists. Dormancy is not a defense, and the obligation continues annually until the entity is properly terminated.
Foreign founders are the most exposed, since an entity formed remotely can sit unattended for years. The penalties compound quietly, and the account status is already forfeited by the time anyone checks.
Discovery tends to come at the worst possible moment. A lapsed Texas entity usually surfaces during a funding round or a bank onboarding, and bringing filings current can take weeks.
How FinStackk Helps With Texas Franchise Tax
Texas franchise tax is a deadline problem before it is an accounting problem. Our Fin-Tax module tracks federal, state, county and city deadlines in one place and files extensions automatically when a return cannot be completed in time.
If your Texas entity was formed remotely and has been sitting unattended, book a free demo and we will work through where your account status actually stands.
Frequently Asked Questions
Who is required to pay Texas franchise tax?
Corporations, LLCs, limited partnerships, professional associations, business trusts and similar entities formed in or doing business in Texas are subject to the franchise tax. Out-of-state entities are pulled in once they have $500,000 or more in gross receipts from business done in Texas, with no physical presence required. Sole proprietorships and general partnerships owned directly by natural persons are outside the tax. Entities below the no-tax-due threshold owe no tax but must still file an information report.
How much is Texas franchise tax for an LLC?
An LLC with annualized total revenue at or below $2,650,000 for report years 2026 and 2027 owes no franchise tax, though it still files an information report. Above that, the rate is 0.375% of taxable margin for retail and wholesale businesses and 0.75% for everyone else. LLCs with total revenue of $20 million or less may instead elect the EZ computation at 0.331% of apportioned revenue. Margin starts from total revenue less a permitted amount, so it is not a profit figure.
Do I still have to file a No Tax Due Report in Texas?
No. The No Tax Due Report, Form 05-163, was discontinued for the 2024 report year and later. Entities at or below the threshold now file a Public Information Report (Form 05-102) or an Ownership Information Report (Form 05-167) instead. The deadline is unchanged at May 15, and the $50 late filing penalty still applies to these information reports even though no tax is owed.
Related reading
If you also hold a Delaware entity, see our Delaware franchise tax and annual return guide.