The Texas Franchise Tax Explained for Business Owners

By MercConsulting · Published 2026-09-03 · Updated 2026-09-07

The Texas franchise tax is an annual margin tax on most entities formed or doing business in Texas. Who files, how taxable margin is computed, what the indexed no-tax-due threshold means, combined groups, deadlines and the cost of ignoring it.

The Texas franchise tax is an annual tax on the "margin" of most legal entities formed in Texas or doing business here, administered by the Texas Comptroller of Public Accounts. Corporations, LLCs, limited partnerships and similar entities must report every year even when they owe nothing; sole proprietors and general partnerships owned entirely by individuals do not. Most small businesses fall under an indexed no-tax-due threshold and pay no tax, but they still owe an information report, and missing it can cost the entity its right to do business in Texas.

This article explains what the tax is and who files, how taxable margin is calculated, what the threshold does and does not excuse, how commonly owned entities are combined, when reports are due, the mistakes that generate most notices, and what forfeiture actually does. The tax itself is often modest while the consequences of ignoring it are not, and the name misleads people: it has nothing to do with franchising.

"We had three LLCs and assumed only the one that made money had to file. The forfeiture notice for the holding company arrived in the middle of a refinance. Nothing was owed. We still had to stop everything and reinstate it before the lender would close."

What the Texas Franchise Tax Is and Who Has to File

Texas has no personal income tax and no corporate income tax in the usual sense. The franchise tax is the state's business tax: a privilege tax for the right to exist or do business in Texas, calculated on a measure called taxable margin, which is why practitioners call it the margin tax.

Taxable entities include corporations, LLCs (including single-member LLCs and series LLCs), limited partnerships, limited liability partnerships, professional associations, business trusts and banks, whether formed in Texas or formed elsewhere and registered or doing business here. Nexus can arise from a physical presence or from a revenue-based standard tied to Texas receipts, so an out-of-state company with meaningful Texas sales may owe a report.

Not taxable: sole proprietorships, general partnerships owned entirely by natural persons, certain passive entities whose income is almost entirely investment income, and exempt nonprofits. Each of those categories has its own tests, so confirm the status rather than assume it.

How Taxable Margin Is Calculated

The computation starts with total revenue, taken from specific lines of the entity's federal income tax return with certain exclusions. From total revenue the entity subtracts the largest of four deductions and is taxed on what remains, apportioned to Texas.

Margin is then multiplied by the apportionment factor, Texas gross receipts divided by gross receipts everywhere, and by the rate. The general rate is three-quarters of one percent; qualifying retailers and wholesalers pay half that. Entities below a revenue ceiling may instead use the EZ computation, which applies a lower rate to apportioned total revenue with no deductions at all. Verify the current rates and ceilings with the Comptroller before relying on them.

Two traps live inside the deductions. The Texas definition of cost of goods sold is narrower than the federal one and is generally available only to businesses that sell real or tangible personal property, so a pure service business usually cannot use it. And the compensation deduction is capped per individual at an indexed amount, which matters for firms with a few highly paid owners. Have your CPA run all four methods every year; the best one changes as the business changes.

The No-Tax-Due Threshold and the Report You Still Owe

An entity whose annualized total revenue is at or below the no-tax-due threshold owes no franchise tax. The threshold is indexed and adjusted every two years, so treat any figure you read as provisional and check the Comptroller's current number. For recent report years the Comptroller stopped requiring a separate no-tax-due report from entities under the threshold, but that did not end the filing obligation. Every taxable entity still files a Public Information Report or an Ownership Information Report each year.

Keep the mailing address and registered agent current with both the Comptroller and the Secretary of State. Most forfeitures begin with a notice that went to an address nobody checks.

Combined Groups: When Several Entities File as One

Entities under common ownership of more than fifty percent that operate as a unitary business must file one combined report as a single taxable entity. Intercompany receipts are eliminated, the group's total revenue is measured together, and the no-tax-due threshold applies once, to the group, not to each member. This is the rule that surprises owners with an operating company, a landlord LLC and a holding company, each of which looks small on its own.

A series LLC is treated as a single taxable entity for franchise tax purposes: the parent files one report covering every series. How that squares with the separate records each series must keep for liability purposes is covered in our article on holding companies and series LLCs. Entity type also drives the details of total revenue and compensation; our comparison of LLCs, S corporations and C corporations covers the federal side that feeds the state computation.

Due Dates, Extensions and the First Report for a New Entity

Annual franchise tax reports are due May 15, moving to the next business day when that date falls on a weekend or holiday. The report filed in a given year covers the entity's accounting year that ended during the previous calendar year. A newly formed entity files its first annual report the May after its first year, covering the period from formation through the end of that first accounting year, even if it has barely started operating.

Extensions are available and push the deadline into the fall, with a two-step procedure for entities required to pay electronically. An extension to file is not an extension to pay, so an estimated payment usually accompanies the request. When an entity winds down, it must file a final report and obtain the Comptroller's tax clearance before the Secretary of State will terminate it; simply abandoning an entity does not end the obligation. The same applies when a business relocates: withdraw properly, as described in our guide to moving a business to another state.

If you have several entities and are not certain which ones file, which combine and what is due when, the free 30-minute discovery call is a good place to lay the whole structure on the table with someone who does this regularly.

Common Filing Mistakes and What Forfeiture Actually Costs

• Treating "no tax due" as "no filing due" and skipping the Public Information Report.
• Forgetting dormant, holding or single-asset entities that still exist on the state's records.
• Missing a combined group, so each entity files alone and the threshold is applied more than once.
• Using the federal cost of goods sold figure instead of the Texas definition.
• Letting notices go to a stale address or a former registered agent.
• Closing the business without a final report and a formal termination.

A late report draws a penalty, a larger penalty once it is more than a month late, and interest that begins accruing after a further period. The bigger cost is forfeiture. When reports go unfiled, the Comptroller forfeits the entity's right to transact business in Texas; if the delinquency continues, the Secretary of State forfeits its charter or registration. A forfeited entity cannot sue or defend itself in a Texas court, its officers and directors can become personally liable for debts the business incurs after the forfeiture date, and lenders and title companies who check its status will not close. Reinstatement means filing every delinquent report, paying the tax, penalties and interest, obtaining a tax clearance letter, and filing a reinstatement with the Secretary of State with its own fee. Our Texas LLC annual compliance checklist puts the franchise tax alongside the other filings that keep an entity in good standing.

Where MercConsulting Fits

MercConsulting is a boutique business consulting firm in Houston, Texas, organized around five outcomes. Entity design sits under Minimize Taxation and touches Protect Assets: how many entities you run, how they are owned, and whether a series or holding structure fits all shape the franchise tax picture and the compliance load. We map the entities you have, build the compliance calendar and the reminder and document systems that keep every filing visible, and coordinate with the CPA who prepares the reports. Most of what we recommend we can also build, including an agent that tracks state notices so nothing sits unread.

We are not a CPA firm or a law firm. We do not prepare franchise tax reports or give tax advice; the calculation, the method selection and the filings belong to your licensed tax professional, and this article describes rules that change, so verify current figures with the Comptroller.

Frequently Asked Questions

Does my LLC have to file a Texas franchise tax report if it made no money?

Yes, in the sense that matters. An LLC with revenue at or below the no-tax-due threshold owes no tax and, for recent report years, no separate tax report, but it must still file its Public Information Report every year by May 15. Dormant and single-asset LLCs are the ones most often forfeited for skipping that report. Confirm the current requirements with the Comptroller each spring.

What is the Texas franchise tax no-tax-due threshold?

It is the level of annualized total revenue at or below which an entity owes no franchise tax. The figure is indexed and adjusted every two years, so look up the current amount on the Comptroller's site rather than relying on an older number. For entities in a combined group, the threshold applies to the group's total revenue as a whole, not to each member separately.

When is the Texas franchise tax due?

May 15 each year, or the next business day if that date falls on a weekend or holiday. The report covers the entity's accounting year that ended during the prior calendar year. Extensions push the deadline into the fall, but any tax expected to be due generally must be paid with the extension request. A new entity files its first report the May after its first year.

What happens if I do not file the Texas franchise tax report?

Penalties and interest accrue, and the entity loses its good standing. The Comptroller forfeits its right to transact business, and eventually the Secretary of State forfeits its charter. A forfeited entity cannot sue or defend in Texas courts, its officers and directors can be personally liable for debts incurred after forfeiture, and reinstatement requires filing every missed report, paying everything owed and obtaining a tax clearance letter.

Does each series of a Texas series LLC file its own franchise tax report?

No. For franchise tax purposes the series LLC is one taxable entity, and the parent files a single report covering every series. That is a filing convenience, not a change to the liability structure: each series still needs its own separate records, accounts and assets for its liability shield to hold. Ask your CPA how the combined revenue of all series compares with the threshold.

This article is for educational purposes only and is not legal, tax, or investment advice. Consult qualified professionals about your specific situation.