Texas Franchise Tax: Who Owes It, Rates, Due Dates and the No Tax Due Threshold
Texas Franchise Tax: Who Owes It, Rates, Due Dates and the No Tax Due Threshold
If you form an LLC or corporation in Texas, the tax you will deal with every year is not an income tax. Texas has no personal income tax and no corporate income tax. Instead, it levies the Texas franchise tax, a privilege tax for the right to do business as a taxable entity in the state. This guide explains who owes it, the rates and threshold for the 2026 and 2027 report years, the May 15 due date, the extension question, the penalties for late filing, and what forfeiture means.
Informational notice: This article is general information, not legal or tax advice. Filing rules and figures can change. If you have multistate revenue, complex ownership, or prior years you did not file, talk with a qualified CPA or attorney before you rely on any figure here.
Who owes the Texas franchise tax
The franchise tax applies to most entities that are formed in Texas or registered to do business here. In practice, that covers LLCs, corporations and most other filing entities. Some business structures, such as a sole proprietorship or a general partnership owned only by individuals, are generally not taxable entities for this purpose. Because entity classification depends on how the business is organized and how it is registered, confirm your status on the Texas Comptroller of Public Accounts website before you assume you are exempt.
Owing the tax and filing the report are separate questions. Every taxable entity must file a report each year, even when it owes nothing. An entity whose total revenue is at or below the no tax due threshold still files a Public Information Report (PIR) or an Ownership Information Report (OIR). The separate No Tax Due Report ended for report years 2024 and later, so a low-revenue LLC is not excused from filing.
The 2026 and 2027 threshold and rates
For the 2026 and 2027 report years, the no tax due threshold is $2,650,000 in total revenue. For the 2024 and 2025 report years, it was $2,470,000. The threshold is measured by total revenue, not profit. An entity at or below $2,650,000 owes no franchise tax, but it still files its report.
Above the threshold, the tax is computed on taxable margin, not on total revenue. The key figures for the 2026 and 2027 report years are below.
| Item | Figure for 2026 and 2027 report years |
|---|---|
| No tax due threshold | $2,650,000 in total revenue |
| Rate for retail and wholesale entities | 0.375% of taxable margin |
| Rate for all other entities | 0.75% of taxable margin |
| EZ Computation rate | 0.331%, for entities with total revenue under $20 million, if eligible |
| Compensation deduction limit | $480,000 per person |
| Public Information Report due | May 15 each year, to the Comptroller |
Taxable margin is not the same as your gross receipts or your profit. It is built from total revenue with deductions the Comptroller allows, and the compensation deduction is capped at $480,000 per person. The exact steps, and whether the EZ Computation fits your entity, are set out in Comptroller instructions. Confirm each step there, because a wrong base produces the wrong tax even when the rate is right.
Reading the threshold correctly
The threshold is a bright line, and many owners misread it in two ways. First, the threshold is not a profit test. A business with $2,600,000 in revenue and a large loss can still be under the line, and a business with $2,700,000 in revenue and thin margins can still owe tax. Second, the threshold is tied to the report year, not the calendar year you happen to be in. Confirm with the Comptroller which accounting period feeds each report year before you decide whether you are under the line.
Being under the threshold does not end your obligations. You still file the PIR or OIR by May 15, and the Comptroller uses that report to keep your entity's records current.
Due date, extensions and how to file
The Public Information Report and the franchise tax report are due May 15 each year. If May 15 falls on a weekend or a holiday, the due date moves to the next business day. Reports are filed with the Comptroller, not the Secretary of State. The Secretary of State handles formation documents such as the Certificate of Formation (Form 205, $300 for an LLC), but the annual franchise tax filing goes to the Comptroller through WebFile.
Extensions: The Comptroller does offer an extension option for the franchise tax report. Check the Comptroller's franchise tax pages at https://comptroller.texas.gov/taxes/ before May 15, and ask your CPA whether you owe tax and whether any payment is due on the original date to avoid penalties.
Calculators: Many online franchise tax calculators exist. If you use a calculator, check its inputs and output against the threshold and rates in the table above before you file.
Late filing and payment penalties
Penalties can stack when a report or payment is late. The core penalties are:
- Late report: $50 per report.
- Late tax, 1 to 30 days: 5% of the tax paid late.
- Late tax, more than 30 days: 10% of the tax paid late.
- Interest: begins on day 61 after the due date.
Here is how that works in practice. Suppose an entity owes $10,000 of tax, files its report late, and pays 20 days late. The tax penalty is 5% of $10,000, or $500, and the late report penalty adds $50, for $550 before interest. If the same payment were more than 30 days late, the tax penalty would be 10%, or $1,000, plus the $50 report penalty and interest starting on day 61.
Owing $0 does not excuse the filing. An entity at or below the threshold that skips its Public Information Report can still be assessed the $50 late report penalty and can move toward forfeiture.
Forfeiture: the serious risk
Forfeiture is the outcome to avoid. If an entity remains out of compliance, the Comptroller first sends a notice of intent to forfeit (Form 05-211). If the problem is still not resolved, the Comptroller issues a forfeiture notice (Form 05-213). Treat any 05-211 notice as urgent, because the process moves on a fixed sequence and waiting makes the fix harder.
A forfeited entity loses its right to sue or defend itself in Texas courts. Its owners may also face possible personal liability for the entity's obligations. Forfeiture can also surface during a sale, a loan application or a contract review, so it creates problems well beyond the tax itself.
Reinstatement requires a Comptroller tax clearance letter and Secretary of State Form 801, which carries a $75 fee. Request the clearance letter from the Comptroller after the reports and taxes are current, and confirm the request steps on the Comptroller's website.
Check your account status every year
Your franchise tax account status is the single fastest way to confirm you are in good standing. Check it after each filing and before you sign a loan, a lease, a contract or a sale, because a buyer or lender will often check it too. Start from the Comptroller's franchise tax pages at https://comptroller.texas.gov/taxes/.
Use this checklist each year:
- Confirm your total revenue for the current report year against the $2,650,000 threshold.
- Calendar May 15, and check whether it falls on a weekend or holiday that moves the due date.
- File the PIR or OIR through WebFile, even if you owe nothing.
- If you are above the threshold, compute taxable margin and decide whether the EZ Computation applies to you.
- Save the filing confirmation, then check your account status afterward.
Related Texas obligations
The franchise tax is one part of a short list of Texas obligations, and it is worth separating them. Texas has no general state business license, and there is no statewide general contractor or roofing license. Counties license nothing, except that sole proprietors file an assumed name certificate with the county clerk. Entities such as LLCs and corporations file their assumed name certificates with the Secretary of State, at $25 for Form 503.
If your business sells taxable goods or services, you will also need a Texas sales and use tax permit from the Comptroller. The state sales tax rate is 6.25%, and the permit is issued at no charge. Processing typically takes two to three weeks, so apply early. Confirm the current steps at https://comptroller.texas.gov/taxes/permit/.
When to get professional help
Many single-location LLCs with revenue well under $2,650,000 can file the PIR themselves. Get professional help sooner if any of these apply:
- Your revenue is near the threshold, or you need to decide whether the EZ Computation applies.
- You operate in more than one state, or your revenue has a complicated source.
- You have missed one or more reports, or you have received a Form 05-211 or 05-213 notice.
- Your ownership changed, or you are planning a merger, sale or conversion.
A CPA familiar with Texas franchise tax can compute taxable margin correctly, and an attorney can advise on forfeiture and reinstatement. For formation questions, the Texas Secretary of State is the official source at https://www.sos.state.tx.us/corp/index.shtml.
Reminder: This guide is informational, not legal or tax advice. Confirm every figure, deadline and form with the Texas Comptroller of Public Accounts or a qualified professional before you act on it.