Texas Franchise Tax: No-Tax-Due Threshold and Filing

The Texas franchise tax is an annual privilege tax on most businesses with liability protection, such as LLCs and corporations, that are formed in or doing business in Texas. For reports due in 2026 and 2027, entities with annualized total revenue of $2.65 million or less owe no tax, but they still must file an information report by May 15. Above that threshold, tax is generally 0.75% of taxable margin, or 0.375% for retailers and wholesalers.

Texas has no personal income tax, so the franchise tax is often the only state-level business tax a small LLC deals with besides sales tax. This guide explains who must file, the no-tax-due threshold, the four ways to compute margin, a worked example, deadlines, penalties and how to keep the filing painless. It is general information, not tax advice; check the Comptroller's current instructions or a Texas CPA for your situation.

Who must file the Texas franchise tax report?

Entity type	Subject to franchise tax?
Corporation (C or S)	Yes
LLC, including single-member LLCs disregarded for federal tax	Yes
Limited partnership, LLP	Yes
Professional association or corporation	Yes
Sole proprietorship	No
General partnership owned directly by individuals	No
Qualifying passive entity	No, if it meets the statutory test

Out-of-state entities can also owe the tax if they have nexus with Texas, for example through physical presence or sufficient Texas receipts. If you are still choosing a structure, our guide to business entity types explains the trade-offs, and how to start an LLC covers the formation steps.

The no-tax-due threshold for 2026 and 2027

The threshold is adjusted every two years. According to the Texas Comptroller's franchise tax page:

Report years	No-tax-due threshold	Compensation deduction cap
2024 and 2025	$2,470,000	$450,000
2026 and 2027	$2,650,000	$480,000

The threshold applies to annualized total revenue. If your accounting period was shorter than 12 months, for example in your first year, revenue is annualized before comparing it to the threshold.

The No Tax Due Report is gone

Before 2024, businesses under the threshold filed a No Tax Due Report. Starting with 2024 reports, that form was eliminated. Entities at or below the threshold now file only:

• a Public Information Report (PIR), for corporations, LLCs and financial institutions; or
• an Ownership Information Report (OIR), for other taxable entities such as limited partnerships.

These reports list officers, directors, managers or owners and the registered agent. They are short, but skipping them is the most common reason small Texas LLCs end up forfeited. Our article on the LLC annual report explains how this compares with other states.

How the tax is calculated above the threshold

Taxable margin is the lowest of four amounts:

1. 70% of total revenue;
2. total revenue minus cost of goods sold;
3. total revenue minus compensation (capped per person at $480,000 for 2026-2027 reports); or
4. total revenue minus $1 million.

Margin is then apportioned to Texas based on Texas gross receipts divided by gross receipts everywhere, and multiplied by the rate:

Method	Rate	Who can use it
Standard, retail or wholesale	0.375%	Entities primarily engaged in retail or wholesale trade
Standard, all others	0.75%	Most service businesses and manufacturers
EZ computation	0.331% of apportioned revenue	Total revenue of $20 million or less

If the calculated tax is less than $1,000, no tax is due, though the report must still be filed.

Worked example: a Texas marketing agency

Illustrative numbers. An Austin marketing LLC files its 2027 report based on its 2026 calendar year. All receipts are from Texas clients.

Item	Amount
Total revenue	$3,200,000
Cost of goods sold	Not applicable (services)
Compensation (wages and benefits, within the cap)	$1,400,000

Margin options:

• 70% of revenue: $2,240,000
• Revenue minus compensation: $1,800,000
• Revenue minus $1 million: $2,200,000

The lowest is $1,800,000. At 0.75%, the standard tax is $13,500. Under the EZ computation, the tax is $3,200,000 x 0.331% = $10,592. Because the agency's revenue is under $20 million, it can choose EZ and save about $2,900. The EZ method does not allow deductions or most credits, so the answer flips for businesses with very large compensation or cost of goods sold. Run both every year.

Now compare a smaller agency with $2.4 million of revenue: it is under the $2.65 million threshold, owes nothing and simply files its Public Information Report.

What counts as total revenue

Total revenue for franchise tax purposes starts from the revenue lines of your federal income tax return (for example, gross receipts on Form 1120, 1120-S or 1065, or the Schedule C figures for a disregarded LLC) and then removes certain items, such as bad debts already included in income, some flow-through funds that must be distributed to others under contract, and a few industry-specific exclusions. For a typical service business, total revenue is close to what you invoiced and collected during the year. Two points cause confusion:

• Reimbursed expenses. If you bill clients for materials or travel and include the reimbursements in gross receipts on your federal return, they usually count as revenue unless a specific exclusion applies.
• Short first years. A business that started in September and earned $900,000 in four months annualizes that to $2.7 million, which is above the threshold even though actual revenue was well below it.

Apportionment for out-of-state customers

Only the Texas share of margin is taxed. The apportionment factor is Texas gross receipts divided by gross receipts everywhere. For services, receipts are generally sourced to where the service is performed; for goods, to where they are delivered. A Dallas consulting firm whose staff performs work for clients in several states but does that work in Texas will usually have a high Texas factor. A remote team spread across states may have a lower one. If more than a small share of your work happens outside Texas, have a preparer review the sourcing rules before you file.

Affiliated companies and combined groups

Owners with several related entities should know that Texas requires certain affiliated groups engaged in a unitary business to file a single combined report. The no-tax-due threshold and the EZ revenue limit are then tested against the group's combined revenue, not each entity separately. Splitting one operating business across several LLCs does not by itself keep each under the threshold.

Deadlines, extensions and how to file

1. Know your report year. A 2027 report uses data from the accounting year ending in 2026.
2. Calculate annualized total revenue from your income statement or federal return.
3. Decide which report you need: PIR or OIR only if at or below the threshold; a full report with tax computation if above.
4. File by May 15, normally through the Comptroller's Webfile system.
5. Request an extension by May 15 if you need more time; extensions generally require paying most or all of the expected tax with the request.
6. Keep your Webfile number and confirmation with your corporate records.

Add the May 15 date to your 2027 business tax deadlines calendar alongside federal dates, since Texas does not follow the federal extension.

Your first Texas franchise tax report

A new entity's first report is due May 15 of the year after it registers with the Secretary of State. An LLC formed in Texas in June 2026 files its first report by May 15, 2027, covering the period from its formation date through the end of its first accounting year. Revenue for that short period is annualized before comparing it to the $2.65 million threshold. The Comptroller mails a notice to the address on file, but the obligation exists whether or not the letter arrives, so diary the date as soon as you form.

Penalties and forfeiture

• $50 penalty for each report filed late.
• 5% of tax due if paid 1 to 30 days late; 10% if more than 30 days late.
• Interest begins 61 days after the due date.
• Forfeiture of the right to transact business, which can block the entity from suing in Texas courts, and eventually forfeiture of the charter by the Secretary of State. Officers and managers can become personally liable for certain debts while the entity is forfeited.

A forfeited entity also cannot get a certificate of good standing (in Texas, a certificate of account status), which banks, landlords and buyers often request.

Common mistakes

• Assuming "no tax due" means "no filing." The PIR or OIR is still required every year.
• Forgetting single-member LLCs. Disregarded for IRS purposes, but taxable entities in Texas.
• Using the wrong year's threshold. The $2.65 million figure applies to 2026 and 2027 reports.
• Not comparing EZ and standard methods. The cheaper method changes as your cost structure changes.
• Confusing franchise tax with sales tax. They are separate. If you sell taxable items or services, see our sales tax by state guide.
• Letting the registered agent address go stale, so you never see forfeiture notices. Our registered agent guide covers why it matters.

Keep your revenue figures clean

Every Texas franchise tax calculation starts with total revenue, and the cleanest source for that number is your invoice history. Numbered invoices, issued in the LLC's legal name and reconciled to bank deposits, make it simple to confirm whether you are under the threshold and to back up the figure if the Comptroller ever asks. Our guide on how to invoice as an LLC covers what to include. To create those invoices, use our free invoice generator: no sign-up, and every invoice downloads as a PDF.