Texas franchise tax is an annual privilege tax imposed on taxable entities formed or organized in Texas or doing business in Texas. It is not a fee for operating a restaurant or another franchised business. Texas generally calculates the tax from a business's taxable margin, not its federal taxable profit.
For 2026 and 2027 reports, businesses with annualized total revenue of $2.65 million or less generally do not owe franchise tax. They may still need to file an information report.
Texas Franchise Tax at a Glance
| Item | Current rule for 2026 and 2027 reports |
|---|---|
| No-tax-due revenue threshold | $2,650,000 |
| Retail or wholesale tax rate | 0.375% |
| Other businesses tax rate | 0.75% |
| E-Z Computation revenue limit | $20 million |
| E-Z Computation rate | 0.331% |
| Annual report due date | May 15 |
| Late report penalty | $50, even if no tax is due |
The Texas Comptroller changes thresholds and rates by report year. Businesses should use the figures for the specific year they are filing.
Which Businesses Are Subject to Texas Franchise Tax?
Texas franchise tax generally applies to taxable entities organized in Texas or doing business in Texas, including:
- Corporations
- Limited liability companies, including single-member LLCs
- S corporations
- Limited partnerships and limited liability partnerships
- Professional corporations and professional associations
- Banks and savings and loan associations
- Business trusts
- Joint ventures
- Other legal entities
A single-member LLC can have Texas franchise tax filing responsibilities even when it is treated as a disregarded entity or sole proprietorship for federal income tax purposes. Texas considers the entity's legal structure, not only its federal tax classification.
Which Businesses Generally Do Not Owe Texas Franchise Tax?
Several types of entities generally do not owe Texas franchise tax, including:
- Sole proprietorships that are not organized as LLCs
- General partnerships owned entirely by natural persons, with some exceptions
- Certain passive entities
- Certain grantor trusts, estates and escrow arrangements
- Certain qualified real estate investment trusts
- Some organizations exempt under Texas Tax Code Chapter 171
A nonprofit organization is not automatically exempt. Until the Texas Comptroller grants an applicable franchise tax exemption, the organization may still need to file reports and pay any tax due.
How Is Texas Franchise Tax Calculated?
Texas franchise tax is generally calculated from a business's taxable margin. The basic process is:
- Determine total revenue under Texas franchise tax rules.
- Select an allowed margin calculation method.
- Apportion the margin to Texas using the business's Texas gross receipts.
- Apply the correct tax rate.
The main margin methods are:
- 70% of total revenue
- Total revenue minus cost of goods sold
- Total revenue minus compensation
- Total revenue minus $1 million, where applicable
A business generally uses the method that produces the lowest margin, subject to the eligibility rules for that method. Cost of goods sold and compensation deductions do not follow the same rules as federal income tax deductions.
Texas Franchise Tax Is Not the Same as Income Tax
Texas franchise tax is not calculated by subtracting ordinary business expenses from sales to determine net profit. A company can have low federal taxable income, or even a federal tax loss, and still owe Texas franchise tax because the calculation uses revenue and taxable margin.
What Is the Texas No-Tax-Due Threshold?
The Texas no-tax-due threshold for 2026 and 2027 reports is $2.65 million in annualized total revenue.
A business at or below that threshold generally does not owe franchise tax and does not file the former No Tax Due Report. The business usually must still file one of these reports:
- A Public Information Report
- An Ownership Information Report
The information report must be filed even when no tax is due. Failing to file it can place the entity in delinquent status and may lead to forfeiture of its right to transact business in Texas.
The threshold is based on annualized total revenue. Annualization matters when the accounting period covers fewer or more than 12 months.
What Is the Texas E-Z Computation?
The E-Z Computation is an optional method for a taxable entity with annualized total revenue of $20 million or less.
Under this method, the business calculates tax using apportioned total revenue and the 0.331% E-Z Computation rate. The business cannot deduct cost of goods sold or compensation under this method, and it cannot claim certain franchise tax credits.
The E-Z method is simpler, but it is not always the least expensive option. A business with substantial cost of goods sold, qualifying compensation or available credits may pay less by filing the Long Form.
What Reports Does a Texas Business File?
Most taxable entities file an annual franchise tax report, a Public Information Report or Ownership Information Report, and any tax payment due.
Businesses at or below the no-tax-due threshold generally file only the required information report. Businesses above the threshold generally file either:
- An E-Z Computation Report
- A Long Form report
For report years beginning in 2024, Texas discontinued the No Tax Due Report for businesses at or below the no-tax-due threshold.
When Is Texas Franchise Tax Due?
Texas franchise tax reports are generally due on May 15 each year. If May 15 falls on a weekend or legal holiday, the deadline moves to the next business day.
Texas imposes a $50 penalty for a late franchise tax report, even when the business ultimately owes no tax. The Public Information Report or Ownership Information Report can have separate filing requirements.
Do Out-of-State Businesses Have to Pay Texas Franchise Tax?
An out-of-state business can have Texas franchise tax responsibilities when it is doing business in Texas or has Texas nexus.
A foreign taxable entity generally has economic nexus when it receives $500,000 or more in annual gross receipts from business done in Texas, even without a physical location in the state. Physical presence and other activities can also create nexus.
Bottom Line
Texas franchise tax is based on an entity's legal structure and connection with Texas, not simply on whether the business earned a federal profit. Before filing, confirm the report year, review the applicable revenue threshold, choose the permitted calculation method and submit the required report by May 15.