Texas Franchise Tax
A privilege tax imposed by Texas on most taxable entities formed in or doing business in the state. Calculated as a percentage of taxable margin under Tex. Tax Code Ch. 171, the lowest of four computation methods. The 2026 no-tax-due threshold is $2.65 million in annualized total revenue. Standard rate 0.75% (0.375% for retail/wholesale); EZ Computation rate 0.331%. Reports due May 15.
The Texas Franchise Tax is a privilege tax imposed by the State of Texas on most taxable entities formed in or doing business in the state. Despite its name, the tax has nothing to do with franchising, it is a margin-based tax administered by the Texas Comptroller of Public Accounts. Texas does not impose a state corporate or personal income tax; the franchise tax is the principal entity-level state tax replacing the income tax in those structures. Annual reports are due May 15.
Who pays
Subject entities include corporations (including S-corporations), LLCs (including single-member LLCs), limited partnerships and limited liability partnerships, professional associations, business trusts, and certain financial institutions. Out-of-state entities with nexus in Texas, including economic nexus from $500,000 or more in gross receipts from business done in Texas, are also subject. NOT subject: sole proprietorships (other than single-member LLCs); general partnerships owned entirely by natural persons; certain passive entities; entities exempt under Subchapter B of Ch. 171; qualified new veteran-owned businesses for the first five years.
Margin calculation, four methods, lowest wins
Taxable margin under § 171.101 is the lowest of: (1) 70% of total revenue; (2) total revenue minus cost of goods sold; (3) total revenue minus compensation (capped at $480,000 per person for 2026 reports); or (4) total revenue minus $1 million. The chosen method is then apportioned to Texas using single-factor gross-receipts apportionment under § 171.106 (Texas gross receipts ÷ gross receipts everywhere).
Rates and thresholds (2026)
Standard rate: 0.75% of apportioned taxable margin. Retail or wholesale entities: 0.375% (available only to an entity primarily engaged in retail or wholesale trade under § 171.002(c), which requires more revenue from retail or wholesale trade than from other activities, generally less than 50% of that revenue from products the entity or an affiliate produced, and no utility sales). EZ Computation rate: 0.331% (available to entities with annualized total revenue ≤ $20 million; no deductions, credits or other adjustments are allowed beyond those in § 171.1016). 2026 no-tax-due threshold: $2.65 million in annualized total revenue (up from $2.47M in 2024-2025). Entities at or below the threshold owe no franchise tax but must still file an information report (PIR or OIR).
Reporting obligations
Entities above the threshold file the Long Form (Forms 05-158-A and 05-158-B) or the EZ Computation (Form 05-169). All entities (except passive entities and qualified veteran-owned businesses) must annually file either a Public Information Report (Form 05-102, corporations, LLCs, LPs, professional associations, financial institutions) or an Ownership Information Report (Form 05-167, other entities). Entities at or below the no-tax-due threshold no longer file a No Tax Due Report (effective for 2024+ reports) but must file the information report. Reports are due May 15. An extension request filed by May 15 with payment of at least 90% of the current-year tax or 100% of the prior-year tax extends the due date to November 15. An entity required to pay by electronic funds transfer receives a first extension only to August 15, and a second request with the balance of the tax extends it to November 15 (§ 171.202).
Forfeiture and reinstatement
Failure to file or pay franchise tax results in forfeiture of the entity's right to transact business in Texas under §§ 171.251 and 171.2515 once 45 days pass after the Comptroller's notice of forfeiture (§ 171.256). A forfeited entity is denied the right to sue or defend in a Texas court (§§ 171.252, 171.2515). Each director or officer becomes liable for the entity's debts created or incurred in Texas after the report, tax or penalty was due and before its privileges are revived, unless the director or officer shows the debt was incurred over the director's objection, or without the director's knowledge where reasonable diligence would not have revealed the intention to create it (§ 171.255). Reinstatement requires filing all delinquent reports, paying all tax due plus penalties and interest, and filing a tax clearance request.
For most Texas SMBs at or below the $2.65M threshold, the franchise tax obligation is administrative rather than substantive: file the information report and owe nothing. Filing is still required. If a report is not filed, the Comptroller forfeits the entity's privileges without a judicial proceeding after 45 days' notice (§§ 171.251, 171.256), with the effects on court access and personal liability described above. The cost of filing is small next to the cost of reinstatement and the standing problems forfeiture can cause.