Texas Franchise Tax: Who Owes It and How the Report Works

Who owes Texas franchise tax?

Texas taxes the entity, not its owners or its federal tax status. The Texas Comptroller describes the franchise tax as a privilege tax on each taxable entity formed or organized in Texas or doing business in Texas. Taxable entities include:

• Corporations, including S corporations. Pass-through treatment on the federal return does not change the Texas answer.
• Limited liability companies, including series LLCs and single-member LLCs that are disregarded for federal income tax.
• Partnerships with limited liability, such as limited partnerships and limited liability partnerships, and general partnerships that are not owned entirely by natural persons.
• Other legal entities, including banks, professional associations, business trusts and joint ventures.

A company formed in another state can owe the tax too, if it is doing business in Texas. Where that line falls for your company is a question for your tax professional.

Who does not owe Texas franchise tax?

The Comptroller's franchise tax overview lists the main entities that are not subject to the tax:

• Sole proprietorships that are not legally organized to limit liability. A single-member LLC is not a sole proprietorship for this purpose.
• General partnerships owned entirely by natural persons. A limited liability partnership stays taxable.
• Certain passive entities, grantor trusts, estates and escrows.
• Nonprofits that qualify for an exemption through the Comptroller's exempt organizations process.

Not owing tax is not always the same as having nothing to file. A passive entity, for example, still files a franchise tax report to show that it qualifies.

What is the no-tax-due threshold for 2026 and 2027?

For reports due in 2026 and 2027, the no-tax-due threshold is $2.65 million of annualized total revenue. It was $2.47 million for reports due in 2024 and 2025. An entity at or below the threshold owes no franchise tax for that year.

Total revenue is not a figure you choose. It is tied to specified lines of your federal return, less the exclusions Texas allows. The 2026 report is generally based on the accounting year that ended in 2025. And if the tax computed is under $1,000, the entity files the report but owes no tax.

What are the Texas franchise tax rates?

Source: Texas Comptroller, Franchise Tax, checked October 2026.

The 0.375% rate is for entities primarily engaged in retail or wholesale trade. The EZ computation is open to entities and combined groups with annualized total revenue of $20 million or less. It applies 0.331% to apportioned revenue, but it allows no margin deductions and no credits, so it is simpler, not always cheaper.

How is taxable margin calculated?

On the long form, the tax is charged on margin, not on profit. Under Texas Tax Code Section 171.101, margin is the lesser of four calculations, which the Comptroller's overview lists as:

• 70% of total revenue.
• Total revenue minus cost of goods sold.
• Total revenue minus compensation.
• Total revenue minus $1 million.

Margin is then apportioned to Texas by gross receipts: your Texas receipts as a share of all receipts. The tax is apportioned margin times the rate.

Two details catch companies out. Cost of goods sold for Texas is defined by the Texas Tax Code, not by your federal return, and a business that only sells services generally cannot use it. Compensation is capped per person, at $480,000 for reports due in 2026 and 2027.

A simple example: a services company with $12 million of total revenue, all from Texas customers, and $7.5 million of compensation within the per-person cap.

Illustration only, before credits and assuming every receipt is from Texas. Here the lowest margin is revenue minus compensation, so the long form beats the EZ computation. With lower payroll, the answer can flip.

When is the Texas franchise tax report due?

The annual report is due May 15. When May 15 falls on a weekend or holiday, the due date moves to the next business day, so the 2027 report is due Monday, May 17, 2027. A newly taxable entity files its first annual report on May 15 of the year after it became subject to the tax.

A federal extension does not extend the Texas report. Texas has its own extension rules:

• Most filers can extend to November 15 by paying, by May 15, at least 90% of the tax that will be due or 100% of the tax on the prior year's report. The 100% option needs that prior report to have been filed by May 14 and is not available for a first annual report.
• Electronic funds transfer filers, meaning entities that paid $10,000 or more in the previous state fiscal year, extend first to August 15, then to November 15 with a further payment by August 15.
• Entities under the threshold can extend their information report to November 15 with a no-payment extension.

What are the PIR and OIR, and who files them?

Each year, a taxable entity also files an information report, due on the same date as the franchise tax report. Corporations, LLCs, limited partnerships, professional associations and financial institutions file the Public Information Report (Form 05-102). Other taxable entities file the Ownership Information Report (Form 05-167). It records who manages or owns the entity and must be signed by an authorized person.

The no-tax-due change: for reports originally due on or after January 1, 2024, the No Tax Due Report is discontinued. An entity at or below the threshold now files only its PIR or OIR. For many smaller entities, that report is the whole filing, and leaving it out is how companies end up forfeiting.

How do combined groups file?

Affiliated entities engaged in a unitary business file one combined report through a reporting entity, and every member uses the same margin method. The no-tax-due threshold applies to the combined group as a whole, and so does the $20 million EZ limit.

For an owner with an operating company, a property entity and a management company, this matters. Three entities that each sit under $2.65 million can owe tax together if they form a combined group. Sales between group members also have to be identifiable in the books, so they can be kept out of the group's revenue.

What happens if you file late or not at all?

The Comptroller's penalties are:

• $50 on each report filed after the due date.
• 5% of the tax if it is paid 1 to 30 days late, and 10% if it is paid more than 30 days late.
• Interest on past-due tax, starting 61 days after the due date.

There is no $50 penalty for a late PIR or OIR, but a missing one costs more: the entity may forfeit its right to transact business in Texas. After a notice of pending forfeiture is mailed, the Comptroller allows at least 45 days to cure the problem. Once forfeited, the entity cannot sue or defend itself in a Texas court, and each director or officer can be liable for the entity's debt.

How do clean books make the report easier?

The franchise tax report rests on four figures: total revenue, cost of goods sold, compensation and Texas receipts. Each comes from books that are closed and reconciled, and each has to agree with your federal return.

• Revenue that ties to the return. Total revenue starts from federal return lines, so the books and the return must agree before May 15.
• Cost of goods sold, coded the Texas way. Texas allows only specific costs, so product and production costs need their own accounts.
• Compensation by person. Payroll records by employee let the per-person cap be applied correctly.
• Receipts by customer location. Sales tagged by where the customer is give you the apportionment figure without a scramble.
• Group sales kept separate. Intercompany sales recorded on their own lines, ready for a combined report.

With those figures ready, comparing the four margin methods and the EZ computation is a short exercise. Without them, companies tend to fall back on the simplest method, which can cost more than the law requires. Accrual books help too, because revenue and costs land in the year they belong to; see cash vs accrual accounting. The choice is best made before year-end, which is the difference between tax planning and tax preparation.

This guide is general information, not tax advice. Confirm your own filing requirements with a tax professional.

How does Korven handle Texas franchise tax?

Korven closes your books every month through monthly bookkeeping and payroll, ties total revenue, cost of goods sold and compensation to your federal return figures, and tracks the May 15 date, the information report and any combined-group filing inside the Finance Office. Korven prepares your books and tax file; our licensed CPA partner prepares, signs and files your return. See business tax preparation and filing for how the two work together.

How pricing works. Franchise tax work is quoted as a fixed fee, scoped to your entities and filings, and confirmed in writing after your complimentary Finance Review, before any work starts. Never hourly.

For every federal and Texas date in one place, see the tax season checklist.

What else do people ask about Texas franchise tax?