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Texas Franchise Tax: What Every Business Owner Needs to Know

Texas has no state income tax, which is one of the reasons businesses flock to the Lone Star State. But "no income tax" does not mean "no business tax." Texas imposes a franchise tax — also called the margin tax — on most entities doing business in the state. If you run an LLC, corporation, partnership, or professional association in Texas, you need to understand this tax and its deadlines.

What Is the Texas Franchise Tax?

The Texas franchise tax is a privilege tax imposed on entities formed, organized, or doing business in Texas. Despite its name, it has nothing to do with owning a franchise. It is a tax on the taxable margin of your business, which is calculated based on total revenue minus certain deductions.

The tax applies to:

• Corporations (C-Corps and S-Corps)
• LLCs (single-member and multi-member)
• Limited partnerships and limited liability partnerships
• Professional associations and professional corporations
• Business trusts

Sole proprietorships that have not formed an LLC or corporation are exempt. General partnerships composed entirely of natural persons (no entity partners) are also exempt.

Filing Deadline: May 15

The Texas franchise tax report is due May 15 each year. If May 15 falls on a weekend or holiday, the deadline shifts to the next business day. You can request an extension to November 15 by filing Form 05-164 (Extension Request) and paying at least 90% of the tax that will be due with the final report.

Along with the franchise tax report, every entity must file a Public Information Report (PIR) or an Ownership Information Report (OIR) by the same May 15 deadline. The PIR reports the entity's officers, directors, managers, and registered agent. Failure to file the PIR can lead to forfeiture of your right to transact business in Texas.

The No-Tax-Due Threshold

For reports due in 2026, entities with total revenue at or below $2,470,000 can file a No Tax Due Report (Form 05-163) and owe zero franchise tax. This threshold is adjusted periodically by the Texas Comptroller. Even if you qualify for no tax due, you must still file the report and the Public Information Report by May 15.

Entities that exceed the no-tax-due threshold must calculate their tax using one of the available methods.

How the Tax Is Calculated

The franchise tax is calculated on your taxable margin, which is the lesser of:

• Total revenue minus cost of goods sold (COGS)
• Total revenue minus compensation
• Total revenue times 70%

The tax rate depends on your business type:

EZ Computation Rate

Entities with total revenue at or below $20 million can opt for the EZ computation rate of 0.331% of total revenue. This simplified method skips the margin calculation entirely. You simply multiply total revenue by 0.331%. For many small businesses, this results in a lower tax liability and significantly less paperwork. The EZ computation is filed on Form 05-169.

Form 05-158-A: The Long Form

Entities that exceed the no-tax-due threshold and do not use the EZ computation file Form 05-158-A (Texas Franchise Tax Report). This form requires you to calculate taxable margin using one of the three methods above and apply the appropriate tax rate. You must also complete the applicable schedules for cost of goods sold or compensation deductions.

The Texas Comptroller's office provides Webfile, an online portal where businesses can file franchise tax reports electronically. Electronic filing is required for entities with total revenue above $20 million.

Public Information Report (PIR)

Every taxable entity must file a Public Information Report alongside the franchise tax report. The PIR (Form 05-102) collects information about your entity's:

• Principal office address
• Officers, directors, managers, or members
• Registered agent and registered office
• SIC code and NAICS code

Failing to file the PIR can result in the Texas Secretary of State forfeiting your entity's right to do business in Texas. Reinstatement requires filing all delinquent reports and paying all taxes, penalties, and interest owed.

Penalties for Late Filing

If you file the franchise tax report late, Texas imposes a penalty of 5% of the tax due for the first 30 days, plus an additional 5% for each additional 30-day period (up to a maximum of 25%). If the tax is not paid within 30 days of the due date, an additional 10% penalty is assessed. Interest accrues from the day after the due date. For a broader look at how filing penalties stack up, see our IRS late filing penalties guide.

Texas Franchise Tax and Entity Types

How the franchise tax interacts with your entity type matters. S-Corps in Texas still owe franchise tax at the entity level, even though the IRS treats them as pass-through entities for federal income tax. Multi-member LLCs taxed as partnerships must file a franchise tax report. Even single-member LLCs must file. The only common exemption is for sole proprietors who have not formed a legal entity. For more on LLC tax obligations, see our LLC tax filing deadlines guide.