Texas Franchise Tax Guide
Complete guide to the Texas franchise tax: who must file, how to calculate your tax, no-tax-due thresholds, EZ computation rate, and filing deadlines for Texas businesses.
Texas doesn't have a state income tax. Great news, right? Well, mostly. Texas does have the franchise tax (officially the "margin tax"), which applies to most business entities doing business in the state. It's not an income tax—it's a tax on your privilege of doing business in Texas, based on revenue margins. The good news: if your total revenue is under $2.47 million, you probably owe nothing. The less-good news: you still have to file. Here's everything you need to know.
Who Must File
Nearly every business entity in Texas must file a franchise tax report—even if they owe $0.
| Entity Type | Must File? |
|---|---|
| LLCs (single and multi-member) | Yes |
| Corporations (S-Corp and C-Corp) | Yes |
| Partnerships and LLPs | Yes |
| Professional Associations | Yes |
| Sole Proprietorships | No |
| General Partnerships (all natural persons) | No |
Key point: Sole proprietors don't file franchise tax, but the moment you form an LLC (even single-member), you're on the hook for filing—even if you owe nothing.
Calculation Methods
The franchise tax is calculated on your "taxable margin," which is your total revenue minus the highest of several deductions:
| Method | Calculation |
|---|---|
| Cost of Goods Sold (COGS) | Total Revenue minus COGS |
| Compensation | Total Revenue minus Compensation |
| 30% Standard Deduction | Total Revenue × 70% |
| $1 Million Deduction | Total Revenue minus $1,000,000 |
You pick whichever method gives you the lowest taxable margin (and therefore the lowest tax).
Most service businesses use the Compensation method. Businesses with high COGS (retailers, manufacturers) typically use the COGS method.
No-Tax-Due Threshold
If your total revenue is at or below $2.47 million (2024 reporting year), you owe no franchise tax. But—and this is important—you still must file the report.
- Under $2.47M revenue: File the No-Tax-Due Information Report (Form 05-163) and Public Information Report (PIR)
- Over $2.47M but under $20M: Can use the EZ Computation (0.331% of revenue) or the standard calculation—whichever is lower
- Over $20M revenue: Must use the standard calculation method
The threshold adjusts periodically. Always verify the current year's threshold with the TX Comptroller or your CPA.
EZ Computation
The EZ Computation is a simplified alternative for businesses with total revenue of $20 million or less:
| Detail | Info |
|---|---|
| Eligibility | Total revenue ≤ $20 million |
| Rate | 0.331% of total revenue |
| Form | 05-169 (EZ Computation Report) |
When to use it: Compare the EZ computation amount against the standard calculation. Sometimes the EZ rate on total revenue is lower than the standard rate on taxable margin. Sometimes it's higher. We run both calculations.
Example: A consulting firm with $5M revenue and $3M in compensation → Standard: ($5M - $3M) × 0.75% = $15,000. EZ: $5M × 0.331% = $16,550. Standard wins here.
Common Filing Mistakes
- Not filing at all: Even if you owe $0, you must file. Failure to file can result in your entity's right to transact business being forfeited by the TX Secretary of State.
- Using the wrong revenue figure: "Total revenue" for franchise tax purposes is NOT the same as gross receipts on your federal return. Certain items are excluded or adjusted.
- Forgetting the PIR: The Public Information Report must be filed alongside your franchise tax report. It's a simple form with officer/director/member information.
- Missing the $2.47M threshold by a dollar: If you're close to the threshold, review your revenue calculation carefully. Small adjustments in how you report revenue can mean the difference between $0 and thousands in tax.
- Not filing a final report: If you dissolve or withdraw your entity from Texas, you must file a final franchise tax report within 60 days.
Penalties and Forfeiture
The TX Comptroller takes franchise tax seriously. Here's what happens if you don't comply:
| Situation | Consequence |
|---|---|
| Late Filing (no tax due) | $50 penalty |
| Late Filing (tax due) | 5% of tax due (first 30 days) + 5% for each additional 30 days, up to 25% |
| Late Payment | Same as late filing penalties, plus interest |
| Continued Non-Filing | Entity forfeiture—TX Secretary of State revokes your right to transact business |
| Forfeiture Consequences | Personal liability for owners/officers, inability to sue in TX courts, inability to maintain a lawsuit |
Forfeiture is not theoretical—it happens. We've helped multiple clients reinstate forfeited entities, and the process is expensive and time-consuming. File on time.
Combined Groups
If you own multiple entities, you may need to file a combined group report:
- When required: Entities with more than 50% common ownership that are engaged in a unitary business
- How it works: All member entities file on a single combined report. Total revenue is combined (with intercompany eliminations).
- Benefit: Losses in one entity can offset margin in another
- Caution: Combined filing can also push you over the no-tax-due threshold when individual entities would be below it
Use our S-Corp Calculator to evaluate how your entity structure affects your overall tax burden.
Pro Tips
File Even If You Owe Nothing
The most common franchise tax mistake is not filing because you're under the threshold. Non-filing can lead to entity forfeiture, which creates real legal and business problems. It takes 5 minutes to file the no-tax-due report.
Review Your Revenue Classification
How you classify revenue matters. Businesses near the $2.47M threshold should carefully review what counts as "total revenue" for franchise tax purposes—it's not always the same as your federal gross receipts.
Mark May 15 on Your Calendar
The franchise tax deadline is May 15, not April 15 like federal taxes. It's easy to forget because it falls a month after the federal deadline rush. We send all clients reminders.
Frequently Asked Questions
Need Help With Your Taxes?
Our DFW CPAs specialize in helping individuals and businesses minimize their tax burden. Schedule a free consultation to discuss your specific situation.