Texas Franchise Tax: Threshold, Due Date and How to File

Most small Texas companies owe no franchise tax at all. Yet every one of them has to file a report with the state each May. A company that skips that report can lose its right to do business in Texas, even with a $0 tax bill.

The Texas franchise tax is a privilege tax on companies formed, organized or doing business in Texas. The Texas Comptroller of Public Accounts runs it. For report years 2026 and 2027, a company with total revenue of $2,650,000 or less owes no tax. But it still files an information report by May 15 every year, and that report is where owners get into trouble.

The name confuses people at first. "Franchise" here means the privilege of doing business in Texas. The tax has nothing to do with franchise businesses like restaurant chains, and it's separate from sales tax. These are the main numbers you'll meet over the coming year:

The companies the Texas franchise tax covers

So you open the Comptroller's site to find out whether this applies to you. The Comptroller calls the companies it covers taxable entities. They include:

• corporations
• LLCs
• banks
• partnerships
• trusts
• joint ventures

Being a taxable entity doesn't mean you'll owe money. But it does mean you have to file every year.

Your LLC is a taxable entity, and that's true for single-member LLCs and series LLCs too. This often surprises people who move from sole proprietor to a one-person LLC. The sole proprietorship was outside the tax, but the LLC the same person forms is inside it. Limited partnerships and limited liability partnerships (LLPs) are taxable as well. A general partnership owned directly and entirely by individuals is not.

If you live abroad, nothing changes here. The rules look at the company, so where the owner lives doesn't matter. A Texas LLC owned by someone abroad is taxed the same way as one owned by a Texas resident. Can a Non-US Resident Own a US LLC? What It Involves covers the wider picture for foreign owners.

A company formed in another state can also end up here. That happens once it has $500,000 or more a year in gross receipts from Texas. At that point it has nexus (a taxable connection to the state), even with no office or staff there.

The groups that sit outside the tax

You may also see a long list of exceptions and hope your company is on it. These businesses are either outside the definition of a taxable entity or don't file:

1. sole proprietorships (a single-member LLC is still taxable)
2. general partnerships owned directly and entirely by individuals (LLPs are still taxable)
3. nonprofits that applied for and got an exemption from the Comptroller
4. certain unincorporated passive entities
5. certain grantor trusts, estates of individuals and escrows
6. REMICs and certain qualified REITs
7. nonprofit self-insurance trusts
8. trusts under IRC 401(a) or 501(c)(9)
9. unincorporated political committees
10. entities exempt under Texas Tax Code Chapter 171, Subchapter B

An exempt nonprofit doesn't file franchise reports at all, information reports included. A nonprofit without the exemption files every report like any other entity.

If you served in the military, read one more rule. Texas gives new veteran-owned businesses a five-year exemption. The business has to be formed in Texas between January 1, 2016 and January 1, 2020, or on or after January 1, 2022. It must be 100% owned by honorably discharged veterans who are individuals. And each owner needs a letter of verification from the Texas Veterans Commission. For its first five years, that business isn't subject to the tax and doesn't file a PIR or OIR either.

The Texas franchise tax threshold for 2026 and 2027

Once you know you're covered, the threshold tells you whether you'll pay. While reading around, you'll probably see $2,470,000 in many guides. That figure applied only to report years 2024 and 2025. The no tax due threshold and the compensation deduction limit change every two years.

Older guides may also tell you to file a No Tax Due Report (Form 05-163). That report is gone. Senate Bill 3, passed in July 2023, raised the threshold and dropped that report from report year 2024. Companies at or below the threshold now file only the PIR or OIR.

When revenue grows past the threshold

Most young companies stay under $2,650,000, so this part may wait a few years. But say your business takes off. Above the threshold, the tax is charged on taxable margin, and there are two ways to get to the amount.

The standard calculation

With the standard calculation, your company picks one of the four ways the Comptroller lists to compute margin:

• total revenue times 70%
• total revenue minus cost of goods sold
• total revenue minus compensation (capped at $480,000 for report years 2026 and 2027)
• total revenue minus $1 million

Then the margin is apportioned to Texas. That means you multiply it by the share of gross receipts that come from Texas. You multiply the result by 0.75%, or 0.375% for retail and wholesale.

The EZ computation

If annualized total revenue is $20 million or less, you can use the EZ computation instead. The tax equals total revenue times the apportionment factor times 0.331%.

Your accounting period may be shorter or longer than 12 months. Then you annualize revenue. Divide total revenue by the days in the period and multiply by 365.

How much the method changes the result

We worked this example out ourselves to show what the method does. The company is invented. Say your LLC is outside retail and wholesale and has $3 million in revenue, all from Texas. So the apportionment factor is 100%.

With the same revenue, the gap between the highest and lowest result is $5,820. A company with large cost of goods sold or a large payroll would also test the two methods that subtract those. A tax preparer can run every option before you file.

Spring: working out which report is yours

Whether you calculate anything or not, you still file something each year. For report years 2026 and 2027, your total revenue points you to the right report:

• $2,650,000 or less: no tax, file a PIR or OIR by May 15
• above $2,650,000 up to $20 million: file a tax report, EZ or Long Form
• tax under $1,000: still file, pay nothing

The EZ Computation Report is Form 05-169. The Long Form is Forms 05-158-A and 05-158-B. In every case, you file a report.

For a small LLC, the report is usually the Public Information Report (Form 05-102). It lists officers and directors. These entities file it if they're organized in Texas or have nexus there:

• corporations
• LLCs
• limited partnerships
• professional associations
• financial institutions

All other taxable entities file the Ownership Information Report (Form 05-167), and the ownership details in it are confidential. Both reports are due on the franchise tax due date, even when you owe no tax.

You might think the federal beneficial ownership report you filed with FinCEN already covers this. It doesn't replace the PIR or OIR, because they're separate. Beneficial Ownership Information (BOI) Report: Who Must File explains the federal one.

Your first May 15: the Texas franchise tax due date

The annual report and any payment are due May 15. If May 15 falls on a weekend or legal holiday, the deadline moves to the next business day.

Your first report comes later than you might expect. A new entity files it on May 15 of the year after it became subject to the tax. The Comptroller's own example is an entity that became subject in 2025, which files its first report by May 15, 2026. For a company formed in Texas, the first accounting period starts on the date it registered with the Secretary of State. So if you form a Texas LLC in 2026, your first report is due in 2027.

A full year can pass between formation and that first report. That's why owners often lose track of the date. Starting an LLC in Texas: Costs, State Office, Taxes and Timeline covers formation costs and timing.

When May 15 comes too fast: extensions

Say the date is close and your numbers aren't ready. An extension of time to file also extends the time to pay. But it only counts if you've paid enough by May 15.

Non-EFT filers request the extension on Webfile or Form 05-164. They must have paid 90% of this year's tax or 100% of last year's. EFT filers are entities that paid $10,000 or more in franchise tax in the prior state fiscal year, and they must pay electronically.

The 100% of last year's tax option has limits:

1. it works only if last year's report was filed by May 14
2. a first-year entity that became taxable the year before can't use it
3. a separate entity that was part of a combined group the year before can't use it

Filing day: Webfile, mail and the forms you need

When the date comes, the report has to reach the Comptroller. Most small owners use Webfile, the Comptroller's online system, with an eSystems login. EDI or approved tax software works too. You can also mail paper to Texas Comptroller of Public Accounts, P.O. Box 149348, Austin, TX 78714-9348. Webfile returns are due by 11:59 p.m. Central time on the due date.

These are the forms you may run into along the way:

How you pay depends on what you paid in the prior state fiscal year. If you paid at least $10,000 but under $500,000, you pay through Webfile. At $500,000 or more, you use TEXNET. Credit card payments through Webfile have a fee. It's $1.00 for payments up to $100, and 2.25% plus $0.25 above $100.

For help with electronic filing and payment, call the Comptroller at 800-442-3453. Questions about account status go to 800-252-1381.

Late reports, penalties and forfeiture

Now say May 15 came and went while you were busy with clients. Missing it costs money even when no tax is owed.

Late filing and late payment

A report filed after the due date costs $50, even if no tax is due. Late tax adds more:

• 1 to 30 days late: 5% penalty
• more than 30 days late: 10% penalty
• interest from the 61st day after the due date
• an extra 5% if you must file or pay electronically and don't

You can ask for a penalty waiver on Form 89-224. If it's denied, you have 10 days to appeal in writing. The Comptroller's waiver page doesn't describe an automatic first-time waiver.

Losing the right to do business

If the PIR or OIR never arrives, the problem grows. A company that doesn't file a completed, signed report can lose its right to do business in Texas. The process usually goes like this:

• The Comptroller sends "File Now" emails.
• A notice of intent to forfeit (Form 05-211) arrives by mail.
• You get at least 45 days after that notice to fix it.
• If you don't, the Comptroller forfeits the right to do business (Form 05-212).
• A forfeiture of registration notice (Form 05-213) can follow.

A forfeited company can lose the right to sue or defend itself in a Texas court. Some people can become personally liable for certain company debts: officers and directors, and also partners, members and owners. Texas Tax Code section 171.255 makes directors and officers of a forfeited corporation liable for some debts. These are debts created after the report or tax was due and before the company is revived. Revival doesn't remove that liability.

So for an LLC owner, a missed report on a $0 tax bill can put personal assets at risk for some business debts.

In our work with clients, we regularly see companies dissolved over missed state reports and taxes, in Texas and elsewhere. Reinstatement is often impossible or comes with a large penalty. Some owners end up forming a new company instead. And the bank account can become a problem if the bank isn't told what happened.

Bringing the company back

If your company was forfeited, reinstatement starts with the Comptroller. The company files all missing reports and pays the tax, penalties and interest it owes. Then it asks for a tax clearance letter through Webfile or with Form 05-391. Wait 2 to 3 business days after paying before you ask.

You send the letter to the Secretary of State. It goes with the SOS reinstatement forms and SOS fees.

Once a year: checking where you stand

After your first report, you may not be sure everything went through. The Comptroller lets you check. Its Franchise Tax Account Status search used to be called "Good Standing". It shows whether an entity has the right to do business in Texas. You can search by:

1. the 11-digit Texas Taxpayer Number
2. the 9-digit EIN (see What Is an EIN (Employer Identification Number)?)
3. the entity name, 2 to 50 characters
4. the Secretary of State file number, 6 to 10 digits

Check the status once a year after May 15. If it shows a problem, the usual cause is a missing report. File it and pay any amounts due. Status questions go to 800-252-1381.

Later on, a closing, withdrawal or merger means you'll need a Certificate of Account Status (Form 05-359). It's valid through December 31 of the year it's issued. A company that closes in its first year writes "PREMATURE" on its reports and files Form 05-359.

Common mistakes owners make with the report

Most problems with this tax start as small misunderstandings. The most common one is thinking that owing no tax means filing nothing. Every company under $2,650,000 still files a PIR or OIR each year. A related one is using an old threshold. The $2,470,000 figure applied only to report years 2024 and 2025, and for 2026 and 2027 it's $2,650,000.

New owners also count the first year wrong. The first report is due May 15 of the year after the company became subject to the tax. That's a year later than many expect. Other slips we see in the rules:

• asking for an extension without paying enough by May 15, which leaves the report late
• assuming the federal BOI report covers Texas, when it doesn't replace the PIR or OIR
• ignoring the "File Now" emails and mailed notices that come before forfeiture
• skipping the closing steps: a final report within 60 days after Texas nexus ends and Form 05-359

If you run the company from outside Texas

These slips are easier to make when you live far away. The rules for an owner abroad are the same as for a local owner, but the practical risk is different. Owners far from Texas rarely have trouble with the tax itself, because most of them owe nothing.

The trouble comes from the report. The Comptroller's emails and letters go to an address or inbox that nobody checks. So make sure someone reads the mail sent to the company's registered addresses. LLC Annual Report: Requirements, Fees and Due Dates by State compares yearly filings in other states.

What to do this month

Start by looking up your company in the Franchise Tax Account Status search. Then put May 15 in your calendar, even if you expect to owe $0. If this is your first year, count from the year the company became subject to the tax.

Next, make sure someone reads the Comptroller's emails and letters. And if your revenue is getting close to $2,650,000, get help with the calculation before the next report is due.

A $0 report keeps the company in good standing with the state. Our team works on the public side for new companies. We set up the Google profile, map listings and social pages that customers check.