Texas Comptroller No Tax Due Threshold: Filing and Exemptions

For the 2026 report year, the Texas no tax due threshold is $2,650,000 in annualized total revenue.¹ If your business is at or below that number, you owe zero franchise tax and you do not file a No Tax Due Report. You still have to file a Public Information Report or an Ownership Information Report with the Comptroller every year, and skipping it can cost you the right to do business in Texas.

How the Threshold Works

Every taxable entity formed or doing business in Texas owes franchise tax unless an exemption applies.² The no tax due threshold is the main relief for smaller businesses: annualized total revenue at or below the threshold means zero liability. For the 2025 report year the number was $2,470,000; for 2026 it moved to $2,650,000.¹

The threshold jumped in 2024 after Senate Bill 3, passed during the 88th Legislature’s second called session, reset the base to $2.47 million for reports originally due on or after January 1, 2024.³ The same bill eliminated the No Tax Due Report itself for entities under the threshold, effective with the 2024 report year.

The number is not fixed. Texas Tax Code Section 171.006 requires the Comptroller to adjust it on January 1 of every even-numbered year based on changes in the Consumer Price Index for All Urban Consumers, rounded to the nearest $10,000. That adjustment cannot be appealed.

One trap catches new businesses. The threshold is measured against a 12-month period. If your entity had a short reporting period, the Comptroller annualizes the revenue before comparing it to the threshold. A business open six months with $1.5 million in revenue annualizes to $3 million and is over the limit.

Combined groups get one threshold, not one per member. The $2,650,000 applies to the group’s combined total revenue, and every taxable entity in the group has to be included even if one member sits well under the number on its own.⁴

How Total Revenue Is Calculated

Total revenue for franchise tax purposes starts with your federal tax return, not a separate books calculation. Corporations filing IRS Form 1120 begin with gross receipts on line 1c and add lines 4 through 10. Partnerships filing IRS Form 1065 add line 1c, lines 4, 6, and 7, Schedule K income from lines 3a and 5 through 11, and rental income from Form 8825.

From that total you subtract items the Texas Tax Code excludes: bad debt expenses that correspond to gross receipts already counted, foreign dividends and royalties, and net distributive income from partnerships or S corporations that file separately. The result, annualized if the reporting period is short, is what you compare to the threshold.⁴

What You Still Have to File Under the Threshold

The old No Tax Due Report (Form 05-163) has been discontinued and is no longer available for filing.⁵ Under the threshold, you do not file a franchise tax report at all. You do have to file either a Public Information Report (Form 05-102) or an Ownership Information Report (Form 05-167) every year.⁴

Which one you file depends on how the business is organized. Corporations, LLCs, limited partnerships, professional associations, and financial institutions file the PIR; the officer and director information on it becomes public and shows up in the Comptroller’s online Taxable Entity Search. All other taxable entities file the OIR, and its ownership details stay confidential.⁶

Each member of a combined group that is organized in Texas or has nexus here has to file its own separate PIR or OIR, even if the group collectively falls under the threshold.⁶

Deadline and How to File

The annual due date for the PIR or OIR is May 15, the same as the franchise tax report deadline. When May 15 lands on a weekend or holiday, the deadline moves to the next business day. For 2026, the due date is May 15, 2026.¹

Filing runs through the Comptroller’s Webfile system inside eSystems.⁷ You need your 11-digit Texas Taxpayer Number and your franchise tax Webfile number (the XT number). If you don’t have the XT number, call the Comptroller at 1-800-442-3453.⁸

Need more time? Entities not required to pay by electronic funds transfer get an automatic extension to November 15 by filing Form 05-164 or requesting the extension through Webfile on or before May 15. The extension usually requires paying at least 90 percent of the tax that will be due or 100 percent of the prior year’s tax by May 15.⁹ For entities under the threshold there is no tax to pay, but the PIR or OIR itself still has to reach the Comptroller by the deadline.

If Your Revenue Goes Over

Cross above $2,650,000 in annualized total revenue and you owe franchise tax and file the full report. Tax is calculated on your “margin,” and you choose whichever of four methods gives the lowest number:

Total revenue minus cost of goods sold, available only if your business sells tangible personal property or real property.
Total revenue minus compensation, meaning wages and benefits paid to employees.
Total revenue times 70 percent, a flat reduction with no itemization.
Total revenue minus $1 million.

For the 2026 report year the rate applied to the resulting margin is 0.75 percent for most businesses and 0.375 percent for retail and wholesale operations.¹

There is also an EZ Computation option for entities with $20 million or less in annualized total revenue. You skip the four margin methods and multiply total revenue by 0.331 percent.¹ The trade-off is that you give up any tax credits and cannot subtract COGS or compensation. For businesses that barely cross the threshold, the EZ computation is often the simplest path and produces a small bill.

Exemptions That Don’t Depend on Revenue

Two categories of entities are exempt from franchise tax regardless of revenue and operate under their own rules.

Passive Entities

A passive entity has to be a general or limited partnership or a trust other than a business trust. At least 90 percent of its federal gross income must come from passive sources: dividends, interest, capital gains from real property or securities, commodity exchange gains, royalties and other income from mineral interests, and distributive shares of partnership income. No more than 10 percent of federal gross income can come from an active trade or business. Rent does not count as qualifying passive income.

A qualifying passive entity still files. It submits either the EZ Computation Report or the Long Form, blackens the passive entity circle in the taxpayer information section, and signs the report. It does not need to complete any other sections and does not file a PIR or OIR.¹⁰

New Veteran-Owned Businesses

A qualifying new veteran-owned business is fully exempt from franchise tax for its first five years and files nothing during that period: no franchise tax report, no PIR, no OIR.¹⁰ Qualification requires filing three documents with the Secretary of State at formation: a Letter of Verification of Veteran’s Honorable Discharge for each owner, Form 05-904 (Certification of New Veteran-Owned Business), and the standard formation documents.¹¹ The exemption ends on the fifth anniversary of formation or the date the business no longer qualifies, whichever comes first.¹²

What Happens If You Don’t File

Owing zero tax does not excuse the filing. Missing the deadline triggers a $50 penalty for each late report.¹³ That penalty is small enough that some owners ignore it. The real problem comes after.

If you do not file within 45 days after the Comptroller mails a notice of forfeiture, the Comptroller forfeits your entity’s right to transact business in Texas. A forfeited entity is denied the right to sue or defend in any Texas court, and each director or officer can become personally liable for certain debts of the business. Failure to file a completed PIR or OIR can trigger the same forfeiture on its own.⁶ A forfeited entity cannot enforce a contract in court and may not be able to renew certain professional licenses.

Reinstating a Forfeited Business

Reinstatement means clearing the books with both the Comptroller and the Secretary of State. First, file every delinquent franchise tax report and every missing PIR or OIR, then pay all outstanding tax, penalties, and interest. Once the account is current, request a Tax Clearance Letter through Webfile under “Request Clearance Letter for Reinstatement,” or by mailing Form 05-391 in the situations that require it, such as combined groups or entities forfeited before January 1, 2000.⁸

Second, file Form 801 (Application for Reinstatement and Request to Set Aside Tax Forfeiture) with the Secretary of State, attaching the Tax Clearance Letter. The filing fee is $75. If your name is no longer distinguishable in the SOS records because another business registered a similar name while yours was forfeited, file a name amendment at the same time.¹⁴

The whole process can take weeks. Businesses that discover the forfeiture only when they try to file a lawsuit or close a deal end up scrambling. Filing the annual PIR or OIR on time, even when the tax bill is zero, avoids all of it.

1
Texas Comptroller of Public Accounts. Franchise Tax
2
Texas Comptroller of Public Accounts. Franchise Tax Overview
3
Texas Legislature Online. Texas Code – Senate Bill 3, 88th Legislature 2nd Called Session
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Texas Comptroller of Public Accounts. 2026 Franchise Tax Instructions
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Texas Comptroller of Public Accounts. 2025 Texas Franchise Tax Report Information and Instructions
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Texas Comptroller of Public Accounts. Texas Franchise Tax Public Information Report and Ownership Information Report
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Texas Comptroller of Public Accounts. File and Pay
8
Texas Comptroller of Public Accounts. Requesting Tax Certificates and Tax Clearance Letters
9
Texas Comptroller of Public Accounts. Franchise Tax Extensions of Time to File
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Texas Comptroller of Public Accounts. No Tax Due Reporting for Report Year 2024 and Later
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Texas Comptroller of Public Accounts. New Veteran-Owned Businesses and Texas Franchise Tax
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Office of the Texas Secretary of State. Business Information for Veterans
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Texas Comptroller of Public Accounts. Penalties for Past Due Taxes
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Office of the Texas Secretary of State. Form 801 – Instructions for Application for Reinstatement and Request to Set Aside Tax Forfeiture