Texas Franchise Tax for LLCs: Calculation, Filing, and Forfeiture

The Texas franchise tax for LLCs is an annual privilege tax every Texas LLC must reckon with, even when nothing is owed. For the 2026 report year, an LLC with annualized total revenue of $2.65 million or less pays no tax but still has to file an information report to stay in good standing.¹ Above that threshold, the tax runs 0.375 percent of taxable margin for retail and wholesale businesses and 0.75 percent for everyone else.² The deadline is May 15.

Which LLCs Owe the Tax

Texas treats the franchise tax as the price of doing business under the state’s legal protections, and LLCs, including single-member and series LLCs, fall squarely within the definition of “taxable entity” under Tax Code Section 171.0002.³²

For the 2026 report year, an LLC whose annualized total revenue is $2.65 million or less owes no franchise tax. That threshold was $2.47 million for the 2024 and 2025 report years.¹ Falling under the threshold does not excuse the LLC from filing. It still submits a Public Information Report (Form 05-102), or an Ownership Information Report (Form 05-167) if another entity owns it. The old No Tax Due Report (Form 05-163) was discontinued starting with the 2024 report year.⁴

One point of confusion worth clearing up: the “passive entity” exemption you may have heard about does not apply to LLCs. It is available only to general partnerships, limited partnerships, and non-business trusts that earn at least 90 percent of their federal gross income from passive sources like dividends, interest, and capital gains.⁵ An LLC holding purely passive investments still owes the franchise tax if it clears the revenue threshold.

How the Tax Is Calculated

Once an LLC exceeds the no-tax-due threshold, the tax applies to the LLC’s taxable margin. The rate depends on the type of business:

Retail or wholesale: 0.375 percent of taxable margin
All other businesses: 0.75 percent of taxable margin

Both rates apply for the 2026 report year.²

Four Ways to Calculate Margin

Taxable margin starts with total revenue, generally the amount reported on the LLC’s federal return (Form 1065 for partnerships, Form 1120 for entities taxed as corporations).⁶ From there, the LLC picks whichever of these four methods produces the lowest margin:

Total revenue multiplied by 70 percent
Total revenue minus $1 million
Total revenue minus cost of goods sold (COGS)
Total revenue minus compensation

The LLC always gets at least a $1 million deduction, because margin cannot exceed the lesser of 70 percent of total revenue or total revenue minus $1 million, even if the COGS or compensation method would produce a larger figure.⁶ An LLC with $1.5 million in total revenue and minimal COGS or payroll would simply subtract $1 million and pay tax on the remaining $500,000.

The COGS deduction covers direct production costs like materials and production labor. The compensation deduction includes W-2 wages, cash compensation to officers and owners, and federally deductible benefits like health insurance and retirement contributions. It does not include the employer’s share of payroll taxes or 1099 payments to independent contractors.⁷ A per-person cap on compensation adjusts every two years, so check the current instructions before filing.

The EZ Computation Shortcut

LLCs with total revenue of $20 million or less can skip the margin calculation and use the EZ Computation method, which taxes total revenue at a flat 0.331 percent for the 2026 report year.⁸ It’s simpler, with no deduction for COGS or compensation, but it often produces a higher bill than the full margin calculation. Run the numbers both ways before committing.

When to File and How to Get an Extension

The annual franchise tax report is due May 15. If May 15 falls on a weekend or holiday, the deadline moves to the next business day.² A newly formed LLC files its first report by May 15 of the year after formation or registration with the Secretary of State, covering the period from formation through the end of its federal accounting year.

The Comptroller grants an automatic extension when you submit a timely extension request or make an online extension payment on or before May 15.¹ For most LLCs, the extended deadline is November 15. Entities required to pay by electronic funds transfer get a first extension to August 15 and may request a second extension to November 15.⁹ If you make the extension payment online through Webfile, do not also mail a paper extension request (Form 05-164), or you’ll create duplicate records.

An extension gives you more time to file, not more time to pay. You still owe at least 90 percent of the tax by May 15 to avoid late-payment penalties. This catches people every year. They file the extension, assume they’re covered, and get hit with a penalty in November because they underpaid back in May.

Which Forms to File

The forms you file depend on whether the LLC clears the no-tax-due threshold:

At or below $2.65 million (2026): only the Public Information Report (Form 05-102), or the Ownership Information Report (Form 05-167) if another entity owns the LLC. No tax computation form.⁴
Above the threshold, using EZ Computation: the EZ Computation Report (Form 05-169) plus the Public Information Report or Ownership Information Report.
Above the threshold, using the full margin calculation: the Long Form (Forms 05-158-A and 05-158-B) plus the Public Information Report or Ownership Information Report.⁴

The Public Information Report lists the LLC’s officers, directors, or managers and their addresses. The Ownership Information Report tracks parent-subsidiary relationships. Every LLC files one or the other each year.

Electronic filing runs through the Comptroller’s eSystems portal, where Webfile handles both reports and payments.¹⁰ You’ll need the LLC’s 11-digit Texas Taxpayer Number and the Webfile XT number from prior Comptroller correspondence to link the account.² Keep the federal Employer Identification Number nearby too. Credit card payments carry a 2.25 percent convenience fee plus a $0.25 processing charge, so bank transfer is usually the cheaper option on a larger bill.¹¹ After submission, save the confirmation number, and check the Taxable Entity Search tool on the Comptroller’s website to verify the filing was accepted.

What Happens If You File or Pay Late

A $50 penalty applies to every franchise tax report filed after the due date.² If tax is owed and paid late, the penalties climb:

1 to 30 days late: 5 percent of the unpaid tax
More than 30 days late: 10 percent
After the Comptroller sends a formal notice of tax due: an additional 10 percent, for a total of 20 percent¹²

Interest accrues on top of the penalty. A modest bill left alone for a few months turns into a much larger one.

Forfeiture of the Right to Do Business

If the report isn’t filed or the tax isn’t paid within 45 days after the Comptroller mails a notice of forfeiture, the Comptroller can forfeit the LLC’s right to transact business in Texas.¹³ Forfeiture does two things at once. It blocks the LLC from suing or defending itself in Texas courts, and it makes each officer, director, or manager personally liable for certain debts of the entity.¹⁴

The personal liability piece is the one that blindsides owners. The whole reason to form an LLC is liability protection, and forfeiture strips it. If the LLC is sued during forfeiture, the members cannot show up to defend the case, and they may be individually on the hook for any judgment. If the delinquency drags on, the Comptroller notifies the Secretary of State, who can permanently terminate the LLC’s charter. At that point the entity ceases to exist.

Reinstating a Forfeited LLC

Reinstatement is possible but has to happen in a specific order. First, file every overdue franchise tax report and pay all outstanding tax, penalties, and interest. Then submit Form 05-391, Tax Clearance Letter Request for Reinstatement, by mail or through Webfile. Once the Comptroller issues the tax clearance letter (Form 05-377), take it to the Secretary of State along with the required reinstatement forms and filing fees. Only after the Secretary of State processes the reinstatement does the LLC regain its legal standing.¹⁵ The window closes eventually. If too much time passes after termination, forming a new entity may be the only option.

Combined Reporting for Related LLCs

If the LLC belongs to an affiliated group of entities engaged in a unitary business, the group files a single combined franchise tax report rather than separate reports, and every member must use the same margin calculation method.⁶ The combined report adds the revenue of all members, applies one deduction method across the group, and apportions the result to Texas. If your LLC owns or is owned by other Texas entities, filing separately when a combined report is required is a common trigger for a Comptroller audit.

1
Texas Comptroller of Public Accounts. Texas Franchise Tax Report Forms for 2026
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Texas Comptroller of Public Accounts. Franchise Tax
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State of Texas. Texas Tax Code 171 – Franchise Tax
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Texas Comptroller of Public Accounts. No Tax Due Reporting for Report Year 2024 and Later
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State of Texas. Texas Tax Code 171.0003 – Definition of Passive Entity
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Texas Comptroller of Public Accounts. Franchise Tax Overview
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Texas Comptroller of Public Accounts. Compensation – Franchise Tax Frequently Asked Questions
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Texas Comptroller of Public Accounts. Franchise Tax
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Texas Comptroller of Public Accounts. Franchise Tax Extensions of Time to File
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Texas Comptroller of Public Accounts. File and Pay
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Texas Comptroller of Public Accounts. Pay with Credit Card
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Texas Comptroller of Public Accounts. Penalties for Past Due Taxes
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State of Texas. Texas Tax Code 171.251 – Forfeiture of Corporate Privileges
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State of Texas. Texas Tax Code 171.252 – Effects of Forfeiture
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Texas Comptroller of Public Accounts. Reinstating or Terminating a Business