Every corporation, LLC, limited partnership, and other taxable entity formed or doing business in Texas must file a Texas franchise tax return with the Comptroller of Public Accounts each year by May 15. For the 2026 report year, entities with annualized total revenue at or below $2.65 million owe no tax, but they still have to file an information report. Entities above that threshold pay 0.75% on their taxable margin, or 0.375% if they’re primarily in retail or wholesale trade.1State of Texas. Texas Tax Code Section 171.002 – Rates, Computation of Tax
Who Has to File
Texas taxes every “taxable entity” chartered or organized in the state, as well as out-of-state entities doing business here.2State of Texas. Texas Tax Code Section 171.001 – Tax Imposed That net is wide. It takes in corporations, LLCs, limited partnerships, limited liability partnerships, banking corporations, savings and loan associations, business trusts, professional associations, joint ventures, and holding companies.3State of Texas. Texas Tax Code Chapter 171 – Franchise Tax
Sole proprietorships do not owe franchise tax. General partnerships escape too, as long as every owner is a natural person and the partnership has not registered as an LLP.3State of Texas. Texas Tax Code Chapter 171 – Franchise Tax Certain passive entities, trusts, estates, and REITs are exempt as well. Watch one common trap: if you run what feels like a sole proprietorship but you organized it as a single-member LLC, you are a taxable entity and you must file.
Which Forms You File
Your filing track depends on revenue. For the 2026 report year, entities with annualized total revenue at or below $2,650,000 owe no tax and no longer file a separate No Tax Due Report. The Comptroller discontinued Form 05-163 starting with the 2024 report year.4Texas Comptroller of Public Accounts. No Tax Due Reporting for Report Year 2024 and Later Entities above the threshold file the Long Form (Form 05-158), which walks through revenue, deductions, and margin.5Texas Comptroller of Public Accounts. Franchise Tax Overview
The information report is separate, and everyone owes one. Corporations, LLCs, limited partnerships, professional associations, and financial institutions file Form 05-102, the Public Information Report, updating officer, director, and manager details. All other taxable entities file Form 05-167, the Ownership Information Report.6Texas Comptroller of Public Accounts. Texas Franchise Tax Public Information Report and Ownership Information Report Even entities below the no-tax-due threshold must file the applicable information report.7Texas Comptroller of Public Accounts. Texas Franchise Tax Report Forms Skipping it because you don’t owe tax is one of the most common filing mistakes.
Before you log in, pull two numbers from Comptroller correspondence: your 11-digit Texas Taxpayer Number and your Webfile number, which is two letters followed by six digits.8Texas Comptroller of Public Accounts. Create a Webfile Account Step-by-Step You’ll also need your total revenue, cost of goods sold, and compensation figures for the reporting period.
How the Tax Is Calculated
Franchise tax applies to your “taxable margin,” not gross revenue or net profit. Margin is total revenue minus one of several deductions, and the rate depends on your industry.
Rates for 2026
- 0.75% for most taxable entities.1State of Texas. Texas Tax Code Section 171.002 – Rates, Computation of Tax
- 0.375% for entities primarily engaged in retail or wholesale trade.1State of Texas. Texas Tax Code Section 171.002 – Rates, Computation of Tax
- 0.331% under the EZ computation, available if total revenue is $20 million or less.9State of Texas. Texas Tax Code Section 171.1016 – EZ Computation and Rate
The EZ rate looks like the obvious choice, but it applies to apportioned total revenue with no deductions. For businesses with high payroll or significant cost of goods sold, the standard computation almost always produces a lower bill. Run both before you pick.
Picking a Margin Deduction
Under the standard calculation, you choose whichever of these four methods yields the lowest margin:5Texas Comptroller of Public Accounts. Franchise Tax Overview
- Total revenue minus cost of goods sold. This works best for businesses that manufacture, produce, or buy tangible goods for resale. Service businesses generally have little allowable COGS.
- Total revenue minus compensation. This covers W-2 wages, cash compensation to officers and owners, and benefits deductible federally. It does not include payments to independent contractors or employer-paid payroll taxes. The per-person compensation deduction is capped at $480,000 for the 2026 report year.10Texas Comptroller of Public Accounts. Franchise Tax
- Total revenue times 70%. A flat calculation, useful as a benchmark.
- Total revenue minus $1 million. Often the best option for smaller entities with modest COGS and payroll.
For many small businesses, the $1 million subtraction under the standard computation beats the EZ rate once you work the numbers.
If You Do Business in More Than One State
If your entity earns revenue both inside and outside Texas, you only pay on the Texas share. The formula is single-factor: divide Texas gross receipts by total gross receipts, then multiply by your taxable margin.11State of Texas. Texas Tax Code Section 171.106 – Apportionment of Margin to This State If you’re organized outside Texas but you sell into the state, you likely have nexus and still owe a return.2State of Texas. Texas Tax Code Section 171.001 – Tax Imposed
The May 15 Deadline and Extensions
The annual return is due May 15. If May 15 falls on a weekend or holiday, the deadline moves to the next business day.10Texas Comptroller of Public Accounts. Franchise Tax
You can push the filing date to November 15 with a valid extension, but the extension is only valid if you submit it by May 15 and pay either 90% of the current year’s tax or 100% of last year’s tax with the request.12Texas Comptroller of Public Accounts. Franchise Tax Frequently Asked Questions An on-time request without the payment is not a valid extension.
Penalties and Interest
A missed deadline triggers a $50 late-filing penalty on each overdue report, even when no tax is owed, and that $50 stacks on top of any other penalties for the same period.13Texas Comptroller of Public Accounts. Penalties for Past Due Taxes
Interest on unpaid tax starts on the 61st day after the due date, at prime plus one percent. For 2026 that rate is 7.75%.14Texas Comptroller of Public Accounts. Interest Owed and Earned The 60-day grace period is more generous than most owners expect. Once it ends, interest compounds fast on larger balances.
Submitting the Return
Filing goes through the Comptroller’s Webfile system in the eSystems portal.15Texas Comptroller of Public Accounts. File and Pay Log in, select franchise tax, and enter your financial data. The system presents the correct forms based on your entity type and revenue level.
At the end you pay by ACH debit from a business bank account or by credit card.10Texas Comptroller of Public Accounts. Franchise Tax Save the confirmation receipt and copies of every submitted form. Electronic filings usually process within a few business days, and you can check compliance status in the same account.
What Happens If You Don’t File
The real cost of ignoring the return is not the $50 penalty. If your entity fails to file or pay within 45 days after the Comptroller mails a notice of forfeiture, the state forfeits your right to transact business in Texas.3State of Texas. Texas Tax Code Chapter 171 – Franchise Tax
Forfeiture does two things that catch owners off guard. Your entity loses the right to sue or defend in any Texas court, so if someone sues your company during forfeiture, you cannot respond.16State of Texas. Texas Tax Code Section 171.252 – Effects of Forfeiture And every director and officer becomes personally liable for debts the entity incurs after the forfeiture date, to the same degree as if they were partners in a general partnership. A director or officer avoids liability only by showing the debt was incurred over their objection, or without their knowledge despite reasonable diligence.3State of Texas. Texas Tax Code Chapter 171 – Franchise Tax
You can reinstate by filing every delinquent report and paying all tax, penalties, and interest. During the gap, though, your limited liability protection is effectively gone. For an active business with contracts and legal exposure, even a few months of forfeiture can do serious damage.
Filing a Final Return When Closing
If you’re dissolving, withdrawing from Texas, or merging the entity out of existence, you have to file a final franchise tax report before the state will let you terminate. The final report covers the period from the day after your last annual report’s accounting period ended through a date within 60 days of your termination date.17Texas Comptroller of Public Accounts. Reinstating or Terminating a Business
You must be current on all prior returns and owe no outstanding tax, penalties, or interest. Once the Comptroller processes your final report, request a Certificate of Account Status (Form 05-359) through Webfile or by mail. The Comptroller then issues Form 05-305, which you submit to the Secretary of State to formally end the entity.17Texas Comptroller of Public Accounts. Reinstating or Terminating a Business The certificate is only valid through December 31 of the year it’s issued, so don’t request it months before you’re ready to file with the Secretary of State.