Texas state tax filing splits cleanly along one line: individuals file nothing with the state, and businesses file with the Texas Comptroller of Public Accounts. There is no personal income tax return in Texas, so residents’ only income-related filing is their federal return. Businesses operating in Texas face two main state-level obligations administered by the Comptroller: the franchise tax and the sales and use tax.1Texas Comptroller of Public Accounts. Taxes
Individuals: Nothing to File With the State
Texas has never levied a personal income tax, and in 2019 voters approved Proposition 4, which amended the state constitution to prohibit one.2Ballotpedia. Texas Proposition 4, Prohibit State Income Tax on Individuals Amendment (2019) Because the ban now lives in the constitution, reversing it would take a two-thirds vote in both legislative chambers followed by a statewide referendum.
In practical terms, if you live and work in Texas, you do not file a state return reporting wages, interest, dividends, capital gains, or retirement distributions. The Comptroller publishes no personal income tax forms, requires no state income tax withholding from employers, and runs no state refund process for individuals. Your only income-related filing is federal.
The One Federal Difference: Claim the Sales Tax Deduction
Federal law lets itemizers deduct either state and local income taxes or state and local general sales taxes.3Office of the Law Revision Counsel. 26 USC 164 – Taxes Since Texas residents pay no state income tax, the sales tax election is almost always the right choice.
You can calculate the deduction two ways. Save every receipt and total the actual sales tax paid, or use the IRS tables that estimate your deduction from income, family size, and local tax rates. If you made a large purchase during the year, such as a car or boat, you can add that actual sales tax on top of the table amount.4Internal Revenue Service. Use the Sales Tax Deduction Calculator
The combined SALT cap (state and local income or sales taxes plus property taxes) is $40,400 for 2026, or $20,200 if married filing separately. The cap increases 1 percent annually through 2029, then reverts to $10,000 in 2030 unless Congress acts. Texas homeowners often fill the cap by combining sales tax with property tax, since the state’s effective property tax rate of roughly 1.40 percent is among the highest in the country.
Who Owes Texas Franchise Tax
The franchise tax applies to every taxable entity formed or organized in Texas and to out-of-state entities doing business here.5Texas Comptroller of Public Accounts. Franchise Tax That covers corporations, LLCs, limited partnerships, professional associations, and most other legal business structures. Sole proprietorships and general partnerships owned entirely by natural persons are generally exempt, along with certain passive entities and nonprofits.
Out-of-state businesses need to check both forms of nexus. Physical nexus is simple: employees, an office, inventory, or other property in Texas triggers it. Economic nexus applies without any physical presence. A foreign entity with $500,000 or more in gross receipts from Texas sources during its federal tax accounting period has franchise tax nexus even with no employee or square foot in the state.6Cornell Law School. 34 Texas Administrative Code 3.586 – Margin: Nexus Federal Public Law 86-272 can shield certain out-of-state sellers whose only Texas activity is soliciting orders for tangible personal property, but the shield is narrow and does not cover services, software licensing, or any activity beyond taking orders for physical goods.
Franchise Tax Rates, Threshold, and Calculation
For the 2026 report year, the no-tax-due threshold is $2,650,000 in annualized total revenue. Entities at or below that amount owe no franchise tax, though they still have a filing obligation (see below).5Texas Comptroller of Public Accounts. Franchise Tax
Entities above the threshold calculate tax on taxable margin: total revenue minus the highest of four deductions (cost of goods sold, compensation, 30 percent of total revenue, or $1 million). The margin is then multiplied by the applicable rate:
- Retail or wholesale businesses: 0.375%
- All other businesses: 0.75%
- EZ computation: 0.331% on total revenue, available to entities with total revenue of $20 million or less
The EZ computation skips the margin calculation entirely. For many small and mid-size businesses it produces a slightly higher bill than running the margin with the cost of goods or compensation deduction, but it eliminates significant accounting work.
Franchise Tax Forms and Deadlines
The annual franchise tax report is due May 15. If that date falls on a weekend or holiday, the deadline moves to the next business day.5Texas Comptroller of Public Accounts. Franchise Tax You can request an extension to November 15, but to keep the extension valid you must pay either 100 percent of the prior year’s tax or 90 percent of the current year’s liability by the original May 15 date. Falling short triggers penalty and interest on the underpayment retroactively.7Texas Comptroller of Public Accounts. Franchise Tax Extensions of Time to File
Here is where entities with low revenue most often slip up. The old No Tax Due Report (Form 05-163) was discontinued starting with the 2024 report year, so entities below the no-tax-due threshold no longer file that form.8Texas Comptroller of Public Accounts. No Tax Due Reporting for Report Year 2024 and Later But every taxable entity must still file an annual information report. Corporations, LLCs, limited partnerships, professional associations, and financial institutions file Form 05-102, the Public Information Report, listing officers, directors, the registered agent, and ownership percentages.9Texas Comptroller of Public Accounts. Texas Franchise Tax Public Information Report and Ownership Information Report Other entity types file the Ownership Information Report. Either report is due by the same May 15 deadline.
Entities that owe tax also complete a franchise tax report calculating their margin. You will need your eleven-digit Texas Taxpayer Number, your federal EIN, and detailed revenue figures tied to your federal return.
How to File and Pay
The Comptroller’s eSystems portal, which includes WebFile, handles electronic filing for both franchise and sales tax returns.10Texas Comptroller of Public Accounts. File and Pay After you register and log in, you pick the tax type, enter your data, review the summary, and submit with an electronic signature. Submission generates an immediate confirmation.
Paper filing is still allowed. Mail completed forms to:
Comptroller of Public Accounts
P.O. Box 149348
Austin, TX 78714-934811Texas Comptroller of Public Accounts. Texas Franchise Tax Report Forms for 2025
Use a tracked mailing method so you can prove timely delivery. Processing takes longer and confirmation can be weeks out.
For payments, state law requires businesses that paid $10,000 or more in a single tax category during the prior state fiscal year to pay electronically. Businesses at the $500,000-or-more level must use TEXNET. Everyone else can pay by electronic check through WebFile or by credit card.12Texas Comptroller of Public Accounts. TEXNET and Electronic Payment of Taxes and Fees
Sales and Use Tax
Any business selling taxable goods or services in Texas must collect the 6.25 percent state sales tax, plus any applicable local tax of up to 2 percent, for a maximum combined rate of 8.25 percent.13Texas Comptroller of Public Accounts. Local Sales and Use Tax Collection – A Guide for Sellers You need a Texas sales tax permit before collecting. There is no fee for the permit, though the Comptroller may require a security bond depending on your circumstances.14Texas Comptroller of Public Accounts. Texas Sales and Use Tax Frequently Asked Questions
The Comptroller assigns your filing frequency after you apply:
- Monthly filers report by the 20th of the following month.
- Quarterly filers report by the 20th of the month after each quarter ends.
- Annual filers report by January 20 for the prior year’s sales.15Texas Comptroller of Public Accounts. Sales and Use Tax
Permitted sellers who file and pay on time receive a 0.5 percent discount on the tax they collected. Prepay and you can also claim a 1.25 percent prepayment discount on top of that.
Remote sellers with economic nexus face the same collection obligations. Following the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Texas uses its $500,000 gross receipts threshold for sales tax collection by out-of-state sellers as well.
Penalties If You Miss a Deadline
The Comptroller’s penalty structure escalates fast.16Texas Comptroller of Public Accounts. Penalties for Past Due Taxes
- $50 per late report, assessed on every report filed after its due date, even if no tax is owed.
- 5 percent penalty on tax paid 1 to 30 days late.
- 10 percent penalty on tax paid more than 30 days late.
- An additional 10 percent if you still have not paid after receiving a formal Notice of Tax Due, bringing the total to 20 percent.
Interest begins accruing on the 61st day after the report’s due date, at a variable rate the Comptroller sets at the start of each calendar year. The $50 late-report penalty is the one that most often surprises small entities. A business below the no-tax-due threshold that forgets to file its Public Information Report still owes the $50.
Record Keeping
Texas law requires businesses to keep tax records and supporting documentation for at least four years, matching the period during which the Comptroller can assess, collect, or refund a tax. If you are under audit, hold everything until the audit is resolved, even if four years have already passed.
Keep more than just filed returns and confirmations. The underlying accounting data matters: revenue reports, cost-of-goods calculations, compensation records used for the margin computation, and sales tax exemption certificates. Keep federal returns alongside state filings, since the franchise tax calculation starts from federal figures. The IRS generally has three years from your filing date to open an audit, extended to six years if you underreport gross income by more than 25 percent, so align your retention to the longer of the state and federal windows.