If you're doing business in Texas, there's a good chance your company is required to file the Texas Franchise Tax—even if you don’t actually owe any money. Unlike federal income taxes, which are based on profits, the Texas Franchise Tax is a state privilege tax for the right to conduct business in the state. It applies broadly across many business structures and industries.
Which Entities Are Subject to the Tax?
The Texas Franchise Tax applies to most business entities, including:
Limited Liability Companies (LLCs)
Corporations, including C-corporations and S-corporations
Partnerships, such as limited partnerships (LPs) and limited liability partnerships (LLPs)
Professional associations and professional corporations
Business trusts and other registered legal entities
Whether your business earns a profit or not, you are generally required to file a franchise tax report every year. Filing is mandatory, even if your business earns less than the state’s No Tax Due Threshold, which exempts you from paying—but not from filing.
Who Is Exempt?
There are a few exceptions. The most notable exemptions include:
Sole proprietorships – Since these businesses are not separate legal entities from their owners, they are not subject to the Texas Franchise Tax.
General partnerships composed solely of natural persons – If your partnership has no corporate or LLC partners, it may be exempt from the tax.
It’s important to note that once a business entity registers with the Texas Secretary of State as an LLC, corporation, or other formal structure, it becomes a taxable entity under Texas law—regardless of how small the operation is.
Out-of-State Businesses Included
The requirement doesn’t stop at Texas-based companies. If your business is formed outside of Texas but has economic or physical presence in the state—such as employees, customers, or property—you may be required to file as well. This applies even if you only do business in Texas online or through third-party platforms.
Stay Compliant
Failing to file the required franchise tax reports—even if you owe nothing—can lead to penalties and loss of good standing with the state. If you’re unsure whether your business qualifies, consult a tax professional or check with the Texas Comptroller to avoid unnecessary fines.
