What Is the Texas Franchise Tax? Filing, Rates & Requirements
What Is Texas Franchise Tax?
If you’re doing business in the Lone Star State, there’s a good chance you’ve heard of the Texas Franchise Tax. Despite the name, this isn’t a fee for operating a franchise—it's a state business tax that most legal entities must file annually for the privilege of doing business in Texas.
Whether you’re launching a new LLC in Austin, managing a corporation in Dallas, or operating a business remotely from out of state, understanding your franchise tax obligations is essential to staying compliant and avoiding penalties.
Who Is Required to Pay Texas Franchise Tax?
The Texas Franchise Tax applies to a wide range of taxable entities operating in or formed under Texas law. These include:
Limited Liability Companies (LLCs) – Whether single-member or multi-member, all LLCs are considered taxable entities unless specifically exempt.
Corporations – This includes both C-corporations and S-corporations, regardless of whether they are subject to federal income tax at the entity level.
Partnerships – Most limited partnerships (LPs) and limited liability partnerships (LLPs) fall under franchise tax rules.
Professional associations and professional corporations – These include entities formed by licensed professionals such as doctors, lawyers, and architects.
Business trusts and other legal entities – Certain trusts and non-traditional entities engaged in business activities are also included.
Importantly, franchise tax filing is required even if your business owes no tax. This means that even small businesses below the revenue threshold must submit a No Tax Due Report annually to stay in compliance and maintain their good standing with the Texas Comptroller.
The main exemptions from the Texas Franchise Tax apply to:
Sole proprietorships – Because they are not separate legal entities under Texas law, they are not subject to franchise tax.
General partnerships composed entirely of natural persons (i.e., no corporate or LLC partners) – These partnerships are not considered taxable entities under the franchise tax statute.
If your business is structured as one of these exempt types, you do not need to file a franchise tax report. However, once you register a formal entity with the Texas Secretary of State—like an LLC or corporation—you will fall within the scope of this tax.
What Triggers Franchise Tax in Texas?
Texas imposes its franchise tax on any taxable entity that is either formed in Texas or doing business within the state. This includes not just Texas-based businesses, but also out-of-state companies that conduct certain activities in Texas. If your business has any meaningful presence or economic connection to Texas, you're likely subject to this tax.
What Does “Doing Business in Texas” Mean?
The definition of “doing business” is broader than many entrepreneurs expect. According to the Texas Comptroller, your business may be considered to be operating in Texas—and therefore subject to the franchise tax—if it engages in any of the following:
Having a physical presence in Texas: This includes operating an office, retail store, warehouse, manufacturing plant, or other fixed place of business within the state.
Employing workers or contractors in Texas
If you have employees, agents, or independent contractors performing work in Texas—whether on-site or remotely—this can trigger a filing requirement.Selling goods or services to Texas customers: Even if your business is based in another state, regularly shipping products to or providing services in Texas may qualify as doing business, especially if you cross certain sales thresholds.
Holding a business license, permit, or registration in Texas: If your company has obtained a sales tax permit, professional license, or is registered with the Secretary of State to transact business in Texas, you are likely subject to franchise tax rules.
Owning, leasing, or using property in Texas: Whether it's a leased office space, a company vehicle, or even equipment located within the state, having tangible assets in Texas can establish a nexus for tax purposes.
In general, having economic nexus or legal authority to operate in Texas—even without a physical location—can trigger franchise tax obligations.
Out-of-State Businesses Take Note
Out-of-state entities are often surprised to learn that no Texas office or employees are required to fall under the tax. For example, a Delaware LLC selling software subscriptions to Texas residents or a Florida-based e-commerce store with high Texas sales may be required to file. If your revenue from Texas exceeds a certain threshold or your activities establish a nexus, you’re required to file—and possibly pay—Texas franchise tax.
How Much Is the Texas Franchise Tax?
Texas uses a margins-based tax, calculated as a percentage of a business's total revenue, with options for certain deductions. The tax rates are:
0.75% for most taxable entities
0.375% for retailers and wholesalers
However, Texas offers a No Tax Due Threshold, which allows small businesses to file but owe no tax if their total revenue is below the threshold: No Tax Due Threshold for 2024–2025: $2.47 million in annual revenue
If your business’s total revenue is below this amount, you don’t owe tax—but you must still file a No Tax Due Report.
Do I Have to File Texas Franchise Tax?
Yes. All taxable entities must file a franchise tax return annually, regardless of whether tax is due.
There are three common filing options:
No Tax Due Report – for businesses below the revenue threshold
EZ Computation Report – a simplified return for businesses under $20 million in revenue
Long Form Report – for larger businesses or those needing more complex deductions
All reports are due annually on May 15, unless the date falls on a weekend or holiday.
Do You Have to Pay Franchise Tax If Less Than $1,000 in Texas?
Yes and no. If your calculated franchise tax due is less than $1,000, you don’t have to pay it—but you still need to file your report.
Texas waives the payment for amounts under $1,000 but still requires you to complete the correct form based on your revenue level.
Conclusion
The Texas Franchise Tax is a key annual obligation for most businesses operating in or formed in Texas. Whether or not your company owes money, filing is still required, and missing deadlines can lead to fines, penalties, or a forfeited business status.
Staying compliant ensures your business remains in good standing and avoids unnecessary complications.
Need help with franchise tax filing? Talk to a tax professional to ensure your returns are accurate and filed on time.
FAQs
Who is required to pay Texas franchise tax?
LLCs, corporations, partnerships, and most legal entities doing business in Texas must file, even if no tax is owed.
What triggers franchise tax in Texas?
Forming an entity in Texas or doing business in the state—such as having customers, employees, or property in Texas—can trigger tax obligations.
How much is the Texas franchise tax?
0.75% for most businesses; 0.375% for retailers and wholesalers. No tax is owed if revenue is under $2.47 million, but filing is still required.
Do I have to file Texas franchise tax?
Yes. All taxable entities must file annually, even if no tax is due.
Do you have to pay franchise tax if less than $1,000 in Texas?
No, but filing is still required—even if the tax due is under $1,000.