Spec notes
- For 2026 and 2027 reports, an entity with annualized total revenue at or below $2,650,000 owes no franchise tax, according to the Texas Comptroller.
- Entities at or below the threshold no longer file a No Tax Due Report, but must still file a Public Information Report or Ownership Information Report.
- Sole proprietorships (other than single-member LLCs) and general partnerships owned entirely by natural persons do not file or pay franchise tax.
Founders moving to Austin often hear that Texas has no income tax. That is true for individuals. Businesses organized as LLCs, corporations and similar entities, however, are subject to the Texas franchise tax, which is based on their margin, a measure of revenue after certain deductions. Most new companies owe nothing for years, but nearly all of them still have a filing to make every spring. Here is how it works, from the Texas Comptroller’s own guidance.
Who is subject
The franchise tax applies to taxable entities organized in Texas or doing business in Texas, including corporations, LLCs, partnerships with limited liability, professional associations and similar entities. The Comptroller lists entities that do not file or pay, including:
- sole proprietorships, except single-member LLCs;
- general partnerships whose direct ownership is entirely natural persons, except limited liability partnerships;
- certain other entities named in the Comptroller’s overview, such as qualifying passive entities.
So the choice of structure matters: forming an LLC brings you into the franchise tax system. See Choosing a Business Structure in Texas: Sole Proprietorship, LLC or Corporation.
The numbers for 2026 and 2027
| Item | Report years 2026 and 2027 |
|---|---|
| No tax due threshold (annualized total revenue) | $2,650,000 |
| Tax rate, retail or wholesale | 0.375% |
| Tax rate, other businesses | 0.75% |
| Compensation deduction limit | $480,000 |
| EZ Computation total revenue threshold | $20 million |
For 2024 and 2025 reports, the no tax due threshold was $2,470,000. The Comptroller says rates, thresholds and deduction limits vary by report year, so use the figures for the year you are filing.
If you are under the threshold
Most new Austin businesses are. For reports originally due on or after January 1, 2024, the Comptroller discontinued the No Tax Due Report: an entity whose annualized total revenue is at or below the threshold owes no tax and does not file a franchise tax report. It must, however, file a Public Information Report (PIR), for corporations, LLCs, limited partnerships, professional associations and financial institutions, or an Ownership Information Report (OIR), for other taxable entities.
The Comptroller warns that an entity may forfeit its right to transact business in Texas if it fails to file a completed and signed PIR or OIR, even when no tax is due.
Tip: Make the May 15 filing a recurring calendar item from the day you form your LLC. The information report takes minutes; forfeiture is much harder to undo.
If you are over the threshold
The tax is based on margin. Unless the entity qualifies for and chooses the EZ Computation, the Comptroller says the tax base is margin, computed in one of these ways:
- total revenue times 70 percent;
- total revenue minus cost of goods sold;
- total revenue minus compensation; or
- total revenue minus $1 million.
Cost of goods sold generally covers producing or acquiring goods sold; businesses that sell only services or intangibles generally will not have allowable cost of goods sold. Compensation includes W-2 wages and benefits, subject to the per-person limit, but not 1099 labor or employer payroll taxes. Entities with total revenue of $20 million or less can use the EZ Computation instead, but then cannot take the margin deductions or claim credits.
When reports are due
The annual report is due May 15. According to the Comptroller’s FAQ, a taxable entity first subject to the tax files its first annual report on May 15 of the year after it became subject. An entity that became subject during 2025 had its first annual report due May 15, 2026. The first report covers the period from the date the entity became subject to the end of its accounting year.
Changes the PIR can’t make
The PIR lists officers, directors and managers. Changes to the registered agent or registered office are not made on the PIR; they must be filed directly with the Secretary of State.
What counts as compensation and revenue
Total revenue is based on amounts reported for federal income tax, minus statutory exclusions. For the compensation deduction, the Comptroller counts W-2 wages and cash compensation paid to officers, directors, owners, partners and employees, including net distributive income to natural persons, plus benefits such as workers’ compensation, health care and retirement to the extent they are federally deductible, subject to the per-person limit. It does not include 1099 labor or payroll taxes paid by the employer. Cost of goods sold generally covers acquiring and producing tangible property sold in the ordinary course of business.
The bottom line
If you form an LLC or corporation in Texas, expect a yearly May 15 filing with the Comptroller. Under $2,650,000 in revenue for 2026 and 2027 reports, that is just the information report; above it, the tax is a small percentage of margin, computed one of four ways. For the other state tax most startups meet, see Texas Sales Tax Permits for New Businesses: Who Needs One and How It Works.