As a business owner in Texas, understanding the Texas Franchise Tax is essential to ensure your business remains compliant and avoids penalties. The Texas Franchise Tax is a form of business tax that all businesses, including LLCs, corporations, and some partnerships, must pay to operate in the state. Here’s what you need to know.
What is the Texas Franchise Tax?
The Texas Franchise Tax, sometimes referred to as a “marginal tax,” is a tax based on the gross revenue of your business. It applies to most businesses in Texas, with some exemptions based on revenue levels. This tax is separate from federal income tax and must be filed annually with the Texas Comptroller’s office.
Who Needs to Pay the Texas Franchise Tax?
Almost every business entity, including LLCs, corporations, limited partnerships, and other entities doing business in Texas, must file an annual franchise tax report. However, businesses with gross revenues under $1.23 million (as of 2025) are generally exempt from paying the tax, though they still need to file an informational report.
How is the Franchise Tax Calculated?
The tax is based on your business’s gross receipts. Texas offers two main methods for calculating the franchise tax:
The No-Tax Due Threshold: If your business's annual revenue is below the $1.23 million threshold, you won’t owe any franchise tax but will need to file an annual report.
The Marginal Tax Rate: If your business exceeds the threshold, you will pay a percentage of your gross revenue, with rates varying based on the amount of revenue:
0.375% for businesses with gross revenue over $1.23 million but less than $10 million.
0.75% for businesses with gross revenue over $10 million.
The tax rate is typically calculated using a business’s gross receipts from the prior year.
When is the Franchise Tax Due?
The Texas Franchise Tax is due on May 15th each year. Your business must file the franchise tax report, regardless of whether you owe any taxes. If May 15th falls on a weekend or holiday, the due date is the next business day.
How to File the Franchise Tax Report
You can file your Texas Franchise Tax report online using the Texas Comptroller's eSystems portal. The report will ask for details about your business’s gross revenue, financial information, and other required documents.
Penalties for Not Filing
Failure to file your Franchise Tax report or pay any taxes due can result in penalties, interest, and even the involuntary dissolution of your business entity. It’s crucial to file on time, even if you don’t owe any taxes.
Understanding and complying with the Texas Franchise Tax is a critical part of operating your business legally in the state. Stay on top of filing deadlines, ensure you meet the revenue threshold, and maintain accurate financial records to avoid complications. If you’re unsure about your business’s tax obligations, consulting with a tax professional is always a wise decision.
Comments