Texas Franchise Tax: What Business Owners Need to Know

Texas has no corporate income tax, but it does have a franchise tax, and that distinction trips up thousands of business owners every year. The 2026 no-tax-due threshold sits at $2,650,000 in total revenue, which means smaller businesses still have to file, they just may not owe anything.

What the Texas Franchise Tax Actually Is

The Texas franchise tax is a privilege tax imposed on entities for the right to do business in Texas. It is calculated on total revenue, not profit, which makes it structurally different from a corporate income tax.

This also means you can run a business at a loss and still owe franchise tax. The state taxes your revenue, not your bottom line.

A common question is whether a gross receipts tax and a franchise tax are the same thing. They function similarly, but the Texas franchise tax uses a total revenue base that includes gross receipts along with other income streams. The Comptroller uses total revenue as the starting point, then applies the appropriate rate.

Who Must File in 2026

Most entities doing business in Texas must file, including corporations, LLCs, partnerships, and professional associations. Sole proprietorships and general partnerships where all partners are natural persons are exempt.

Remote sellers and marketplace facilitators must file if they exceed $500,000 in annual Texas gross receipts. That threshold has become more relevant as states aggressively enforce economic nexus rules.

Even if your total revenue falls below the $2,650,000 no-tax-due threshold, you are still required to file a franchise tax report. Skipping the filing because you expect to owe nothing is one of the most common and costly mistakes business owners make.

The 2026 Tax Rates and Thresholds

The Comptroller publishes updated figures each year. For 2026, the key numbers are:

• No-tax-due threshold: $2,650,000 in total revenue
• Tax rate for retail or wholesale businesses: 0.375% (on the taxable margin)
• Tax rate for all other businesses: 0.75%
• EZ computation rate: 0.331% for entities with $20 million or less in total revenue

The annual franchise tax report is due May 15. Miss that date and the penalties start immediately, 5% if you pay within 30 days, 10% after that.

The Most Common Mistakes Business Owners Make

Failing to file when no tax is owed is the top mistake. The state can forfeit your right to do business in Texas if you miss filings, even when the balance due is zero.

A second major error is misclassifying the business type. Using the retail or wholesale rate when your business does not qualify lowers your bill in the short term but creates a liability if the Comptroller audits. The 0.75% rate applies to most service businesses.

Third, many owners miscount what goes into total revenue. Cost of goods sold and compensation deductions can reduce your taxable margin, but the rules around each are specific. Missing an allowable deduction means overpaying. Claiming one you do not qualify for means penalties.

Fourth, businesses using Webfile, the Comptroller's online filing system, sometimes abandon the session before submitting. The system saves data, but an incomplete submission is not a filed return. Log back into your franchise tax account and confirm the submission status before the deadline.

Texas competes hard for business relocations partly because its overall tax structure is lighter than states like California or New York. If you want to see how that plays out in real numbers, read our comparison in Texas vs. New York: What You Actually Keep. For business owners weighing state residency alongside business tax exposure, The True Cost of Living in High-Tax States puts the full picture in context.

Key Takeaways

• The 2026 no-tax-due threshold is $2,650,000 in total revenue. Entities below this threshold still must file a report.
• Tax rates are 0.375% for qualifying retail or wholesale businesses, 0.75% for all other entities, and 0.331% under the EZ computation method for entities with $20 million or less in total revenue.
• Remote sellers must file if they exceed $500,000 in Texas gross receipts annually. Filing deadlines are May 15, with penalties starting at 5% for late payment.

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