Understanding the Texas Franchise Tax
Texas doesn’t impose a state income tax, but it does require many businesses to pay a franchise tax—a tax on the privilege of doing business in the state. It applies to most business entities, including corporations, LLCs, and partnerships operating in Texas or organized under Texas law.
While the term “franchise” may sound like it applies only to fast food chains or retail stores, the tax is broadly applied. However, recent changes in the reporting threshold have simplified the filing requirements for many small businesses.
What’s New in 2024: Increased No-Tax-Due Threshold
Effective January 1, 2024, the no-tax-due threshold for Texas franchise tax increased to $2.47 million in total annual revenue (up from $1.23 million). If your business earns less than this amount in a calendar year, you are not required to pay the tax—but you may still need to file a Public Information Report or Ownership Information Report, depending on your entity type.
Who Needs to File Franchise Tax in Texas?
Entities subject to franchise tax include:
- Corporations (C Corps and S Corps)
- Limited Liability Companies (LLCs)
- Professional associations
- Business trusts
- Limited partnerships
- Other legal entities doing business in Texas
Sole proprietorships and most general partnerships that are owned entirely by individuals are exempt from the franchise tax.
What Do You Need to File?
Texas uses gross revenue as the benchmark for filing requirements. Here’s what you may be required to file depending on your annual revenue:
| Annual Revenue | Filing Requirements |
| Under $2.47 million | No tax due, but must file a Public Information Report (PIR) or Ownership Report |
| $2.47 million or more | Must file the full Franchise Tax Report and pay applicable taxes |
Even if you owe no tax, the Public Information Report (for corporations and LLCs) must still be submitted to maintain good standing with the state.
Forms You May Need to File:
- Form 05-163 (No Tax Due Report) – For qualifying businesses under the threshold
- Form 05-102 (Franchise Tax Report) – For businesses with revenue over the threshold
- Public Information Report (Form 05-102 or 05-167) – For corporations and LLCs
- Ownership Information Report (Form 05-167) – For partnerships and professional associations
Due Dates for Texas Franchise Tax
The annual deadline for franchise tax reports is May 15 each year. If the due date falls on a weekend or holiday, it rolls over to the next business day.
Missing this deadline can result in penalties and the forfeiture of your right to transact business in Texas.
How Is the Franchise Tax Calculated?
If your business earns more than $2.47 million, you must calculate and pay the franchise tax. There are two calculation methods:
- EZ Computation Method (for businesses with $20 million or less in revenue)
- 0.331% of total revenue
- Simpler form and fewer deductions
- 0.331% of total revenue
- Standard Method
- Total revenue minus cost of goods sold (COGS), compensation, or a $1 million deduction
- 0.75% tax rate (0.375% for retailers and wholesalers)
- Total revenue minus cost of goods sold (COGS), compensation, or a $1 million deduction
Your CPA or tax advisor can help determine which method results in the lowest tax liability.
How to Stay in Good Standing
To avoid penalties or disruptions in business operations, Texas businesses should:
- Confirm their revenue level before the filing deadline
- File all required forms even if no tax is owed
- Keep their registered agent and contact info current with the Secretary of State
Can I File Texas Franchise Tax Reports Myself?
Technically, yes. The Texas Comptroller provides online tools and instructions. However, the forms can be confusing, especially if your business had complex transactions, a change in ownership, or sells multiple product lines.
A tax professional ensures:
- Accurate reporting
- The correct method of calculation
- Avoidance of late fees or interest
- Continued good standing with the state
Conclusion
Texas franchise tax can feel complicated, but recent changes have made filing easier for many small business owners. If your business earns under $2.47 million annually, you likely won’t owe tax—but you still need to complete required filings to stay compliant.
Need help preparing your Texas Franchise Tax reports or Public Information Report? Contact Molen & Associates today. Our team specializes in franchise tax preparation and business compliance, so you can stay focused on growing your business—not navigating government forms.
