Texas imposes a franchise tax on each taxable entity formed or organized in Texas or doing business in Texas. Given that Texas does not have corporate income taxes, franchise taxes are the state's primary state-level income-type tax on businesses. The franchise tax is a significant source of state revenue, as detailed in the Texas Comptroller's Certification Revenue Estimate for the 2026 to 2027 biennium.
Filing franchise taxes requires knowledge of detailed financial information about the entity filing them. As a result, this tax is typically filed by a tax accountant.
As state websites go, Texas has relatively clear information about its franchise tax on its comptroller website.
If May 15 falls on a weekend or holiday, the due date will be the next business day.
You may request an extension. Generally, a valid extension shifts the filing deadline to November 15 of the same year. To secure the extension, an entity must pay either 100 percent of the tax paid in the prior year, or 90 percent of the tax that will be due with the current year's report, on or before the original May 15 due date.
Your first franchise tax filing is typically due the following year after you started doing business in Texas. For example, if you began doing business in Texas during 2025, your first franchise tax report would be due May 15, 2026.
When an entity is initially registered in Texas, it should have completed a Franchise Tax applicability questionnaire. It can be completed online. This is often forgotten after foreign registration in the state, although Texas may notify you. Completing the questionnaire establishes the entity's mailing address on file, the tax responsibility beginning date, and the first franchise tax report due date.
Corporations, LLCs, and LPs all must file and pay franchise taxes in Texas. Note that a single-member LLC that elects to be treated as a disregarded entity for federal income tax purposes is nonetheless a taxable entity for Texas franchise tax, because the legal formation of an entity determines filing responsibility under Texas Tax Code §171.
A large number of other entity types must file franchise taxes as well. Throughout the history of the tax, excluding certain entity types (e.g., LPs) has led to huge numbers of entity conversions for tax avoidance (and hundreds of millions of dollars of missed tax revenue). As a result, the list of entity types that must file has grown over time.
Sole proprietorships (except for single-member LLCs), and general partnerships when direct ownership is composed entirely of natural persons (except for limited liability partnerships) are exempt from franchise taxes in Texas (as are some less common entity types).
Franchise tax rates, thresholds, and deduction limits in Texas vary by report year. The Texas Comptroller publishes updated figures each year. Generally, reporting increases with revenue and margin. The sections below walk through each filing tier from least to most complex.
An entity with annualized total revenue less than or equal to the no tax due threshold is not required to file a franchise tax return. The threshold is $2,470,000 for the 2025 report year and increases to $2,650,000 for the 2026 report year, reflecting the Comptroller's biennial inflation-adjustment mechanism under Tax Code §171.006. Texas permanently eliminated the "No Tax Due Report" (Form 05-163) effective January 1, 2024. However, corporations, LLCs, LPs, and financial institutions are still required to file a Public Information Report. All other entity types must file an Ownership Information Report.
Texas has a franchise tax calculation method called "EZ Computation." An entity or a combined group of entities can file using the EZ Computation method if it has an annualized total revenue of $20 million or less.
The EZ Computation multiplies the portion of an entity's gross receipts that occurred in Texas by a definition of Total Revenue (you'll need the filing document to calculate Total Revenue), by the EZ Computation Rate. For 2025 and 2026 report years, the EZ Computation Rate is 0.331%. EZ filers cannot use any of the four standard margin deductions, cannot claim franchise tax credits, and cannot carry forward a business loss credit, so entities should compare expected liability under both methods before electing EZ Computation.
Corporations, LLCs, LPs, professional associations, and financial institutions must file a Public Information Report (Form 05-102). All other entity types must file an Ownership Information Report (Form 05-167).
All entities (except passive entities) with annualized total revenue above the no tax due threshold that do not file using the EZ Computation method have to file the "Long Form," 05-158-A and 05-158-B, Franchise Tax Report. Corporations, LLCs, LPs, and financial institutions must also file a Public Information Report. All other entity types must file an Ownership Information Report.
The form is self-explanatory, though a bit complex, and is usually filed by a tax accountant. Franchise tax is based on a taxable entity's margin. Under Texas Tax Code §171.101, entities using the long form calculate margin by selecting the lowest result from four options: 70% of total revenue, revenue minus cost of goods sold, revenue minus compensation (subject to a per-person cap of $450,000 for 2025 or $480,000 for 2026), or revenue minus a flat $1,000,000 deduction. Regardless of which method is used, taxable margin can never exceed 70% of total revenue.
The standard franchise tax rate is 0.75% for most taxable entities and 0.375% for qualifying retail or wholesale entities. Both rates are unchanged for the 2025 and 2026 report years.
Texas imposes penalties for missing the May 15 deadline. According to the Texas Comptroller's penalty guidelines, a $50 penalty is assessed on each report filed after the due date, even when no tax is owed. Late tax payments incur additional percentage penalties:
Interest on late payments accrues in addition to these penalties.
As mentioned before, Texas has fairly detailed information about its franchise tax on the Comptroller's website. For a broader overview of how franchise taxes work across states, see Discern's franchise tax information resources.
While Discern does not file Texas franchise taxes directly, Discern can file your Texas annual report filings and Public Information Reports with the Secretary of State, provide registered agent services in Texas, notify you when franchise tax obligations are due, and help you track compliance across all your entities.
Managing franchise tax deadlines alongside annual reports, registered agent requirements, and information report filings can become complex quickly, especially for businesses operating across multiple states. Discern brings all of these obligations into a single platform, giving you visibility into every entity's compliance status so nothing falls through the cracks.
Ready to simplify your multi-state compliance? Book a demo today to see how Discern streamlines entity management across all 50 states and DC.
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