Texas Franchise Tax: The No-Tax-Due Threshold Explained (2026)

Texas is famous for having no state income tax. But what many business owners discover after forming their LLC is that Texas does have a tax on businesses. It is called the franchise tax—sometimes called the margin tax—and every taxable entity in Texas is subject to it.

The good news: if your total revenue is under $2.47 million, you owe $0. The bad news: you still have to file. And if you do not file, the state can forfeit your right to do business in Texas.

What Is the Texas Franchise Tax?

The franchise tax is a privilege tax on every taxable entity formed or doing business in the state. It is not an income tax. It is the cost of operating as a legal entity in Texas.

Who must file: LLCs, corporations (S-corps and C-corps), partnerships, professional associations, business trusts, and any other entity with limited liability protection.

Who does not file: Sole proprietorships (with no entity structure) and general partnerships where all partners are natural persons.

The No-Tax-Due Threshold

The most important number for small businesses: $2.47 million. If your entity's total revenue is at or below this amount, you owe $0 in franchise tax. This threshold was set in 2024 and is adjusted periodically by the Texas Comptroller.

For context, this covers the vast majority of small businesses—local restaurants, contracting companies, professional services firms, and retail shops.

Filing Deadline and Forms

The franchise tax report is due May 15 every year, regardless of whether you owe tax.

You can request an automatic extension to November 15 by filing Form 05-164 by the original deadline. If you owe any tax, you must pay at least 90% by May 15 to avoid penalties.

Situation	Form
Revenue at or below $2.47M	05-163 (No Tax Due Report)
Revenue above $2.47M (EZ computation)	05-169 (EZ Computation Report)
Revenue above $2.47M (standard)	05-158-A / 05-158-B (Long form)

Most small businesses will file Form 05-163—a simple one-page form confirming you are below the threshold.

How the Tax Is Calculated (If You Owe)

If your revenue exceeds $2.47 million, here is how the tax works:

Total revenue is your gross revenue from your federal tax return with certain adjustments. You then subtract either your cost of goods sold or employee compensation (whichever produces a lower taxable margin).

Tax rates:

• Retail and wholesale businesses: 0.375% of taxable margin
• All other businesses: 0.75% of taxable margin

EZ Computation: If your revenue is $20 million or less, you can skip the margin calculation and simply pay 0.331% of total revenue. This is simpler but may result in a higher or lower bill depending on your margins. It is popular with service businesses that have low cost of goods sold.

Penalties for Not Filing

Financial penalties (if you owe tax):

• 5% of tax due if filed within 30 days of the deadline
• Additional 10% if filed more than 30 days late

Forfeiture (regardless of tax owed): If you fail to file, the Texas Comptroller can forfeit your entity's right to transact business in Texas. This means you cannot file or defend lawsuits in your entity's name, you lose liability protection, and officers can become personally liable for entity debts. Reinstating a forfeited entity requires filing all delinquent reports, paying all penalties, and filing with the Secretary of State.

Common Mistakes

Thinking "no tax" means "no filing." The threshold means you do not owe money. It does not mean you are exempt from reporting. Every taxable entity must file every year.

Missing the May 15 deadline. Most people think in terms of April 15 for federal taxes and forget Texas has its own deadline a month later.

Not checking if the threshold changed. The $2.47 million figure is not permanent. If you are near the threshold, verify the current number each year.

Filing the wrong form. If you are below the threshold, file Form 05-163. Do not file the long-form report with zeros—it may trigger additional review.

Forgetting your first filing. New entities must file by May 15 of the year following formation. If you formed in September 2025, your first report is due May 15, 2026.

How to File

File online through the Texas Comptroller's Webfile system at comptroller.texas.gov. Log in with your Webfile number and taxpayer ID, select "Franchise Tax," choose the appropriate form, enter your revenue, and submit.

The Bottom Line

The Texas franchise tax is a compliance requirement that feels unnecessary when you owe nothing—but the consequences of ignoring it are severe. A five-minute filing on Form 05-163 keeps your LLC in good standing. Skipping it can cost you your entity's right to do business.

Mark May 15 on your calendar. File your No Tax Due Report. Move on with running your business.

Start your free trial with NeverFined and we will send you reminders before your Texas franchise tax deadline—along with every other compliance deadline your business needs to meet.