Texas is famous for having no individual state income tax, but that does not mean businesses operate without state-level tax obligations. The Texas franchise tax is one of the most important requirements for LLCs, corporations, partnerships, and certain other entities doing Business in the state. For 2026, businesses need to understand the higher no-tax-due threshold, current tax rates, information-report requirements, and what happens if they miss the May filing deadline.
The rules can be confusing because owing no franchise tax does not always mean there is nothing to file. Since the 2024 report year, Texas has eliminated the traditional No Tax Due Report for entities at or below the applicable revenue threshold. Many of those businesses must still submit a Public Information Report or an Ownership Information Report. For the 2026 report year, the Texas Comptroller of Public Accounts sets the no-tax-due threshold at $2.65 million in annualized total revenue.
Short answer: Texas franchise tax is a privilege tax on taxable entities formed, organized, or doing Business in Texas. For 2026, businesses with annualized total revenue of $2.65 million or less generally owe no franchise tax, although most still must file a PIR or OIR. The standard annual deadline was May 15, 2026.
Texas franchise tax at a glance for 2026
| 2026 rule | Amount or requirement |
|---|---|
| No-tax-due threshold | $2.65 million |
| Standard franchise tax rate | 0.75% |
| Retail/wholesale rate | 0.375% |
| E-Z Computation rate | 0.331% |
| E-Z Computation revenue limit | $20 million |
| Compensation deduction limit | $480,000 per person |
| Normal annual due date | May 15 |
| 2026 original filing deadline | May 15, 2026 |
| Standard non-EFT extended deadline, if properly secured | November 16, 2026 |
The Texas Comptroller publishes different thresholds and deduction limits by report year, so don’t automatically reuse older figures. For both the 2026 and 2027 report years, the no-tax-due threshold is $2.65 million, while the standard and retail or wholesale rates remain 0.75% and 0.375%, respectively. The E-Z Computation continues to use a 0.331% rate for qualifying entities with annualized total revenue of $20 million or less.
What is the Texas franchise tax?
The tax is a privilege tax imposed on taxable entities that are formed or organized in Texas or that do Business in the state. It is not the same as a personal income tax, and it is not calculated simply by applying a percentage to ordinary federal taxable income. Instead, Texas generally calculates the tax using a business’s taxable margin and the portion of its receipts attributable to Texas.
This distinction matters because federal tax treatment does not necessarily determine a business’s Texas reporting responsibility. For example, an LLC that is disregarded as a separate entity for federal income tax purposes may still be treated as a separate legal entity for franchise tax reporting. Business owners therefore should not assume that being a single-member LLC or using pass-through federal taxation automatically removes their Texas reporting obligations.
Who has to deal with Texas franchise tax?
Most taxable entities organized in Texas fall within the franchise tax system, including corporations, LLCs, limited partnerships, professional associations, and many other business structures. Certain entities are excluded or exempt under specific provisions, including some general partnerships owned entirely by natural persons, qualifying passive entities, certain trusts, and entities that qualify for statutory exemptions. The exact answer depends on the Business’s legal structure, ownership, activities, and nexus.
Out-of-state businesses can also fall within the system even without a traditional office or physical location in Texas. The Comptroller states that a foreign taxable entity with $500,000 or more in gross receipts from Business done in Texas can establish economic nexus, even without a physical presence in the state. Companies selling remotely into Texas therefore need to examine both nexus and franchise tax rules rather than assuming that only Texas-incorporated businesses are affected.
The $2.65 million no-tax-due threshold explained.
For the 2026 report year, an entity with annualized total revenue of $2.65 million or less generally owes no franchise tax because it falls at or below the no-tax-due threshold. More importantly, these businesses are no longer required to submit the old No Tax Due Report, Form 05-163. The IRS discontinued that form for reports due in 2024 and later.
However, being below the threshold usually does not eliminate every annual filing obligation. Many corporations, LLCs, limited partnerships, professional associations, and financial institutions must still submit a Public Information Report, while other taxable entity types generally use an Ownership Information Report. The information report is due on the same date as the annual franchise tax report even when the Business owes no franchise tax.
Another distinction businesses should know is whether their revenue is above the threshold. If annualized total revenue exceeds $2.65 million but the calculated tax due is less than $1,000, the entity generally does not have to pay that amount. It still needs to file the appropriate franchise tax report supporting the calculation. In other words, the no-tax-due threshold and the less-than-$1,000 tax-due rule can both result in zero payment, but their filing requirements are different.
Texas franchise tax rates for 2026
Most taxable businesses using the standard Long Form calculation apply a 0.75% rate to taxable margin. A qualifying business primarily engaged in retail or wholesale trade may use the lower 0.375% rate, provided it satisfies Texas requirements for that classification. Businesses should not select the retail or wholesale rate simply because they sell something to customers, since Texas applies specific statutory tests to determine eligibility.
The E-Z Computation offers another option for entities with annualized total revenue of $20 million or less. It generally calculates tax by multiplying total revenue by the Texas apportionment factor and then applying the 0.331% E-Z Computation rate. Because the E-Z method works differently from the standard margin calculation, businesses eligible for both approaches may want to compare the results rather than assuming the simplest form will always produce the lowest tax.
Retailers evaluating pricing, margins, and break-even points may also find Contra’s loss leader pricing guide useful for understanding the commercial side of margin decisions. Franchise tax classification and accounting calculations are separate from retail pricing strategy, but both can influence how a growing business evaluates revenue and profitability. Businesses should therefore keep tax calculations based on Texas rules rather than substituting ordinary profit-margin calculations.
How is Texas franchise tax calculated?
For businesses using the Long Form rather than E-Z Computation, Texas generally begins by determining the entity’s margin. The 2026 Long Form compares four possible methods: 70% of total revenue, total revenue minus eligible cost of goods sold, total revenue minus eligible compensation, or total revenue minus $1 million. The lowest applicable amount becomes the starting margin, subject to the remaining Texas calculation rules.
The Business then determines how much of that margin is attributable to Texas using the state’s apportionment rules. Texas generally uses a single-factor formula based on gross receipts, comparing Texas receipts with gross receipts everywhere. After apportionment and any allowable adjustments, the applicable tax rate is applied to taxable margin.
A simplified calculation example
Suppose a Texas service company has $4 million in total revenue and $1.2 million of qualifying compensation. Seventy percent of revenue is $2.8 million; revenue minus compensation is also $2.8 million; and revenue minus $1 million is $3 million, so the lowest of those applicable figures is $2.8 million. If 75% of the company’s relevant receipts are attributable to Texas, the simplified apportioned margin would be $2.1 million before any other allowable adjustments.
If that company is subject to the standard 0.75% rate, multiplying $2.1 million by 0.0075 produces a simplified franchise tax figure of $15,750. Because its total revenue is also below the $20 million E-Z Computation ceiling, the company could examine whether the E-Z method is available and preferable under its circumstances. This example is intentionally simplified because exclusions, combined-group rules, credits, allowable deductions, sourcing questions, and other facts can materially change an actual return.
PIR vs. OIR: Which information report does your business file?
A Public Information Report, or PIR, is generally required for corporations, LLCs, limited partnerships, professional associations, and financial institutions that are organized in Texas or have Texas nexus. Form 05-102 reports information such as officers, directors, managers, or other required business details. The Comptroller explains that the PIR is required even when the entity is below the no-tax-due threshold and does not need to file a franchise tax report.
The Ownership Information Report, or OIR, generally applies to taxable entities that are not among the legal structures required to submit a PIR. Form 05-167 is commonly used by associations, trusts, and other qualifying taxable entities, depending on their structure. Ownership information reported through the OIR is treated differently from PIR information, including confidentiality rules described by the Comptroller.
Some entities are not required to file either information report. Examples identified by the Comptroller include exempt entities, qualifying passive entities, certain businesses without Texas organization or nexus, and qualifying new veteran-owned businesses during their initial five-year qualifying period. A business relying on one of these exceptions should verify that it actually meets the applicable statutory requirements before skipping the filing.
When was the 2026 Texas franchise tax due?
Texas annual franchise tax reports are normally due May 15 each year, with the deadline moving to the next business day when May 15 falls on a weekend or legal holiday. For the 2026 report year, the original deadline was May 15, 2026. That deadline has already passed as of September 2026, so a business that neither filed nor secured a valid extension should address the missing requirement promptly.
A timely extension can move the filing deadline for qualifying non-mandatory-EFT filers to November 16, 2026, because November 15 falls on a Sunday. To secure that extension, the request generally had to be submitted by May 15 with the required payment, ordinarily at least 90% of the current-year tax expected to be due or 100% of the prior year’s qualifying tax amount. A business that was below the no-tax-due threshold in the prior report year could potentially use the prior-year option to submit a zero-payment extension if the applicable requirements were met.
Mandatory EFT payers operate under different extension stages and payment requirements. Their first 2026 extension generally ran to August 17, 2026, with another extension to November 16 available only when the relevant requirements were timely satisfied. A federal income tax extension does not automatically extend the state filing deadline, so businesses must handle the Texas extension separately.
What happens if a Texas franchise tax filing is late?
Late franchise tax filings can create penalties even when the original tax amount is relatively small. The Comptroller generally assesses a $50 late filing penalty on a required franchise tax report filed after its due date. Unpaid tax is generally subject to a 5% penalty when 1–30 days late and a 10% penalty when more than 30 days late. Interest on past-due tax generally begins accruing on the 61st day after the due date.
An important distinction applies to entities whose only missing requirement is a PIR or OIR because they are at or below the no-tax-due threshold. The Comptroller’s current guidance says there is no $50 penalty for late filing a PIR or OIR in that situation. However, leaving the account unresolved can still create compliance problems, notices, and potentially affect the entity’s ability to remain in good standing.
Persistent failure to meet franchise tax requirements can lead to more serious consequences. Texas sends notices such as a Notice of Intent to Forfeit Right to Transact Business, and unresolved accounts can eventually face forfeiture-related actions. Businesses receiving one of these notices should follow the Comptroller’s instructions for the specific report year rather than assuming that simply paying a balance will fix a missing information report.
Common Texas franchise tax mistakes to avoid
One frequent mistake is assuming that a business below $2.65 million in revenue can ignore the franchise tax system completely. While such an entity generally owes no 2026 franchise tax, many businesses must still file their PIR or OIR. Confusing tax payment with filing responsibility is one of the easiest ways an otherwise compliant small business can receive a state notice.
Another mistake is relying on an outdated article that still tells every no-tax-due Business to file Form 05-163. Texas discontinued that report for reporting periods due in 2024 and later, so 2026 guidance should reflect the new system. Businesses should also avoid using the $2.47 million threshold that applied to the 2024 and 2025 report years, because the correct 2026 figure is $2.65 million.
Businesses can also create problems by treating bookkeeping profit, federal taxable income, and Texas taxable margin as interchangeable figures. Texas has its own revenue, deduction, margin, and apportionment rules, which means the franchise tax result may look very different from the company’s federal income tax position. For broader accounting context, Contntra’s guide to deferred tax liability explains why accounting and tax timing can produce different financial outcomes.
A practical 2026 filing checklist
Before treating your franchise tax requirement as complete, confirm each of these items:
- Identify whether the entity is taxable or exempt. Check the legal structure, ownership, activities, and any specific Texas exemption.
- Confirm Texas nexus. Out-of-state entities should consider physical presence as well as the $500,000 Texas gross receipts economic nexus rule.
- Determine annualized total revenue. Compare the correct 2026 figure with the $2.65 million no-tax-due threshold.
- Choose the required report. Determine whether you need only a PIR/OIR or must also file the E-Z Computation or Long Form.
- Compare calculation methods if tax is due. Eligible entities should evaluate Long Form margin methods and, when available, E-Z Computation.
- Use the correct rate. Confirm whether 0.75%, 0.375%, or the 0.331% E-Z rate applies.
- Check your 2026 deadline status. Determine whether you filed by May 15 or secured a valid extension.
- Resolve late filings promptly. Review any Comptroller notice, missing reports, tax, penalties, and interest together rather than addressing only one item.
- Confirm account status afterward. Keeping the franchise tax account current can matter when a business needs state documentation, completes certain transactions, or eventually terminates its Texas registration.
Texas franchise tax FAQ
Do Texas LLCs pay franchise tax?
Texas LLCs generally fall within the state’s franchise tax system, although that does not mean every LLC owes tax. An LLC with annualized total revenue of $2.65 million or less generally owes no franchise tax for the 2026 report year, but it normally still needs to submit its Public Information Report. Federal treatment as a disregarded entity does not by itself remove that responsibility.
What is the Texas franchise tax threshold for 2026?
The 2026 no-tax-due threshold is $2.65 million in annualized total revenue. This is higher than the $2.47 million threshold used for the 2024 and 2025 report years. Businesses should use the threshold for the report year they are actually filing rather than applying the newest figure retroactively.
What is the Texas franchise tax rate in 2026?
The standard rate for most entities is 0.75% of taxable margin, while qualifying retail and wholesale businesses use 0.375%. Qualifying entities with annualized total revenue of $20 million or less may elect the E-Z Computation, which uses a 0.331% rate under the state’s formula. The lowest advertised percentage is not automatically the best filing method because each method calculates its tax base differently.
Do I have to file if my Texas business owes no franchise tax?
In many cases, yes. A business at or below the $2.65 million no-tax-due threshold generally does not file a franchise tax report for 2026. Corporations, LLCs, limited partnerships, professional associations, and other covered entities still must file an annual PIR or OIR unless an exception applies. Businesses above the threshold whose calculated tax is below $1,000 generally still need to file the appropriate franchise tax report, even though no tax payment is due.
When is Texas franchise tax due?
The normal annual deadline is May 15, or the next business day when that date falls on a weekend or legal holiday. The 2026 filing was originally due May 15, 2026, while businesses that timely secured qualifying extensions may have later deadlines. Because the original 2026 deadline has already passed, a business checking its status now should determine whether a valid extension exists or whether it needs to resolve a late filing.
Can I use my federal tax extension for Texas franchise tax?
No, a federal income tax extension does not automatically extend the state deadline. Texas requires its own timely extension request and, where applicable, the required franchise tax payment. A business that filed only a federal extension should check its Texas account rather than assuming the state deadline also moved.
Final takeaway
For most small businesses, the most important franchise tax number in 2026 is $2.65 million. Falling at or below that annualized revenue threshold usually means no franchise tax is owed, and no No Tax Due Report is filed, but it does not automatically eliminate the PIR or OIR requirement. Businesses above the threshold need to determine the proper calculation method, apportionment, rate, filing form, and payment amount.
Because the original 2026 deadline of May 15 has already passed, businesses publishing or reading this guidance in September 2026 should pay special attention to their current account status. Entities that obtained valid extensions may still have a November filing deadline, while others may already need to correct a late filing or respond to a Comptroller notice. For unusual structures, combined groups, significant interstate revenue, exemptions, credits, or disputed nexus, professional tax advice can help apply the Texas rules to the specific facts.
