Most small businesses owe $0 in Texas LLC franchise tax. If your LLC’s annualized total revenue is under $2,470,000, there’s no tax due. You still have a filing to make every year by May 15, though, and skipping it can cost your LLC its right to do business in Texas.
Texas doesn’t have a state income tax. The franchise tax (people also call it the “margin tax”) is how the state taxes businesses instead.
How does the Texas LLC franchise tax work?
It’s a tax on businesses operating in Texas, but it isn’t based on profit. It’s based on your “margin,” which is roughly your revenue minus certain costs. That means a business can owe franchise tax in a year it lost money.
It applies to LLCs (single-member ones included), S and C corporations, limited partnerships, professional associations, business trusts and most other taxable entities. Sole proprietorships and general partnerships owned entirely by individuals aren’t subject to it. Neither are certain passive entities, and nonprofits can be exempt.
If you’re doing business in Texas, you’re subject to the tax even if your LLC was formed in another state.
Will your LLC owe anything?
Probably not. For 2024 the no tax due threshold is $2,470,000 in total revenue. Under that, you owe $0.
Total revenue includes gross receipts from sales, service income, rental income, investment income and most other business income. It generally doesn’t include capital contributions from members, loans you received or certain pass-through amounts.
If your LLC hasn’t been open a full year, you annualize your revenue: divide it by the days you’ve been in business, then multiply by 365. Say you formed on July 1 and brought in $500,000 over 184 days. That’s ($500,000 ÷ 184) × 365, or $991,848 annualized. Still well under the threshold.
What if you’re over the threshold?
Then the rate depends on what kind of business you are and how you calculate:
| Calculation method | Tax rate |
|---|---|
| Retail/wholesale | 0.375% of margin |
| Other businesses | 0.75% of margin |
| EZ Computation | 0.331% of gross receipts |
To get your margin, you take total revenue and subtract whichever of these deductions gives you the lowest tax:
- Cost of goods sold, which usually suits businesses selling physical products
- Compensation, which usually suits service businesses with high payroll
- 70% of revenue, a simple fallback
- A $1 million standard deduction, useful when your costs are low
If your total revenue is between $2.47 million and $20 million, you can skip the margin math and use the EZ Computation: 0.331% of total revenue. It can come out higher or lower than the margin method, so run both and pick the smaller number.
At this level we’d have a tax professional run the numbers. Some revenue, like flow-through funds, certain dividends and some real estate transactions, may be excludable, and restructuring (a holding company or a different entity type) can sometimes reduce the tax. Those are calls you want made by someone who sees your full books.
What do you have to file each year?
Every Texas LLC files a Public Information Report (PIR) each year. LLCs over the no tax due threshold also file a franchise tax report.
| Revenue | What you file |
|---|---|
| Under $2.47M | PIR only (the No Tax Due Report, Form 05-163, is no longer filed for 2024 reports onward) |
| $2.47M – $20M | Form 05-169 (EZ Computation) + PIR |
| Over $20M | Form 05-158 (Long Form) + PIR |
Both are due May 15. If May 15 falls on a weekend or holiday, the deadline moves to the next business day.
The PIR is short. It updates the state on your principal office address, your registered agent and registered office, your officers, directors or managers, and the nature of your business. It’s a public record you can look up online, and failing to file it can lead to forfeiture.
When is your first report due?
May 15 of the year after you form. The first report covers your formation date through December 31 of that first year. An LLC formed June 15, 2024, for example, files its first report by May 15, 2025, covering June 15 to December 31, 2024.
How do you file?
Online, through the Texas Comptroller WebFile system. That’s what we recommend.
- Log in, or create an account.
- Select your entity.
- Complete the right form for your revenue level.
- File the Public Information Report.
- Submit, and pay if you owe anything.
Have these ready before you start: total revenue for the period, cost of goods sold and total compensation (if you’ll need a margin calculation), your registered agent details, principal office address, the names of your officers, managers or directors, your SOS file number and your Comptroller taxpayer number.
You can also download the forms and mail them to the Texas Comptroller of Public Accounts, P.O. Box 149348, Austin, TX 78714-9348. LLCs with tax due over $10,000 must file electronically.
What happens if you don’t file?
A late report with tax due picks up a percentage penalty on the tax owed, and a late report with no tax due costs $50. The bigger risk is forfeiture.
If you don’t file, the Comptroller sends a notice of delinquency. Keep ignoring it and your LLC’s right to transact business is forfeited. You lose the right to sue or defend lawsuits in Texas, and to do business there. Continued non-compliance can lead to involuntary termination of the LLC.
You can reinstate by filing every past-due report and paying the outstanding taxes, penalties and interest. If you’ve missed filings, do that as soon as you can, and contact the Comptroller if you’re not sure what you owe.
How does Texas compare with other states?
| State | Business tax |
|---|---|
| Texas | Franchise tax (0.75% margin) |
| Florida | 5.5% corporate income tax (LLCs exempt) |
| California | $800 minimum franchise tax + income |
| Delaware | $300 annual flat fee (LLC) |
| Wyoming | $60 annual report fee |
Even with the franchise tax, a small Texas LLC under the threshold often pays less than it would in states with income taxes or high minimum fees.
Frequently asked questions
Do single-member LLCs pay franchise tax?
They’re subject to it, yes. Most owe nothing because of the revenue threshold.
My LLC had no revenue. Do I still file?
Yes. Zero revenue means no tax, but you still have to file for the year.
Is franchise tax deductible on my federal return?
Generally, yes. Franchise tax you pay is deductible as a business expense.
Don’t let a $0 bill turn into a forfeited LLC
The trap with the Texas franchise tax isn’t the tax. It’s that owners who owe nothing assume there’s nothing to file. Put May 15 in your calendar now, along with a reminder a few weeks earlier, and keep an eye on your revenue if you’re growing toward the threshold.
IncCraft helps Texas LLCs stay compliant with annual filing reminders and support, and when you form with us, we walk you through your ongoing obligations. Form your Texas LLC with IncCraft and stay compliant from day one.