Who is subject to it
The franchise tax is a tax on the privilege of doing business in Texas. Each entity formed in Texas or doing business there is subject to it: corporations, S corporations, professional corporations, LLCs including single-member and series LLCs, limited and limited liability partnerships, and general partnerships with an owner that is not an individual (Franchise Tax Overview).
These are not subject to the tax: sole proprietors, general partnerships owned directly and only by individuals, certain grantor trusts and entities exempt under the Tax Code. A passive entity owes no tax, but one registered with the Comptroller still files each year: the EZ Computation Report or Long Form marked as passive, with no information report (comptroller.texas.gov).
How the IRS treats the entity does not matter. A single-member LLC that files as a sole proprietor or is disregarded federally is still a taxable entity in Texas, because its legal form decides (Taxable entities FAQ).
What to file
Since the 2024 report year, a business at or below the no-tax-due threshold files only the information report; the No Tax Due Report is gone (comptroller.texas.gov). Many owners now file neither, or still file both.
- Form 05-102, the Public Information Report, is filed by corporations, LLCs, limited partnerships, professional associations and financial institutions. It names the officers, directors or managers and the registered agent.
- Form 05-167, the Ownership Information Report, is filed by every other taxable entity, such as a limited liability partnership.
Above the threshold, the business files the franchise tax report as well, either the EZ Computation Report (Form 05-169) or the Long Form (Forms 05-158-A and 05-158-B), with its information report (comptroller.texas.gov). If the tax works out to less than $1,000, the business files the report but owes nothing (Reports and payments FAQ). A new Texas business wholly owned by honorably discharged veterans files nothing for its first five years, but only once the Comptroller has verified it (veteran-owned businesses).
The threshold and the rates
The figures change by report year. The 2027 report is based on the business’s 2026 accounting year (comptroller.texas.gov). Revenue is annualized: revenue for a period shorter than 12 months, such as a first report running from the day the business became subject to its year end, is divided by the days in the period and multiplied by 365 before it is compared with the threshold. $750,000 earned in 108 days is $2,534,722 annualized (Reports and payments FAQ).
| Annualized total revenue | What to file for the 2026 and 2027 reports | Tax |
|---|---|---|
| $2,650,000 or less | Information report only | None |
| Over $2,650,000, up to $20 million | Franchise tax report (EZ or Long Form) and information report | 0.331% of apportioned revenue on the EZ computation, or on the Long Form 0.375% of margin for retailers and wholesalers and 0.75% for others |
| Over $20 million | Long Form and information report | 0.375% of margin for retailers and wholesalers, 0.75% for others |
Passive entities, REITs and businesses with no Texas receipts file the EZ or Long Form even under the threshold (comptroller.texas.gov).
For the 2024 and 2025 reports, the threshold was $2,470,000, with the same rates.
How margin is computed
On the Long Form, the business pays on its margin, which is the lowest of four figures (Franchise Tax Overview):
- 70% of total revenue;
- total revenue minus cost of goods sold;
- total revenue minus compensation: W-2 wages and cash compensation, including the net distributive income of owners who are individuals, up to $480,000 per person for a 12-month period in the 2026 and 2027 reports and prorated for a shorter or longer one (comptroller.texas.gov; compensation FAQ), plus benefits deductible for federal income tax (Tax Code §171.1013); 1099 contractors and employer payroll taxes do not count;
- total revenue minus $1 million.
Margin is then apportioned to Texas by the share of the business’s gross receipts that come from Texas.
The EZ computation is apportioned revenue times 0.331%, with no deductions or credits, so it costs more for a business with large payroll or cost of goods sold. Companies under common ownership running one business file one combined report, and the threshold is tested on the group’s combined revenue, not each company’s; every member organized in Texas or with nexus there still files its own information report (comptroller.texas.gov).
When it is due, extensions and what missing it costs
The report is due May 15 each year, or the next business day: May 17, 2027. There are no estimated payments (Reports and payments FAQ). A business that became subject during 2026 files its first annual report by May 17, 2027.
An extension to November 15 is granted when it is requested by the due date with a payment of at least 90% of the tax that will be due, or 100% of the tax on last year’s report if that report was filed by May 14. A business filing its first annual report, or one that was in a combined group’s report last year, cannot use the 100% option. The request covers the information report too. A business that paid $10,000 or more of franchise tax in the previous state fiscal year must pay electronically, and its first extension runs only to August 15, August 16 in 2027 since the 15th is a Sunday; a second request with the balance by then extends it to November 15 (extensions).
A franchise tax report filed late costs $50, even when no tax is due (Franchise Tax Overview); a late information report alone carries no $50 penalty (notices). Tax paid 1 to 30 days late adds a 5% penalty, and 10% after 30 days (comptroller.texas.gov). Unpaid tax carries interest from the 61st day after the due date, at prime plus 1%: 7.75% for 2026; the 2027 rate is not yet published (comptroller.texas.gov).
The serious cost is forfeiture. A business that does not file is sent a Notice of Intent to Forfeit Right to Transact Business. If its right is forfeited, it generally cannot sue or defend itself in a Texas court, and each officer, director, member or owner becomes liable for certain debts of the business. The state can then forfeit its registration with the Secretary of State, and reinstating it takes every missing report and a tax clearance letter (comptroller.texas.gov).
Example: two service LLCs
Two Dallas-area consulting firms are LLCs with all their receipts in Texas, filing their 2027 reports on their 2026 years.
- The first had $1,800,000 of revenue. That is under $2,650,000, so it owes no tax and files only its Public Information Report by May 17, 2027.
- The second had $3,000,000 of revenue and paid $1,900,000 in wages and benefits, nobody paid wages over $480,000. It is over the threshold, so it files a franchise tax report. On the EZ computation it owes $3,000,000 × 0.331% = $9,930. On the Long Form its margin is the lowest of $2,100,000 (70% of revenue), $2,000,000 (revenue minus $1 million) and $1,100,000 (revenue minus compensation); it has no cost of goods sold. At 0.75%, $1,100,000 gives $8,250, so the Long Form saves it $1,680.
For help with the report, see tax filing and the Texas deadlines guide.
Questions
Is franchise tax an income tax?
No. It is a tax on the privilege of doing business in Texas, figured on revenue or margin rather than profit, so a business can owe it in a year it loses money if its revenue is over the threshold. Texas has no personal income tax on the owners (Franchise Tax Overview).
Do I file in my first year?
Your first annual report is due May 15 of the year after the business became subject to the tax. An LLC formed in 2026 files its first report by May 17, 2027: only the Public Information Report, unless its revenue annualized to 365 days is over $2,650,000 (Reports and payments FAQ).
What if I never filed?
File every missing report now. For 2024 and later years, a business under the threshold only needs its information reports, with no $50 penalty for filing them late; a year before 2024 also needs the No Tax Due Report it replaced. Until it does, it risks forfeiting its right to do business in Texas, which makes its owners and officers liable for certain of its debts (comptroller.texas.gov).
Does my single-member LLC file?
Yes. A single-member LLC is a taxable entity in Texas even when the IRS disregards it and you report its income on your own return. It files at least the Public Information Report every year (Taxable entities FAQ).