Texas Franchise Tax Explained: What Houston Businesses Owe in 2026

Key Takeaways

• The Texas franchise tax is a privilege tax on entities doing business in the state. It is based on your margin, not your profit, so you can owe it even in a break-even year.
• If your total revenue is at or below the no-tax-due threshold of $2.65 million, you owe $0 in tax, but you still have to file an information report by May 15.
• The EZ computation lets businesses with $20 million or less in total revenue pay a flat 0.331% on apportioned revenue and skip the margin math entirely.
• Standard rates are 0.375% for retail and wholesale and 0.75% for everyone else, applied to your taxable margin.
• The filing deadline is May 15 every year. Missing it triggers a $50 penalty plus 5% to 10% of tax due, and can eventually forfeit your right to do business in Texas.
• The most expensive mistake is assuming that owing $0 means filing nothing. Forgetting the Public Information Report is what gets Houston entities into trouble.

What the Texas Franchise Tax Actually Is

Texas does not have a personal income tax, and that surprises a lot of new business owners into thinking the state leaves them alone. It does not. The franchise tax is a privilege tax the state charges most registered entities for the right to do business here. If you formed an LLC, a corporation, an S-corp, a partnership, or a professional association in Texas, the Comptroller expects to hear from you every year, even if you owe nothing.

Here is the part that trips people up. The franchise tax is calculated on your margin, not your net profit. Margin is closer to gross revenue with a few deductions. That means a Houston restaurant or a contractor can have a rough year, show almost no profit on the tax return, and still owe franchise tax because the number the state cares about is revenue-based. Understanding that distinction early saves you from a nasty surprise in May.

Do You Even Owe It? The No-Tax-Due Threshold

This is the question that matters most, and for many small Houston businesses the answer is a relief. If your entity's total revenue is at or below the no-tax-due threshold, which the Comptroller's franchise tax page lists as $2,650,000 for the 2026 and 2027 report years, your franchise tax bill is $0. The figure changes by report year (it was $2,470,000 for 2024 and 2025), so check the table for the year you are filing.

Plenty of local businesses, a two-truck plumbing company or a single-location dental practice, can sit under that line and owe no tax. But owing no tax and filing nothing are two very different things.

As of 2024, if you are under the threshold you no longer have to file the old No Tax Due Report. You do, however, still have to file the Public Information Report or Ownership Information Report by May 15. Skip that and you have an unfiled return on record even though your tax was zero.

• At or under $2.65 million in total revenue: $0 tax owed, but the information report is still required.
• The Comptroller lists the threshold by report year, so check the figure for the year you are filing.
• Total revenue means gross receipts before most expenses, not your profit.

How the Tax Is Calculated When You Do Owe It

Once you cross the threshold, the tax applies to your taxable margin. The long form report is where you take a margin deduction, such as cost of goods sold or compensation, as the Comptroller's filing requirements describe.

The rate depends on what you do. The Comptroller's rate table sets 0.375% for retail and wholesale and 0.75% for everyone else. As simple arithmetic, 0.75% of a $2.1 million taxable margin is $15,750, and 0.375% of the same margin is $7,875. The deductions you take change the margin, and so the bill, which is why this is not a form to rush through the night before the deadline.

The EZ Computation: When the Shortcut Makes Sense

If your total revenue is $20 million or less, Texas has a simpler path called the EZ computation, at a 0.331% rate on the Comptroller's table. You skip the margin deductions entirely: no cost of goods sold, no compensation deduction.

You give up those deductions in exchange. For a business with high labor costs or heavy inventory, the standard margin calculation often produces a lower bill because the deductions shrink the taxable base more than the reduced EZ rate does. For a lean service business with few deductible costs, the EZ computation is frequently both cheaper and faster. There is no universal winner, so run it both ways and file the lower one.

This is exactly the kind of judgment call where the difference between doing it yourself and paying someone shows up. If you are on the fence about when to hire a Houston CPA versus handling it in software, franchise tax with meaningful revenue is a reasonable line to cross over.

Filing Deadlines and Penalties You Want to Avoid

The annual franchise tax report is due May 15. If May 15 falls on a weekend or holiday, it shifts to the next business day.

Miss the deadline and the penalties stack quickly. The Comptroller's penalty rules add $50 for each late report, separate from any tax. On top of that, tax paid 1 to 30 days late carries a 5% penalty, and tax more than 30 days late carries 10%, with interest from the 61st day. An entity that keeps missing its filings can also get a notice of intent to forfeit its right to transact business in Texas.

You can file an extension to November 15 if you need more time, but an extension to file is not an extension to pay. If you expect to owe, the extension rules ask for at least 90 percent of the tax due, or 100 percent of the tax on your prior report if that report was filed by May 14, paid by the original due date. If you are already behind, know that these situations are fixable and how long tax resolution takes depends heavily on the case type.

The Decision: Which Filing Path Fits Your Business

Franchise tax is a decision, not just a form. Almost every Houston entity falls into one of three buckets, and knowing yours tells you exactly what to do before May 15.

• Choose the no-tax-due path if your total revenue is at or below $2.65 million. You owe $0, but you must still file the Public Information Report or Ownership Information Report on time.
• The EZ computation fits if your revenue is above the threshold but at or below $20 million and you are a lean, service-oriented business with few deductible costs. The flat 0.331% rate and simpler math can beat the long form for you.
• Choose the long-form margin calculation if your revenue is above $20 million, or if you carry significant cost of goods sold or compensation that would drive your taxable margin well below the EZ base. Run the numbers both ways and file whichever produces the lower tax.

Common Mistakes Houston Owners Make

The most common and most damaging mistake is assuming $0 tax means $0 filing. It does not. The information report is still mandatory under the threshold, and forgetting it puts your entity out of good standing even though you never owed a dime.

The second mistake is confusing total revenue with profit. Owners see a break-even year on their income statement and assume no franchise tax, then get blindsided because the state taxes margin. The third is defaulting to one margin method every year without checking whether another would be lower, which overpays the state. The fourth is missing the May 15 date entirely because it does not line up with the April federal deadline.

If your business looks profitable on paper but the bank account says otherwise, that is a separate problem, and a franchise tax bill can be what finally forces the question.

Frequently Asked Questions

Does my Houston LLC owe Texas franchise tax if it made no profit?

Possibly, because franchise tax is based on your margin, not your profit. Margin starts from total revenue with a limited set of deductions, so a break-even or even a loss year on your income statement does not automatically mean $0 franchise tax. That said, many small Houston LLCs sit below the no-tax-due threshold of $2.65 million in total revenue, and if you are under that line your tax is $0 regardless of profit. Remember that owing $0 does not excuse you from filing. You still must submit the Public Information Report by May 15. So the honest answer is: check your total revenue first, then your margin, and never assume a no-profit year means no franchise obligation at all.

What is the no-tax-due threshold for 2026?

For the 2026 and 2027 report years the Comptroller lists the no-tax-due threshold as $2,650,000 in total revenue. If your entity's total revenue is at or below that figure, you owe no franchise tax. The figure changes by report year (it was $2,470,000 for 2024 and 2025), so check the Comptroller's table for the year you are filing. One important change took effect in 2024: businesses under the threshold stopped filing the old No Tax Due Report. You file only the Public Information Report or Ownership Information Report. Do not read the elimination of the No Tax Due Report as permission to file nothing. The information report is still required, still due May 15, and easy to forget.

When is the Texas franchise tax due in 2026?

The annual franchise tax report and any payment are due May 15, 2026. If May 15 lands on a weekend or state holiday, the deadline moves to the next business day. This date catches people off guard because it does not match the mid-April federal income tax deadline, so you can easily file your federal return, exhale, and forget Texas entirely. If you need more time you can extend to November 15. An extension to file is not an extension to pay. If you expect a balance, the extension payment has to be at least 90 percent of the tax due, or 100 percent of the tax on your prior report if that report was filed by May 14.

What are the franchise tax rates in Texas?

There are two standard rates. Retail and wholesale businesses pay 0.375% of their taxable margin. Every other type of business, including service firms, contractors, and professional practices, pays 0.75%. There is also the EZ computation rate of 0.331%, available to businesses with $20 million or less in total revenue that choose the simplified method and give up the margin deductions. Which rate applies depends on your business activity and which calculation method you elect. A retailer and a service business with identical revenue can owe very different amounts, and even within one business the EZ rate versus the standard rate can flip which method is cheaper. That is why it is worth running the calculation both ways rather than defaulting to whatever was filed last year.

Should I use the EZ computation?

The EZ computation is a simplified way to calculate franchise tax for businesses with $20 million or less in total revenue. Rather than working through the margin deductions, you apply a flat 0.331% rate. The method is faster and requires far less analysis. The catch is that you forfeit the cost of goods sold and compensation deductions. For a lean service business with few deductible costs, the EZ method is often both simpler and cheaper. For a business with heavy inventory or a large payroll, the standard margin calculation usually wins because those deductions shrink the taxable base more than the lower rate does. The right move is to calculate it both ways and file whichever produces the lower tax bill.

What happens if I miss the franchise tax deadline?

The penalties stack. The Comptroller adds $50 for each report filed after the due date, separate from any tax owed. Tax paid 1 to 30 days late carries a 5% penalty, and tax paid more than 30 days late carries 10%, with interest from the 61st day after the due date. The bigger risk is chronic non-filing: an entity that keeps missing its reports can get a notice of intent to forfeit its right to transact business in Texas. If you are behind, address it deliberately rather than hoping it disappears, because it does not.

I owe $0 in franchise tax. Do I still have to file anything?

Yes. Being under the no-tax-due threshold means your tax is $0. It does not eliminate your filing duty. You still must submit the Public Information Report or Ownership Information Report to the Comptroller by May 15 every year. Skipping it because you owed nothing leaves your entity with an unfiled report on record, which can eventually push you out of good standing and toward forfeiture. Think of the tax and the report as two separate obligations that happen to share a deadline. The payment may be zero. The paperwork is not optional. Set a recurring reminder for early May so this never falls through the cracks, because sorting out a forfeiture notice is a much bigger job than filing the report.

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