Texas doesn’t have a state income tax, which is one of the reasons people form LLCs there. But it does have something called the franchise tax, and the most common misunderstanding about it costs business owners real money: assuming that owing $0 means there’s nothing to file.
That’s wrong for the vast majority of Texas LLCs. The Comptroller’s office (a different agency than the Secretary of State, which handles your formation paperwork) enforces this with real, published penalties, and "I didn’t owe anything" is not a defense they accept.
What the franchise tax actually is
The franchise tax isn’t an income tax. Texas calls it a "privilege tax," charged for the right to exist as a legal entity or to do business in the state. It applies whether or not your LLC turned a profit, and it’s separate from the formation steps covered in our guide to starting an LLC in Texas.
Almost every LLC, corporation, and limited partnership organized in or doing business in Texas owes this. The main exceptions are sole proprietorships and general partnerships directly owned by individuals, one of the tradeoffs of not forming an LLC in the first place.
The threshold that trips people up
For report years 2026 and 2027, an entity owes no franchise tax if its annualized total revenue is at or below $2,650,000. That’s up from $2,470,000 for 2024 and 2025, and the Comptroller adjusts the number periodically.
Here’s the part that causes real problems: falling under that threshold means you owe no tax. It does not mean you’re done for the year. Since the 2024 report year, the old standalone "No Tax Due Report" no longer exists, so most small LLCs don’t file that specific form anymore, but the Comptroller still requires a Public Information Report (Form 05-102) every year, due on the same date as the franchise tax report, listing who owns and manages the company. This applies even to an LLC with zero revenue.
The Comptroller’s own guidance on this point doesn’t hedge: the report is due "even if the entity does not have to file a franchise tax report because its annualized total revenue is at or below the no tax due threshold." Skip it, and the state doesn’t know you’re under the threshold. It just knows you didn’t respond.
If you’re over the threshold: how the tax gets calculated
Once your LLC clears $2,650,000 in annualized revenue, the actual math starts. Texas taxes a "margin," not your gross revenue, and you get to pick whichever of four calculation methods produces the lowest number:
- Total revenue minus cost of goods sold, defined under Texas’s own rules, which differ from the federal tax code
- Total revenue minus compensation paid to owners and employees, capped at $480,000 per person for 2026 and 2027
- Total revenue minus a flat 30 percent
- Total revenue minus a flat $1 million deduction, available to any entity regardless of size
Whatever margin comes out lowest gets taxed at 0.375 percent for retail and wholesale businesses, or 0.75 percent for everything else. There’s also an EZ Computation option for entities with $20 million or less in annualized revenue: a flat 0.331 percent of total revenue, no deductions allowed. It’s simpler to file but usually costs more in actual tax than running the four-method comparison, so it only makes sense if your time is worth more than the difference.
None of this is a spreadsheet exercise for a first-timer. If your LLC is anywhere near the threshold, it’s worth paying a CPA for the first filing, just to see which method actually wins.
Deadlines and penalties
The annual report, tax or no tax, is due May 15. If that date lands on a weekend or holiday, it moves to the next business day.
Miss it, and a flat $50 penalty applies to the late report itself, regardless of whether any tax was owed. If you do owe tax and pay it 1 to 30 days late, add a 5 percent penalty. Past 30 days, that jumps to 10 percent. Interest starts accruing 61 days after the due date on whatever’s still unpaid.
What happens if you ignore it completely
Texas doesn’t chase this indefinitely before acting. If an entity doesn’t file its report or pay what’s due within 45 days of the Comptroller mailing a notice of forfeiture, it loses the right to transact business in the state.
The same forfeiture risk applies even if you paid every dollar of tax owed, if you never filed the Public Information Report. Under Texas Tax Code Sections 171.251 and 171.252, a forfeited entity can’t sue or defend itself in a Texas court, and under Section 171.255, each officer, director, member, or owner can become personally liable for certain debts the business takes on during the forfeited period. That last part is worth sitting with: the liability shield an LLC is supposed to provide can stop working exactly when you need it.
Getting reinstated means paying every dollar of tax, penalty, and interest owed, filing all the missing reports, getting a tax clearance letter from the Comptroller, and filing paperwork with the Secretary of State. It’s solvable, but it takes weeks, not a same-day fix.
Checking where you stand
You can look up your LLC’s current franchise tax status for free through the Comptroller’s account status tool, the same kind of lookup we covered in our guide to searching Texas business entities. If the status shows anything other than active or in good standing, that’s worth investigating before it turns into a forfeiture notice.
This article explains how the tax and the filing requirement work. It isn’t a substitute for a CPA who can run your specific numbers, and we haven’t reviewed or tested any tax preparation service ourselves, so there’s no recommendation here. For formation basics, see our Texas LLC guide, and for how we approach reviews generally, see How We Test.
Do I owe Texas franchise tax if my LLC made no money?
You likely owe $0 in tax if your revenue is under the threshold, but you almost certainly still have to file the Public Information Report. "No tax due" and "no filing due" are not the same thing in Texas.
What’s the difference between the franchise tax report and the Public Information Report?
The franchise tax report calculates and reports what you owe, if anything. The Public Information Report lists your LLC’s officers, directors, or members along with registered agent information. Both are due on the same date, but they’re separate filings with separate requirements.
Can I calculate my own franchise tax, or do I need a CPA?
You can, especially using the EZ Computation method, which only requires your total revenue. Comparing all four margin calculation methods to find the lowest tax bill is more involved, and that’s usually where a CPA earns their fee on the first filing.
What happens if I miss the May 15 deadline?
A $50 penalty applies immediately, even if you owed no tax. If tax was due and unpaid, penalties of 5 to 10 percent and interest apply on top of that, and continued non-compliance, including failing to file the Public Information Report, can lead to forfeiture of your LLC’s right to do business in Texas.
