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Business Tax in Texas: Complete Guide 2026

Tax information is for educational purposes only and does not constitute tax advice. Consult a licensed tax professional for your specific situation.

Texas has no corporate income tax and no personal income tax, but it does impose a franchise tax (also called the margin tax) on most businesses operating in the state. The franchise tax is computed based on a business’s total revenue (margin) and applies at rates of approximately ~0.375% to ~0.75%. While these rates are lower than corporate income taxes in most states, the tax is based on gross margin rather than net income, which can be burdensome for businesses with high revenue but thin profit margins.

Texas Business Tax Overview (2026)

Tax Type	Rate / Structure
Corporate income tax	None
Personal income tax	None
Franchise tax (margin tax)	~0.375% to ~0.75%
No-tax-due threshold	~$2.47 million in total revenue
Sales tax	~6.25% state + ~2.00% local max
Property tax	~1.60% to ~2.20% effective rates
Unemployment insurance	~0.31% to ~6.31% of first ~$9,000/employee

Texas Franchise Tax (Margin Tax)

The franchise tax is the primary state business tax in Texas. It applies to most legal entities (corporations, LLCs, partnerships, professional associations) doing business in Texas.

Tax Rates

Entity Type / Activity	Tax Rate
Retail and wholesale businesses	~0.375%
All other businesses	~0.75%
Businesses using E-Z computation	~0.331%

Margin Calculation Methods

Businesses can calculate their taxable margin using the most favorable of four methods:

Method	Calculation
Total revenue minus COGS (cost of goods sold)	Revenue - COGS
Total revenue minus compensation	Revenue - Compensation
Total revenue times 70%	Revenue x 70%
Total revenue (E-Z computation for businesses under ~$20 million)	Revenue x 0.331%

The taxable margin is capped at ~70% of total revenue regardless of which method is used. Businesses should calculate all applicable methods and use the one that produces the lowest taxable margin.

No-Tax-Due Threshold

Businesses with total revenue at or below approximately ~$2.47 million owe no franchise tax but must still file a franchise tax report. This threshold eliminates the franchise tax for most small businesses in Texas.

Discounted Rate for Small Businesses

Businesses with total revenue between approximately ~$2.47 million and ~$20 million may use the E-Z computation method, which applies a ~0.331% rate to total revenue. This simplified calculation often produces a lower tax than the standard methods.

What Revenue Is Included

Texas total revenue includes:

Revenue from goods sold and services performed in Texas
Revenue apportioned to Texas based on the location of the customer (market-based sourcing)
Rental income from Texas property
Royalties and licensing fees from Texas sources

Revenue from outside Texas is not included in the margin calculation, though multi-state businesses must apportion revenue using Texas’s market-based sourcing rules.

Comparison to Other No-Income-Tax States

State	Business Tax	Personal Income Tax	Mechanism
Texas	Franchise/margin tax (~0.375% to ~0.75%)	None	Margin-based
Nevada	Commerce Tax (~0.051% to ~0.331%) + MBT	None	Gross receipts + payroll
Wyoming	None	None	No business income tax
South Dakota	None	None	No business income tax
Florida	Corporate income tax (~5.50%)	None	Net income
Washington	B&O tax (~0.13% to ~3.30%)	None	Gross receipts
Tennessee	None (phased out)	None	N/A

Texas’s franchise tax is more complex than Nevada’s Commerce Tax but generally produces a lower effective rate for most businesses. Wyoming and South Dakota have no comparable business tax at all.

Property Tax: The Hidden Business Cost

While Texas has no income tax, it has some of the highest property tax rates in the nation. Business property taxes include:

Property Type	Typical Effective Rate
Commercial real estate	~1.60% to ~2.20%
Business personal property (equipment, inventory)	~1.60% to ~2.20%
Vehicles	Varies by county

Texas taxes business personal property (inventory, equipment, furniture) in addition to real estate, which increases the effective tax burden for capital-intensive businesses.

Tips for Minimizing Texas Business Tax

Choose the most favorable margin calculation method. Calculate your franchise tax using all four methods (COGS, compensation, 70%, E-Z computation) and file using the method that produces the lowest tax.
Stay below the no-tax-due threshold. Businesses under approximately ~$2.47 million in total revenue owe no franchise tax. If you are near the threshold, review revenue timing strategies.
Use the E-Z computation if eligible. For businesses under ~$20 million in revenue, the ~0.331% E-Z computation rate often produces the lowest tax.
Classify as retail/wholesale if applicable. The ~0.375% rate for retail and wholesale is half the standard ~0.75% rate. Ensure your business is properly classified.
Plan for property tax on inventory and equipment. Texas’s taxation of business personal property is unusual. Some cities offer tax abatements or enterprise zone incentives that can reduce property tax.
Apportion revenue correctly. If you operate in multiple states, ensure only Texas-sourced revenue is included in your margin calculation using market-based sourcing rules.

Key Takeaways

Texas has no corporate or personal income tax but imposes a franchise tax (margin tax) at ~0.375% to ~0.75% of taxable margin
The ~$2.47 million no-tax-due threshold exempts most small businesses
Businesses can choose from four margin calculation methods to minimize their tax
Retail and wholesale businesses enjoy a reduced ~0.375% rate
Texas’s high property taxes on both real estate and business personal property are a significant cost factor
Wyoming and South Dakota offer even lower business tax environments, but Texas provides a much larger market

Next Steps

Compare with sales tax at Sales Tax in Texas 2026
See how Texas compares overall at Taxes in Texas: State Tax Guide 2026
Explore Delaware’s legal framework at Business Tax in Delaware 2026
Read the small business guide at Small Business Tax Guide
Get professional help: Hire a Tax Professional