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Franchise 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.

The Texas Franchise Tax, also known as the Texas Margin Tax, is the state’s primary business tax. Because Texas has no corporate or individual income tax, the franchise tax serves as the main mechanism for taxing business revenue. It applies to most entities doing business in Texas, including corporations, LLCs, partnerships, and other legal entities. The tax is based on a business’s margin — essentially revenue minus certain allowed deductions — with rates of ~0.375% for qualifying wholesalers and retailers and ~0.75% for all other entities. Understanding the calculation methods, exemptions, and filing requirements is essential for any business operating in the Lone Star State.

Texas Franchise Tax Rates (2026)

Entity Type	Rate
Retail and wholesale businesses	~0.375%
All other taxable entities	~0.75%
No-tax-due threshold	~$2,470,000 in total revenue
EZ Computation rate (for eligible entities)	~0.331%
EZ Computation revenue cap	~$20,000,000

How the Texas Franchise Tax Works

Who Must Pay

Nearly every business entity operating in Texas owes franchise tax, including:

Corporations (C-corps and S-corps)
Limited liability companies (LLCs)
Partnerships (LP, LLP, general)
Professional associations
Business trusts
Joint ventures

Sole proprietorships and general partnerships owned entirely by natural persons are generally exempt.

Calculating Taxable Margin

The franchise tax is based on “taxable margin,” which is the lower of:

~70% of total revenue, or
Total revenue minus cost of goods sold (COGS), or
Total revenue minus total compensation, or
Total revenue minus ~$1,000,000

Businesses choose whichever method produces the lowest margin. The resulting margin is then multiplied by the applicable rate (~0.375% or ~0.75%).

EZ Computation

Businesses with total revenue of ~$20,000,000 or less can elect the EZ Computation method, which applies a flat ~0.331% rate to total revenue without deductions. This simplifies filing but may result in a higher tax for businesses with large COGS or compensation costs.

No-Tax-Due Threshold

Entities with total revenue at or below ~$2,470,000 owe no franchise tax but are still required to file a return (typically a No Tax Due report). Entities above this threshold pay tax on their entire margin, not just the amount exceeding the threshold.

Filing Requirements

Who Must File

All taxable entities formed in Texas or doing business in Texas must file an annual franchise tax report. This includes:

Active entities registered with the Texas Secretary of State
Out-of-state entities with Texas nexus
Entities that are part of a combined group with Texas nexus

Filing Deadlines

Entity Type	Annual Report Due Date
Most entities	May 15
Extension available	November 15 (automatic ~6-month extension with timely payment)

Required Forms

No Tax Due Report: For entities below the ~$2,470,000 threshold
EZ Computation Report: For entities electing the simplified method
Long Form Report: For entities using the standard margin calculation
Public Information Report or Ownership Information Report: Required alongside the tax report

Combined Reporting

Texas requires combined reporting for affiliated entities that are part of a group engaged in a unitary business. The combined group files a single franchise tax report that includes the revenue of all member entities. This prevents businesses from splitting operations among multiple entities to avoid the tax.

The combined group’s margin is calculated using the same methods (COGS, compensation, 70% of revenue, or $1M deduction) applied to the group’s consolidated figures.

Comparison to Other State Business Taxes

State	Business Tax Type	Rate	Base
Texas	Franchise (margin) tax	~0.75% / ~0.375%	Revenue minus deductions
Delaware	Franchise tax	Varies (see authorized shares)	Authorized shares or assumed par value
California	Franchise tax	~8.84% (corporate)	Net income
Nevada	Commerce tax	~0.051% — ~0.331%	Nevada gross revenue over ~$4,000,000
Florida	Corporate income tax	~5.50%	Net income

Texas’s franchise tax is unique because it is a margin-based tax rather than an income-based tax, which means it can be owed even if a business is not profitable.

Tips for Minimizing Texas Franchise Tax

Choose the best margin calculation method. Compare all four methods (COGS, compensation, 70% of revenue, $1M deduction) each year, as the optimal choice may change.
Evaluate the EZ Computation. If your revenue is under ~$20,000,000, compare the ~0.331% EZ rate against the standard calculation to determine which yields less tax.
Qualify for the no-tax-due threshold. Entities with revenue at or below ~$2,470,000 owe nothing. If you are close to this threshold, review whether revenue recognition timing can keep you below it.
Maximize COGS or compensation deductions. If you elect the COGS or compensation method, ensure you capture all allowable costs, including benefits, payroll taxes, and materials.
Verify your retail/wholesale classification. The ~0.375% rate is half the standard rate. If your business qualifies, this classification alone can cut your tax in half.
File on time. Late filings incur a ~5% penalty, with an additional ~5% if more than ~30 days late. Interest also accrues.
Review combined reporting. If your business is part of a combined group, verify that intercompany transactions are properly eliminated and that the group structure minimizes total margin.

Key Takeaways

The Texas Franchise Tax applies to most business entities at rates of ~0.75% (general) or ~0.375% (retail/wholesale).
Tax is based on margin: revenue minus the best available deduction (COGS, compensation, 70% of revenue, or ~$1,000,000).
Entities with revenue at or below ~$2,470,000 owe no tax but must still file.
The EZ Computation (~0.331% of revenue) is available for entities with revenue under ~$20,000,000.
Annual reports are due May 15, with an automatic extension to November 15.
Combined reporting is required for affiliated unitary business groups.

Next Steps

Federal Income Tax Guide 2026 — Understand federal business tax obligations alongside Texas franchise tax.
Self-Employment Tax Guide — How sole proprietors interact with the franchise tax.
State Income Tax Rates Comparison 2026 — Compare Texas’s business tax environment to other states.
Tax Bracket Calculator — Estimate your overall tax burden.
Find a CPA Near You — Get expert help with franchise tax reporting.