Texas Franchise Tax (Margin Tax) — Complete LLC Guide

The Texas Franchise Tax is the primary state-level tax obligation for LLCs operating in Texas. Despite the name, it is not a traditional franchise fee — it is a margin tax calculated on revenue. The critical fact for most small LLCs: if your annualized total revenue is under $2.47 million, you owe $0 but must still file an annual report. For the complete tax picture, see our Texas LLC tax guide.

How the Texas Franchise Tax Works

The Texas franchise tax is governed by Texas Tax Code, Chapter 171. It applies to all "taxable entities" doing business in Texas, which includes LLCs, corporations, limited partnerships, and other entities that provide limited liability to their owners.

Key parameters (2025-2026 filing years):

Who Must File

Every Texas LLC must file a franchise tax report annually — even if the LLC owes $0. This includes:

• Active LLCs formed in Texas (domestic)
• Foreign LLCs registered to do business in Texas
• LLCs with $0 revenue
• Single-member LLCs
• LLCs that are dormant or not yet operating

The only exceptions: sole proprietorships (not LLCs), general partnerships where all partners are natural persons, and certain passive entities meeting specific criteria under the Texas Tax Code.

Calculating Your Franchise Tax

Step 1: Determine total revenue

Total revenue is your LLC's gross revenue as reported for federal income tax purposes, with certain adjustments. This is not net income — it is total revenue before expenses.

Step 2: Compare to the no-tax-due threshold

If annualized total revenue is $2.47 million or less (2025 report): file Form 05-169 (No Tax Due) and owe $0.

Step 3: If above threshold, calculate taxable margin

Taxable margin equals the lowest of:

1. Total revenue multiplied by 70% (automatic 30% deduction)
2. Total revenue minus cost of goods sold (COGS)
3. Total revenue minus compensation (wages, benefits, payroll taxes)
4. $1 million flat deduction (regardless of actual COGS/compensation)

Step 4: Apply the tax rate

• 0.75% for most businesses
• 0.375% for businesses primarily engaged in retail or wholesale trade
• Or use the EZ computation: 0.331% of total revenue (simpler calculation, available if revenue is under $20 million)

Filing Requirements

What you file:

1. Franchise Tax Report — Form 05-158-A (long form) or Form 05-169 (No Tax Due)
2. Public Information Report (PIR) — Form 05-102 — required with EVERY franchise tax report, even No Tax Due. The PIR lists your LLC's officers, directors, managers, registered agent, and principal office address.

Where to file:

• Texas Comptroller of Public Accounts (NOT the Secretary of State)
• Online: https://comptroller.texas.gov/ via WebFile system
• By mail: Texas Comptroller of Public Accounts, P.O. Box 149348, Austin, TX 78714-9348

When to file:

• May 15 each year
• First report: due May 15 of the calendar year following the year you formed (e.g., form in 2026, first report due May 15, 2027)
• Extension available: automatic 5-month extension to November 15 if you request it by May 15

What Happens If You Do Not File

Penalties for late filing:

• 5% penalty if filed 1-30 days late
• 10% penalty if filed more than 30 days late
• $50 penalty for failure to file the Public Information Report

Forfeiture: If you do not file franchise tax reports, the Comptroller notifies the Secretary of State, who will forfeit your LLC's right to transact business in Texas. A forfeited entity:

• Cannot sue in Texas courts
• Cannot maintain pending litigation
• Cannot sell or transfer real property
• Members may lose limited liability protection

Reinstatement: To reinstate after forfeiture, you must file all delinquent reports, pay all back taxes, penalties, and interest, and request reinstatement. See our reinstatement guide.

Public Information Report (PIR)

The PIR is filed alongside your franchise tax report every year. It requires:

• LLC name and SOS file number
• Principal office address
• Registered agent name and address
• Names, titles, and addresses of officers, directors, or managers
• Each member's name and ownership percentage (if a single-member LLC or closely held)

This information becomes public record accessible through the Comptroller's website.

FAQ

My LLC made less than $2.47 million. Do I still need to file?

Yes. You must file the No Tax Due report (Form 05-169) and the Public Information Report (Form 05-102) by May 15. Filing is mandatory — only the tax payment is excused when under the threshold.

Is the franchise tax filed with the Secretary of State?

No. The franchise tax report and PIR are filed with the Texas Comptroller of Public Accounts. The Secretary of State handles formation filings only. Many people confuse this because the Comptroller can direct the SOS to forfeit your LLC for non-filing.

Can my accountant file the franchise tax report for me?

Yes. Your CPA or tax preparer can file on your behalf through the Comptroller's WebFile system using your LLC's WebFile number and taxpayer ID.

How do I determine if my LLC qualifies for the retail/wholesale rate?

Your LLC qualifies for the 0.375% rate if it is primarily engaged in retail or wholesale trade — meaning it sells tangible personal property and the primary business activity falls under NAICS codes beginning with 44, 45 (retail), or 42 (wholesale). Service businesses, consulting, tech, real estate, and construction use the standard 0.75% rate.

What if my LLC operates in Texas and other states?

You apportion revenue to Texas using the Comptroller's apportionment formula (generally based on gross receipts sourced to Texas divided by total gross receipts everywhere). You only pay Texas franchise tax on the Texas-apportioned portion.