Miss that distinction and you risk penalties, or worse, losing the right to transact business in Texas. This guide covers the 2026 thresholds and rates, who is taxable, how margin is calculated, how to file, and where combined reporting and common errors trip people up.
Key Takeaways
- No-tax-due threshold for 2026 is $2.65 million in annualized total revenue.
- Below the threshold, still file a Public Information Report (PIR) or Ownership Information Report (OIR).
- Rates are 0.75% for most entities, 0.375% for qualifying retail/wholesale, and 0.331% under EZ Computation.
- File the 2026 report by May 15, 2026; extensions still require timely payment.
2026 Texas Franchise Tax Thresholds, Rates, and Key Filing Facts
Threshold and rates
The no-tax-due threshold is $2,650,000 of annualized total revenue from the entire business, not just Texas sales. At or below that figure, you owe no tax and do not file a No Tax Due Report. Public Information Report (PIR) or Ownership Information Report (OIR) obligations generally remain, per the Comptroller's 2026 instructions.
| Entity type | Rate |
|---|---|
| Most entities | 0.75% |
| Qualifying retail or wholesale | 0.375% |
| EZ Computation (revenue up to $20 million) | 0.331% |
Confirm your classification before picking a rate. Retail/wholesale revenue must exceed revenue from other trades, and generally less than 50% of that revenue may come from products you or an affiliate produced. Utility providers do not qualify.
Deadline, extensions, and penalties
The 2026 report is due May 15, 2026. An extension buys time to file, not to pay. Pay by May 15, generally either 90% of the current-year tax or 100% of the prior-year tax.
- Non-EFT filers: extended filing runs through Nov. 16, 2026.
- Mandatory EFT filers: first extension to Aug. 17, then Nov. 16, with remaining tax paid electronically by Aug. 17.
- The 100% prior-year option requires the prior report to have been filed by May 14, 2026. First annual reports don't qualify.
- Late reports carry a $50 penalty, even when no tax is due.
- Late payment adds 5% (1-30 days) or 10% (over 30 days), plus interest starting 61 days after the due date. The Comptroller lists the 2026 interest rate at 7.75%.
Report year versus accounting period
These three dates get confused constantly:
- Report year: the year the report is due (2026).
- Accounting period: generally ends in 2025. A calendar-year business uses Jan. 1 to Dec. 31, 2025.
- Filing date: the day you actually submit.
Who Must Pay Texas Franchise Tax?
What triggers liability
Texas franchise tax is a state privilege tax on taxable entities formed in Texas or doing business there. Despite the name, it has nothing to do with franchised businesses like restaurant chains.
It is also distinct from other taxes. Sales tax is collected on transactions. Federal income tax is based on taxable income. Franchise tax is based on a statutory margin, and federal treatment doesn't decide whether you're taxable.
Taxable entities and common structures
Under Section 171.0002, taxable entities include:
- Corporations and banking corporations
- LLCs, including series LLCs
- Partnerships and LLPs
- Professional associations
- Business trusts and business associations
- Joint ventures, joint stock companies, and holding companies
A single-member LLC that is a disregarded entity for federal purposes is still a taxable entity in Texas. A series LLC is one legal entity with one report and one PIR, and nexus for one series creates nexus for all.
Foreign entities (those not organized in Texas) are taxable if they do business in Texas. Physical nexus can arise from:
- Texas employees or representatives
- Inventory or a business location in the state
- Real estate holdings
- Services performed in Texas
Economic nexus applies at $500,000 or more in Texas gross receipts per federal accounting period ending in 2019 or later. Public Law 86-272 does not protect against franchise tax.
Exclusions and exemptions
Common exclusions:
- Sole proprietorships (an individually owned LLC is not one)
- General partnerships owned entirely by natural persons, with no statutory liability limitation (an LLP registration defeats this)
- Passive entities earning at least 90% of federal gross income from qualifying sources (rent does not count)
- Grantor trusts, qualified retirement trusts, and other specified trusts
- Unincorporated political committees
Nonprofits are not automatically exempt. The state requires an application and approval, and you keep filing and paying until it's granted. Don't assume "small" or "nonprofit" settles it. Check the legal structure and the facts.
How Is Texas Franchise Tax Calculated for 2026?
Revenue, margin, and taxable margin
Franchise tax is not a rate applied to net profit. The sequence runs like this:
- Start with total revenue from prescribed federal-return lines, less statutory exclusions.
- Compute margin using one of four methods.
- Apportion margin to Texas.
- Subtract allowable deductions to reach taxable margin, then apply the rate.
If you operated for only part of the period, annualize revenue (revenue ÷ days in period × 365) for the no-tax-due and EZ eligibility tests. Annualizing does not change the actual revenue used to compute tax.
The four margin methods
You may use whichever produces the lowest margin:
- 70% of total revenue. Simple, and often best when costs are thin.
- Revenue minus COGS. Suits product businesses. COGS generally requires sales of real or tangible personal property, so services don't automatically qualify.
- Revenue minus compensation. Suits labor-heavy firms. Wages are capped at $480,000 per person for 2026-2027 reports, though eligible benefits aren't capped.
- Revenue minus $1 million. Often wins for mid-sized businesses with modest costs.
Hypothetical example (not tax advice): A company has $5,000,000 in total revenue, $3,200,000 in eligible COGS, and $1,900,000 in eligible compensation. All revenue is Texas-sourced, and it doesn't qualify as retail/wholesale.
| Method | Margin |
|---|---|
| 70% of revenue | $3,500,000 |
| Revenue minus COGS | $1,800,000 |
| Revenue minus compensation | $3,100,000 |
| Revenue minus $1M | $4,000,000 |
The COGS method gives the lowest margin: $1,800,000. At 0.75%, tax due is $13,500. Your numbers, classifications, and rate will differ.
EZ Computation versus the long form
EZ Computation is available when annualized revenue is $20 million or less, and the limit applies group-wide for combined groups. Form 05-169 replaces long-form 05-158. It changes how the tax is calculated, not the obligation to file. In the EZ year you take no margin deductions or credits, and the rate is 0.331%.
Pick EZ for simplicity. Use the long form when COGS, compensation, or credits would cut tax more than the lower rate does.
Apportionment and 2026 adjustments
Apportionment is Texas receipts divided by receipts everywhere. Tangible goods generally source to Texas on delivery to a Texas purchaser, and services generally source to where they're performed. Certain categories have special rules.
Confirmed 2026 changes:
- Federal conformity: federal-return amounts follow federal law for that tax year, except where Texas law expressly references the Internal Revenue Code.
- Depreciation: qualifying bonus depreciation may enter COGS, with a one-time 2026 adjustment for certain assets used in goods production.
- R&D credit: a new Subchapter T credit applies to reports originally due Jan. 1, 2026 or later.
- Housing development credit: applies to qualified developments placed in service in 2025.
- Strong Families credit: contributions cannot precede June 1, 2026, and the credit is claimed on the following year's report.
How to File a Texas Franchise Tax Report in 2026
Determine which obligation applies
Work through this sequence:
- Confirm the entity is taxable and not excluded.
- Calculate annualized total revenue.
- Compare it with $2.65 million.
- Identify the report type: tax report (long form or EZ), or PIR/OIR only.
Falling under the threshold removes the tax, not the information reporting.
Select the form and method
- Franchise tax report: for taxable entities above the threshold (05-158 long form or 05-169 EZ).
- PIR (05-102): corporations, LLCs, limited partnerships, professional associations, and financial institutions. It lists officers and directors.
- OIR (05-167): other taxable legal forms. It lists ownership, and that information is confidential.
Both must be signed by an authorized person. Use the Comptroller's WebFile system or approved software, or permitted paper forms.
Electronic payment is not the same as electronic reporting. If your payments in the prior state fiscal year (Sept. 1 to Aug. 31) hit $10,000, you must pay electronically. At $500,000, you must use TEXNET.
Prepare your records
Gather:
- Federal tax return information
- Total revenue and Texas receipts
- COGS and compensation detail
- Officer, director, or owner information
- Entity identification and prior filings
Bookkeeping classifications matter. COGS, compensation, exclusions, and apportionment all depend on how transactions were coded. Keep records at least four years, since general audit guidance reaches that far back.
File, pay, or extend
File and pay by May 15. If you need more time, request the extension and make the required payment by that date, as described in the Comptroller's extension guidance.
An extension to file does not extend payment. Underpay and you face penalty and interest on the shortfall.
Calculated tax under $1,000 generally means no payment, but required reports are still due. Zero Texas receipts means zero tax, yet does not excuse a required report.
Avoid late-filing and good-standing problems
A missed PIR or OIR can cost you more than the $50 penalty. The Comptroller's PIR and OIR requirements warn that an entity may forfeit the right to transact business, lose access to Texas courts, and expose officers to personal liability for certain debts.
Penalty waivers exist. File all reports and pay all tax first. A waiver in the prior two years generally blocks another, absent extenuating circumstances.
Pre-submission checklist:
- Legal name, entity type, and Texas taxpayer number verified
- Annualized revenue compared against the threshold
- Margin method documented
- Correct form selected
- Payment made and confirmation saved
- PIR or OIR completed and signed
- Records stored for at least four years
Where VJM Global fits
VJM Global provides accounting outsourcing and tax compliance support for U.S.-based businesses and multinational companies, covering LLCs, S-Corps, and C-Corps. For companies juggling several entities and recurring deadlines, organized books make COGS and compensation figures far easier to defend. VJM Global is not affiliated with the Texas Comptroller, and this guide is general information.
Special Situations and Common Texas Franchise Tax Compliance Risks
Combined reporting
Entities must file a combined group report when they share common ownership of more than 50% (direct or indirect) and operate a unitary business. Unitary means interdependent, integrated activities that share value. Affiliated entities are presumed unitary unless rebutted.
How the group calculates:
- Members' revenue is combined; included intercompany revenue and the matching intercompany COGS are eliminated.
- The group applies one $2.65M no-tax-due test and one $20M EZ test.
- All members use the same margin method, and a reporting entity files for the group.
- Apportionment numerator: receipts of Texas-organized or nexus members. Denominator: receipts of all members, including those without nexus.
- Exempt or passive entities and qualifying new veteran-owned entities are excluded.
Small members aren't excluded just because their own revenue is small. When members join or leave, reporting periods can split, and separate or final reports depend on the facts.
Layered ownership, partnerships, or cross-border subsidiaries need professional review. Errors here are usually the most expensive.
Foreign, remote, and online businesses
You don't need a Texas office. Employees, inventory, services performed in Texas, or $500,000 or more in Texas gross receipts can each create a filing obligation.
Franchise tax nexus is separate from sales tax nexus. The franchise tax test uses federal accounting periods, while the sales tax remote-seller test looks at the preceding twelve calendar months.
Passing one test says nothing about the other. Verify sourcing rules with the Comptroller.
Common errors
- Using last year's threshold instead of $2.65 million
- Treating gross revenue as taxable margin
- Filing a PIR when an OIR was required, or vice versa
- Skipping the information report because no tax is due
- Leaving an affiliate off the Affiliate Schedule (corrected with Form 05-166)
- Selecting combined reporting in error without notifying the Comptroller in writing
- Assuming federal disregarded status means no Texas filing
Drop stale assumptions too. The $450,000 compensation cap applied to 2024-2025 reports, not 2026.
VJM Global's multi-state U.S. compliance work covers state income tax, sales tax, and franchise tax, which helps when a business operates across several states.
Frequently Asked Questions
What is the franchise tax "no tax due" threshold in Texas for 2026?
It is $2.65 million in annualized total revenue. At or below that, no tax is due, but a PIR or OIR generally still has to be filed.
Who must pay Texas franchise tax and does it apply to LLCs?
Taxable entities formed in or doing business in Texas, including most LLCs, even single-member ones. Statutory exclusions and nexus facts still need to be reviewed.
How much is Texas franchise tax for an LLC and how is it calculated?
It depends on taxable margin, the margin method, revenue, apportionment, and rate (0.75%, 0.375%, or 0.331%). No two LLCs owe the same amount by default.
What are the combined reporting requirements for Texas franchise tax?
Related entities with over 50% common ownership that operate a unitary business must report as a group. Eliminations, apportionment, and member rules should be checked against current Comptroller guidance.
Do businesses below the no-tax-due threshold still have to file?
Usually yes. They skip the tax report but generally must file a PIR or OIR, unless they are exempt or passive entities or qualifying new veteran-owned entities.
What happens if a Texas franchise tax report is filed late?
A $50 penalty applies per late report, even with no tax due. Late payment adds 5% or 10% plus interest, though penalty waivers may be available on request.
