For 2026, five questions decide where you stand: Is your entity taxable? Do you actually owe tax? Which rate and calculation method apply? Which report must you file? And when is it due?
Here's the part many owners miss. Falling below the no-tax-due threshold doesn't end your filing obligation. You may still owe a Public Information Report or Ownership Information Report every year. Rules shift annually, so always confirm current figures directly with the Texas Comptroller before you file.
Key Takeaways
- Most Texas entities should review their 2026 franchise tax and reporting duties, even when zero tax is owed
- 2026 threshold is $2.65 million; rates are 0.375% (retail/wholesale), 0.75% (other), and 0.331% (EZ Computation)
- Your filing path depends on entity type, revenue, calculation method, and whether a PIR or OIR applies
- Missing a deadline triggers penalties, interest, and potential loss of good standing in Texas
Who Must Pay or File Texas Franchise Tax in 2026?
Liability depends on your entity's legal structure and Texas business activity, not profitability or sales tax registration. A company can lose money all year and still owe a franchise tax report.
Entities Generally Subject to the Tax
Review your classification against current Comptroller guidance. Entities typically covered include:
- Corporations and S corporations
- LLCs, including single-member and series LLCs
- Professional corporations and professional associations
- Partnerships and joint ventures (with exceptions below)
- Banks, savings and loan associations, and state limited banking associations
- Trusts and other business associations doing business in Texas
Commonly Excluded or Exempt Categories
Not every business entity owes this tax. Exclusions typically cover:
- Sole proprietorships, other than single-member LLCs
- General partnerships owned entirely by natural persons (LLPs don't qualify for this exclusion)
- Passive entities meeting statutory tests
- Certain grantor trusts, estates, and escrows
- REMICs and specified qualifying REITs
- Nonprofits that have actually applied for and received Comptroller exemption, not simply those organized as nonprofits
Out-of-State Businesses: Does Nexus Reach You?
Physical presence creates nexus through employees, a Texas office, inventory, leased property, or performed contracts in the state. Economic nexus can apply without any physical footprint.
An out-of-state entity generating $500,000 or more in Texas-sourced gross receipts during its accounting period may owe franchise tax even with no Texas presence. That test is separate from the $2.65M no-tax-due threshold, and treating them as interchangeable is a common, costly mistake.
Quick decision checklist:
- Confirm your entity type and formation state
- Verify Texas registration or business activity
- Calculate annualized total revenue
- Check for an applicable exemption
- Determine whether you owe a PIR or OIR regardless of tax due
2026 Texas Franchise Tax Rates and How to Calculate the Tax
Rates and thresholds change by report year, so verify these figures on the Texas Comptroller's franchise page before filing.
| 2026 Parameter | Amount |
|---|---|
| No-tax-due threshold | $2,650,000 annualized total revenue |
| Retail/wholesale rate | 0.375% |
| Other entities rate | 0.75% |
| EZ Computation ceiling | $20,000,000 |
| EZ Computation rate | 0.331% |
| Compensation deduction cap | $480,000 per person, per 12 months |
What Counts as Taxable Margin
Start with total revenue, apply permitted statutory exclusions, pick a calculation method, then apportion the result to Texas if required. It sounds simple on paper. In practice, the method you choose changes your bill significantly.
Four Margin Calculation Methods
The Long Form requires you to use the method that produces the lowest result, with a floor of zero:
- Total revenue multiplied by 70%
- Total revenue minus qualifying cost of goods sold
- Total revenue minus qualifying compensation
- Total revenue minus a flat $1,000,000 deduction
Service-heavy and intangible-focused businesses often find COGS deductions unavailable, so compensation or the flat subtraction frequently wins for them.
EZ Computation vs. the Long Form
EZ Computation applies a flat 0.331% to total revenue for entities under the $20M ceiling, with no deductions or credits allowed at all. The Long Form lets you deduct COGS, compensation, or the $1M subtraction, then apportion by the Texas receipts factor.
A business with heavy payroll or inventory costs almost always owes less under the Long Form, even though EZ looks simpler on the surface. Run both calculations with your actual records before deciding.
How to File a Texas Franchise Tax Report
The report you file depends on revenue and entity status. Confirm the correct 2026 forms before you submit anything.
| Report | 2026 Form |
|---|---|
| EZ Computation | 05-169 |
| Long Form (margin calculation) | 05-158-A and 05-158-B |
| Public Information Report | 05-102 |
| Ownership Information Report | 05-167 |
There's no standalone "No Tax Due" form for 2026. Entities below the threshold generally still file their applicable PIR or OIR.
PIR or OIR: Which One Applies?
- PIR: Corporations, LLCs, limited partnerships, professional associations, and financial institutions organized in or doing business in Texas
- OIR: Other taxable entity types with Texas formation or nexus
Each member of a combined group files its own report, with narrow exceptions for approved exempt entities, passive entities, and qualifying new veteran-owned businesses.
Preparation Checklist
Before you open Webfile, gather:
- Texas taxpayer number and federal EIN
- Accounting period start and end dates
- Total revenue and applicable exclusions
- COGS or compensation supporting records
- Apportionment and receipts data
- Ownership, officer, and director information
- Payment method and banking details
Check the 2026 franchise tax forms page for the current instructions before submitting.
Filing Channels and Payment Methods
Webfile is the Comptroller's primary system for most filers; paper filing remains an option in limited circumstances. Payment method depends on what you paid in the prior state fiscal year (September 1 to August 31):
| Prior fiscal year franchise tax paid | Payment requirement |
|---|---|
| Under $10,000 | Check or electronic payment |
| $10,000 to $499,999 | Electronic payment required (Webfile, TEXNET, or approved software) |
| $500,000 or more | TEXNET only |
If you're coordinating Texas filings with other state or country obligations, especially as a foreign-owned or multinational business, VJM Global's tax compliance and accounting team can help. The team organizes revenue and payroll records, reviews the underlying data before it goes on the report, and tracks recurring deadlines.
This supports your preparation process. It is not a substitute for Texas-licensed legal advice.
Texas Franchise Tax Deadlines, Extensions, and Late-Filing Consequences
The standard 2026 filing and payment deadline is May 15, 2026. If that date falls on a weekend or legal holiday, the deadline moves to the next business day.
Extension Rules
Requesting an extension (Form 05-164) buys more time to file, but it doesn't waive payment requirements. You generally need to pay at least 90% of the current year's tax, or 100% of last year's tax if you filed one previously, by May 15.
| Situation | 2026 deadline |
|---|---|
| Original report and payment | May 15, 2026 |
| Non-mandatory EFT extension | November 16, 2026 |
| Mandatory EFT, first extension | August 17, 2026 |
| Mandatory EFT, second extension | November 16, 2026 |
First-year filers and businesses with non-calendar fiscal years should check the Comptroller's extension rules directly, since reporting periods aren't uniform across every entity.
What Happens If You're Late
- Late report filed, even with zero tax due: $50 flat penalty
- Payment 1 to 30 days late: 5% penalty
- Payment over 30 days late: 10% total penalty
- Interest: Begins 61 days after the due date, at 7.75% annually for 2026 (this rate changes yearly)
Persistent non-compliance risks forfeiture of your right to transact business in Texas, denial of the right to sue or defend in Texas courts, and in some cases personal liability for specified individuals. The Comptroller must give at least 45 days' notice before forfeiture, so acting during that window usually prevents it.
Prevention checklist:
- Calendar May 15 well in advance
- Reconcile revenue figures early in the year
- Retain supporting schedules and calculations
- Confirm PIR or OIR data is current
- Document any extension request and payment made
2026 Compliance Checks and Common Filing Mistakes
A handful of recurring errors account for most franchise tax headaches:
- Confusing franchise tax with sales tax (they're separate filings with separate rules)
- Using an outdated no-tax-due threshold from a prior report year
- Assuming no tax owed means no report required
- Claiming an unsupported COGS or compensation deduction
- Filing a PIR when an OIR was required, or vice versa
Remote, online, and foreign-owned businesses should evaluate Texas nexus, entity registration, and revenue sourcing independently rather than assuming a lack of a physical office settles the question. Sales tax registration is handled state by state and is a distinct requirement from the annual franchise tax report.
Keep filed reports, confirmation numbers, payment receipts, and supporting records for as long as current law or your advisor recommends. For the latest forms, Webfile resources, and threshold notices, always check directly with the Texas Comptroller since rules can shift between legislative sessions.
Frequently Asked Questions
How much is franchise tax in Texas?
It depends on your 2026 rate classification, taxable margin or EZ Computation choice, revenue threshold, and any deductions. Verify current figures with the Texas Comptroller before calculating your liability.
Do I need to file a franchise tax report in Texas?
Filing depends on entity type, Texas activity, revenue, and exemption status. Some businesses owing no tax still must file a Public Information Report (PIR) or Ownership Information Report (OIR).
What happens if you don't file franchise tax in Texas?
You'll face a $50 late-report penalty plus payment penalties and interest if tax is owed. Continued non-compliance risks forfeiture and other administrative action, so confirm current amounts with the Comptroller.
How can I get a copy of my Texas franchise tax report?
Check your Webfile account first, since most filed reports are stored there. Otherwise, request copies through the Comptroller's Open Records channels, providing your taxpayer number and report year.
Who must pay Texas franchise tax?
Taxable entities formed, organized, or doing business in Texas generally owe the tax, subject to statutory exclusions, exemptions, and revenue thresholds that determine the final amount.
Do LLCs pay franchise tax in Texas?
Yes, Texas LLCs are generally taxable entities for franchise tax purposes. What they actually owe, and which reports apply, depends on revenue, deductions, and the current year's threshold.
