Texas Franchise Tax Calculator (2026)
Texas franchise tax — the so-called margin tax — is the closest thing Texas has to a corporate income tax. Most small businesses owe nothing because of a generous no-tax-due threshold: $2,470,000 in total revenue for 2026 reports. Above that, rates are 0.375% for retail/wholesale and 0.750% for everyone else, applied to margin (not revenue).
Who actually pays franchise tax
Roughly 95% of Texas entities file the franchise report but owe $0 because they're under the no-tax-due threshold. The tax mostly hits mid-sized and larger businesses. But every LLC, corporation, and limited partnership — no matter how small — must file annually to stay in good standing with the Texas Comptroller and Secretary of State.
2026 rates
| Situation | Rate | Notes |
|---|---|---|
| Total revenue under $2.47M (2026) | $0 | File a Public Information Report, no tax owed |
| Retail or wholesale (NAICS 44-45 or 42) | 0.375% of margin | Cost of goods sold typically deductible |
| All other entities | 0.750% of margin | Service businesses, manufacturers, most LLCs |
| EZ computation (revenue under $20M) | 0.331% of revenue | Simpler — no margin calc, just revenue × rate |
Estimate your franchise tax
This estimator handles the EZ computation accurately and approximates margin-method tax. For exact numbers when you're over the no-tax-due threshold, use a CPA — the margin calculation involves real elections (COGS vs. compensation vs. 30%) that affect the bill.
EZ computation uses revenue × rate. Retail/wholesale and service use margin (revenue minus the larger of COGS, compensation, 30% of revenue, or $1M), then × rate. This estimator uses the EZ method or applies the rate to revenue as an approximation — for accurate margin-method numbers, use a CPA or the Texas Comptroller’s calculator.
Worked example: SaaS LLC at $4M revenue
A 12-person Texas-based SaaS company with $4M in revenue, $2.4M in total compensation, and minimal COGS. The franchise tax math:
Margin = $4,000,000 − max($0 COGS, $2,400,000 compensation, $1,200,000 = 30% of revenue, $1,000,000 floor) = $4,000,000 − $2,400,000 = $1,600,000
Tax = $1,600,000 × 0.75% = $12,000 owed
Under the EZ method, the same company would pay $4,000,000 × 0.331% = $13,240. The margin method saves $1,240. Most service businesses with significant payroll prefer the margin method.
Common mistakes
- Skipping the PIR. The Public Information Report is required even if you owe $0. Skipping it leads to forfeiture.
- Wrong NAICS code. Filing under a non-retail NAICS code when you qualify as retail/wholesale doubles your rate from 0.375% to 0.75%.
- Missing combined-group elections. Affiliated entities (50%+ common ownership) must file as a combined group. Filing separately when you should be combined can trigger penalties.
- Single-member LLC confusion. A single-member LLC owned by an individual is disregarded for federal tax but still a taxable entity for Texas franchise tax. You file.
EZ vs margin method — three worked comparisons
Texas franchise tax offers two computation methods for entities above the no-tax-due threshold: the EZ method (simpler, higher effective rate) and the margin method (complex, usually lower for service businesses with payroll). Choosing the right method matters.
Comparison 1 — Texas SaaS, $4M revenue, $2.4M payroll, minimal COGS.
- EZ method: $4M × 0.331% = $13,240
- Margin method: $4M − max($0 COGS, $2.4M comp, $1.2M = 30% of revenue, $1M floor) = $1.6M margin × 0.75% = $12,000
- Winner: margin method, by $1,240. Higher-payroll service businesses generally prefer margin.
Comparison 2 — Texas e-commerce retailer, $4M revenue, $2.8M COGS, $400k payroll.
- EZ method: $4M × 0.331% = $13,240
- Margin method (retail rate): $4M − max($2.8M COGS, $400k comp, $1.2M, $1M) = $1.2M margin × 0.375% = $4,500
- Winner: margin method, by $8,740. Retail/wholesale businesses with substantial COGS dramatically benefit from the margin method at the lower 0.375% rate.
Comparison 3 — Texas consulting LLC, $3M revenue, $300k payroll, $50k overhead.
- EZ method: $3M × 0.331% = $9,930
- Margin method: $3M − max($50k COGS, $300k comp, $900k = 30% of revenue, $1M floor) = $2M margin × 0.75% = $15,000
- Winner: EZ method, by $5,070. Low-payroll service businesses with high revenue and minimal COGS commonly prefer EZ.
The break-even depends on your COGS-to-revenue ratio, payroll, and entity type. A CPA usually pays for itself in the first year for any entity expected to exceed the $2.47M threshold.
Combined group rules — when affiliated entities must file together
Texas requires combined reporting when two or more entities share 50%+ common ownership and are engaged in a unitary business. Combined reporting means the affiliated group files a single franchise tax report, combining revenues and margins as if they were one entity.
Triggers for combined reporting:
- Ownership: 50%+ direct or indirect common ownership (parent-subsidiary, brother-sister, or higher tiers)
- Unitary business: Shared management, functional integration, economies of scale, or interdependent operations
- Both entities have nexus in Texas: Each must be subject to Texas franchise tax independently
Why combined reporting matters: it eliminates intercompany transactions from the revenue calculation. If Subsidiary A bills Parent $1M annually for services, that $1M is netted out at the combined level — preventing double counting of revenue. Without combined reporting, both entities might separately report and pay tax on overlapping revenue streams.
Common combined-group mistakes:
- Filing separately when combined is required — exposes the group to back-tax assessment plus penalties
- Filing combined when not actually unitary — exposes individual entities to separate audits and possible disallowance
- Missing affiliated entities (e.g., a real estate LLC owned by the same individuals) — common when owners forget about passive-holding LLCs
- Not making the affiliated-group election (a one-time choice that defines the group composition)
Combined reporting is technical and worth professional help. Most Texas CPAs experienced in franchise tax can structure the group correctly. If you have multiple LLCs or a holding-company structure, get the analysis done before May 15 of each year.
Passive entity election — the rental-real-estate exception
Texas franchise tax exempts passive entities that meet specific criteria. The most common application: limited partnerships holding rental real estate.
To qualify as a passive entity in Texas:
- The entity must be a general or limited partnership or a non-business trust (LLCs typically cannot elect)
- 90%+ of the entity's gross income for the federal income tax year must come from passive sources: rents from real property, dividends, interest, capital gains from sales of stocks/bonds/real property, royalties, and certain other categories
- Less than 10% of gross income may come from active trade or business activities
Practical implication: a Texas limited partnership owning rental real estate, where rents are essentially the only income, can elect passive status and owe zero franchise tax (still files the report annually). This is one reason Texas real estate investors commonly use limited partnerships rather than LLCs.
Note: a single-member LLC owned by an individual does NOT qualify for passive entity status. It's a "disregarded entity" for federal but a taxable entity for Texas franchise tax purposes — owes franchise tax on its own income. Many Texas rental property owners hold their properties in limited partnerships specifically to qualify for the passive entity exemption.
If you're structuring a new rental real estate entity in Texas, talk to your CPA about LP vs. LLC before formation. The franchise tax difference can be material if you grow above the no-tax-due threshold.
Penalties and forfeiture — what happens if you ignore the report
Texas franchise tax has teeth. Failure to file or pay leads to a cascading set of consequences:
- Day 1 after May 15 deadline: $50 late filing penalty, 5% of tax owed (or $50 minimum) penalty, 1% per month interest. The August extension stops this if you filed for extension on time.
- 30 days delinquent: Additional 5% penalty.
- 120 days delinquent without resolution: Comptroller transfers the file to the Secretary of State. The entity's "right to do business in Texas" is forfeited. Owners may lose limited liability protection.
- 180 days delinquent: Secretary of State forfeits the entity's charter or registration. The entity legally ceases to exist. Owners can be held personally liable for debts.
- Reinstatement: Possible by paying all back tax, all penalties, all interest, and a $25 reinstatement fee. Plus filing all delinquent reports. Often costs $2,000-$5,000 in penalties for a multi-year lapse.
The most common forfeiture scenario: a single-member LLC with no revenue and no activity. The owner doesn't realize that Texas franchise tax requires an annual filing even with zero owed. Three years go by. The state forfeits the entity. The owner discovers the lapse when trying to sell or transact.
Even at $0 tax owed, file the Public Information Report (PIR) annually. It takes 15 minutes. The penalty for skipping it dwarfs any rational reason not to file.
History of the margin tax — and why it gets re-examined
The Texas margin tax was enacted in 2006 as part of a sweeping property tax reform (House Bill 3). The legislature reduced school property tax rates by roughly one-third and offset the revenue loss with the new business margin tax (formally the Texas Franchise Tax).
The structure was novel: rather than a traditional corporate income tax (which Texas constitutionally cannot levy without voter approval), the margin tax taxes business activity through the lens of revenue minus certain deductions. It applies to almost all entity types, not just C-corps.
The margin tax has been repeatedly criticized by business groups for its complexity and uneven impact. Service businesses with high payroll often pay disproportionately more than retail/wholesale businesses with high COGS. The legislature has periodically considered repeal or replacement (most seriously in 2015 and 2023), but the structural revenue need keeps it in place.
Recent legislative changes that affect franchise tax:
- 2014: No-tax-due threshold raised to $1.13M.
- 2015: Threshold raised to $1.18M; rates reduced ~25%.
- 2023: Threshold raised to $2.47M effective 2024 — meaning many more small businesses now owe nothing.
- 2025: Threshold continues at $2.47M; no major structural changes.
The trend has been toward exempting more small businesses while preserving the tax on mid-to-large entities. For most Texas small business owners reading this page, the practical effect is: file the PIR, owe nothing, move on. For businesses above the threshold, professional help is genuinely worth the cost.