Tx franchise tax

Texas Franchise Tax Calculator

Compute Texas Franchise Tax liability using margin-based calculations. Handles 4 margin methods, retail/wholesale rate (0.375%) vs. standard rate (0.75%), EZ computation (0.331%), no-tax-due threshold ($2.65M), and annual filing per Texas Comptroller rules.

When to Activate

• User mentions "Texas franchise tax", "Texas margin tax", "Texas business tax", "Texas Comptroller"
• Computing annual franchise tax liability
• Choosing between margin calculation methods
• Evaluating EZ computation eligibility
• Any business formed in or doing business in Texas

What This Tax Is

Texas Franchise Tax is a margin-based privilege tax on entities formed in or doing business in Texas. Unlike gross receipts taxes (WA B&O, OH CAT), the Texas franchise tax is computed on taxable margin — total revenue minus allowable deductions. This makes it a hybrid between income tax and gross receipts tax¹.

The tax applies to corporations, LLCs, partnerships, banks, S-corps, trusts, and other legal entities. Sole proprietorships and general partnerships composed entirely of natural persons are exempt¹.

Texas has no corporate income tax and no personal income tax. The franchise tax is the primary business-level tax.

Rate Structure

Rate Type	Rate	Who Qualifies	Source
Standard	0.75%	Most entities	TX Comptroller
Retail/Wholesale	0.375%	Entities primarily in retail or wholesale trade	TX Comptroller
EZ Computation	0.331%	Entities with total revenue ≤$20M	TX Comptroller

No-Tax-Due Threshold

Report Year	Threshold	Source
2026-2027	$2,650,000	TX Comptroller
2024-2025	$2,470,000	TX Comptroller

Entities below the no-tax-due threshold owe no tax but must still file a franchise tax report (No Tax Due Information Report)¹.

Surcharge

Texas does not impose an additional surcharge on the franchise tax.

Credits and Exemptions

Margin Calculation — 4 Methods

The tax base is taxable margin, calculated as total revenue minus the lowest of four options²:

1. 70% of total revenue (automatic floor)
2. Total revenue minus cost of goods sold (COGS)
3. Total revenue minus compensation (subject to per-person cap)
4. Total revenue minus $1,000,000 (flat deduction)

The taxpayer chooses the method producing the lowest margin (and therefore lowest tax).

Per-Person Compensation Cap

Report Year	Cap Per Person	Source
2026	$480,000	TX Comptroller
2025	$450,000	TX Comptroller

Compensation includes W-2 wages, officer/owner compensation, and deductible employee benefits. Does not include 1099 contractor payments².

EZ Computation

Entities with total revenue of $20 million or less may elect the EZ Computation at 0.331% of total revenue. EZ filers cannot use the COGS, compensation, or $1M deductions and cannot claim credits².

Exempt Entities

Entity Type	Source
Sole proprietorships	TX Comptroller
General partnerships of natural persons only	TX Comptroller
Certain passive entities	TX Comptroller
Certain REITs	TX Comptroller

Tax Credits

Available credits include¹:

• Business loss carryforwards
• Research and development activities
• Certified historic structures rehabilitation

Filing Requirements

Filing Due Date

Item	Detail	Source
Annual report due	May 15	TX Comptroller
Late penalty (1-30 days)	5% of tax	TX Comptroller
Late penalty (>30 days)	10% of tax	TX Comptroller
Late report penalty	$50 per report	TX Comptroller
Interest	Accrues 61+ days after due date	TX Comptroller

Extensions must be requested by the original due date. File through the Comptroller's Webfile portal.

Who Must File

All entities formed or organized in Texas or doing business in Texas must file a franchise tax report, even if no tax is due. The No Tax Due Information Report is filed if total revenue is below the threshold¹.

Nexus

A taxable entity has nexus if it is doing business in Texas, which includes¹:

• Having a physical presence in Texas (office, employees, inventory)
• Having gross receipts from Texas sources
• Being organized under Texas law

Texas uses a broad "doing business" standard. If revenue is sourced to Texas, the entity generally has franchise tax obligations.

City/Local Tax Overlays

Texas cities do not impose a separate franchise tax or margin tax. The franchise tax is a state-level tax only. Houston, San Antonio, and Dallas do not have additional business profit taxes.

Some Texas cities impose other business-related taxes (hotel occupancy, mixed beverage, etc.) but none parallel the franchise tax.

Calculation Process

Step 1: Determine Total Revenue

Sum all revenue from Texas business activity. Exclude dividends/interest on government bonds, Schedule C dividends, and foreign royalties.

Step 2: Check No-Tax-Due Threshold

• At or below $2,650,000 (2026): File No Tax Due report. No tax owed.
• Over threshold: Proceed to Step 3.

Step 3: Choose Margin Method (or EZ)

If total revenue ≤$20M, consider EZ Computation: tax = 0.00331 × total_revenue

Otherwise, compute all four margin methods and use the lowest:

margin_70pct = 0.70 × total_revenue
margin_cogs = total_revenue - cost_of_goods_sold
margin_comp = total_revenue - compensation  # per-person cap applies
margin_1m = total_revenue - $1,000,000
taxable_margin = min(margin_70pct, margin_cogs, margin_comp, margin_1m)

Step 4: Apply Rate

If retail/wholesale:  tax = 0.00375 × taxable_margin
Otherwise:            tax = 0.0075 × taxable_margin

Step 5: Apply Credits

Subtract any available credits (R&D, historic structures, loss carryforward).

Example: Texas Software Company

Total revenue: $5,000,000
COGS: $800,000
Compensation: $2,200,000 (all under $480K/person cap)
Entity type: Non-retail/wholesale

Margin Method 1: 70% × $5,000,000 = $3,500,000
Margin Method 2: $5,000,000 - $800,000 = $4,200,000
Margin Method 3: $5,000,000 - $2,200,000 = $2,800,000  ← lowest
Margin Method 4: $5,000,000 - $1,000,000 = $4,000,000

Taxable margin: $2,800,000 (compensation method)
Tax: $2,800,000 × 0.0075 = $21,000.00

EZ comparison: $5,000,000 × 0.00331 = $16,550.00  ← lower!

Best choice: EZ Computation at $16,550.00
Due date: May 15

Common Mistakes

1. Not comparing all four margin methods — Always compute all four and use the lowest. The best method varies by business type²
2. Forgetting EZ computation — For entities under $20M, EZ at 0.331% is often cheaper than any margin method
3. Including 1099 contractors in compensation — Only W-2 wages and officer/owner compensation qualify for the compensation deduction²
4. Exceeding per-person cap — Compensation over $480,000 (2026) per person is not deductible²
5. Not filing because under threshold — Even entities below $2.65M must file a No Tax Due report¹
6. Using the wrong rate — Retail/wholesale entities pay 0.375%, not 0.75%. Verify your primary business activity
7. Missing the May 15 deadline — Texas franchise tax is due May 15, not April 15 like most other state taxes

References

Official Texas Comptroller

• Franchise Tax Overview
• Franchise Tax Main Page
• 2026 Franchise Tax Instructions
• 2026 Report Forms
• EZ Computation Form
• Webfile Portal

Texas Tax Code

• Chapter 171 — Franchise Tax

Output Format

When computing franchise tax, present results as:

## Texas Franchise Tax — [Report Year]

| Item | Amount |
|---|---|
| Total Revenue | $X,XXX,XXX.XX |
| Margin Method Used | [70% / COGS / Compensation / $1M deduction / EZ] |
| Taxable Margin | $X,XXX,XXX.XX |
| Rate | X.XXX% |
| Gross Tax | $XX,XXX.XX |
| Credits | ($X,XXX.XX) |
| **Net Tax Due** | **$XX,XXX.XX** |
| Due Date | May 15, [Year] |

Constraints

• MUST use Decimal arithmetic for all money calculations — never floats
• MUST compute all four margin methods and use the lowest (unless EZ elected)
• MUST compare EZ computation to margin methods when revenue ≤$20M
• MUST apply the per-person compensation cap ($480,000 for 2026)
• MUST NOT include 1099 contractor payments in the compensation deduction
• MUST note that entities below the no-tax-due threshold must still file
• MUST use May 15 due date (not April 15)
• MUST warn if total revenue approaches the no-tax-due threshold within 10%
• MUST warn and show extrapolation method when estimating annual liability from partial-year data
• MUST cite sources when presenting rates or thresholds to the user

Disclaimer

This provides general tax guidance based on publicly available information. It is not legal or tax advice. Consult a qualified tax professional for your specific situation.

Footnotes

1. Texas Comptroller — Franchise Tax Overview ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶ ↩⁷

2. TX Comptroller — Franchise Tax Overview and 2026 Franchise Tax Instructions ↩ ↩² ↩³ ↩⁴ ↩⁵ ↩⁶