Every year a Weatherford business owner tells us, with total confidence, that Texas has no business taxes. Half of that is true — there is no state income tax on the individual — but Texas absolutely does tax many business entities through the franchise tax, also called the margin tax, filed with the Texas Comptroller. Miss it and the penalties and the loss of your entity's good standing are very real. Here is who owes it, who only has to file a report, and how the whole thing works.
What the franchise tax actually is
The Texas franchise tax is a state tax on the privilege of doing business in Texas as a taxable entity. It is not an income tax and it is not a sales tax — it is calculated on a business's "margin," which is a version of revenue after certain allowed subtractions. Because it is based on margin rather than profit, a business can theoretically owe franchise tax even in a year it did not turn a profit, which surprises a lot of owners.
The important mental model: the personal side of Texas is famously tax-friendly, but the business entity side has this one significant state-level obligation. Ignoring it because "Texas has no income tax" is one of the most common and most expensive misconceptions we correct.
Who owes the franchise tax
The franchise tax generally applies to entities that enjoy liability protection or a separate legal existence under Texas law, including:
- Limited liability companies (LLCs)
- Corporations (both C and S corporations)
- Limited partnerships (LPs) and limited liability partnerships (LLPs)
- Professional associations and certain other business entities
Notably, sole proprietorships and general partnerships made up only of natural persons are generally not subject to the franchise tax. This is a meaningful distinction: the same business can go from having no franchise tax obligation as a sole proprietor to having a filing obligation the moment it forms an LLC. If you formed an entity this year, you likely just picked up a franchise tax responsibility even if you owe nothing.
The key distinction: owing tax vs. having to file
This is the part almost everyone gets wrong, so read it twice. There are two separate questions:
- Do you owe any franchise tax?
- Do you have to file a franchise tax report?
The Comptroller sets a revenue threshold below which an entity owes no franchise tax. That threshold adjusts over time, so confirm the current figure — Texas sets this and it changes. Here is the catch: being under the no-tax-due threshold does not always mean you can ignore the state entirely. Depending on the current rules, taxable entities may still be required to file an annual report and, separately, a Public Information Report or Ownership Information Report that keeps the state's records on your business current. In other words, you can owe zero dollars and still have a filing duty. Skipping the filing because you owed nothing is exactly how businesses fall out of good standing.
"I didn't owe anything" is not the same as "I didn't have to file." The state has separated those two questions on purpose.
How margin is calculated
For businesses that do owe, the tax is figured on margin, and Texas lets you compute margin using the method that produces the lowest result among several allowed options — generally some version of total revenue minus the largest of cost of goods sold, compensation, or a flat percentage of revenue. The applicable rate is set by the state, differs for certain industries like retail and wholesale, and adjusts over time, so we do not quote a fixed rate here — confirm the current rate for your entity type. The mechanics are stable; the numbers move.
Deadlines and how you file
Franchise tax reports are filed annually with the Texas Comptroller, typically due in the spring — commonly May 15, though you should confirm the current year's date. If that date falls on a weekend or holiday it shifts. Key points:
- You file with the Comptroller, not the IRS. This is a state filing, completely separate from your federal return.
- Extensions exist for the franchise report, but like federal extensions, an extension to file is generally not an extension to pay any tax due.
- Filing is largely done online through the Comptroller's electronic systems.
- Penalties compound. Late filing brings penalties and interest, and prolonged failure to file can cause your entity to forfeit its right to do business and its liability protection — a much bigger problem than the tax itself.
How this fits with everything else you file
The franchise tax is one of three Texas business obligations owners regularly confuse. Keep them straight:
- Franchise (margin) tax — the entity-level state tax covered here, filed with the Comptroller.
- Sales and use tax — a completely separate obligation if you sell taxable goods or services; we cover it in Texas sales tax for small business.
- Federal income tax — your business's federal return, which has nothing to do with the state franchise tax.
None of this changes the headline fact that Texas has no personal income tax — the franchise tax is an entity-level tax, not a tax on you as an individual. We lay out the full picture of what Texas does and does not tax in Texas taxes: no income tax, but.
This article is general information, not tax advice. The no-tax-due threshold, the tax rates, filing requirements, and deadlines are all set by the Texas Comptroller and change over time — confirm the current figures and rules for your entity before filing.
Not sure whether your Texas business owes franchise tax or just has to file? Call RD Precision Tax Service in Weatherford at (817) 480-6649, or request a free estimate. Robert has served Weatherford and Parker County since 2017.
This article is general information, not tax advice, and tax rules change from year to year. Confirm current-year figures and talk with a professional about your specific situation before acting.
Common questions
Does Texas really have a business tax if there is no income tax?
Yes. Texas has no personal income tax, but it does levy a franchise tax, also called the margin tax, on many business entities. It is filed with the Texas Comptroller and is separate from any federal return.
Who has to pay the Texas franchise tax?
It generally applies to LLCs, corporations, limited partnerships, and similar entities. Sole proprietorships and general partnerships of natural persons are typically not subject to it.
Do I have to file if I owe no franchise tax?
Often yes. Texas sets a revenue threshold below which no tax is due, but taxable entities may still be required to file an annual report and an information report to stay in good standing. Owing zero is not the same as having no filing duty.
When is the Texas franchise tax report due?
It is filed annually with the Texas Comptroller, commonly in the spring around May 15, though you should confirm the current year's date. If that date falls on a weekend or holiday it shifts.
What happens if I do not file my franchise tax report?
You face penalties and interest, and prolonged failure to file can cause your entity to forfeit its right to do business in Texas along with its liability protection, which is usually a far bigger problem than the tax itself.
Have a question about your situation?
Robert prepares returns for individuals, contractors, and small business owners across Weatherford, Aledo, Willow Park, Springtown, Mineral Wells, and the rest of Parker County. Bring your questions — the first conversation is free.