Texas Franchise Tax

What is Texas franchise tax?

The Texas Franchise Tax Report is an annual filing with the Texas Comptroller of Public Accounts. As of 2024, only businesses that gross over $2.47 million in annual revenue need to file a Franchise Tax Report. While most Texas business entities no longer file a Franchise Tax Report, they will most likely need to file a Public Information Report. Both reports are due by May 15.

Who must file the franchise tax?

Only businesses making over $2.47 million per year must file the Texas Franchise Tax Report.

The following types of companies are eligible for franchise tax:

• Business trusts
• Corporations
• Joint ventures
• LLCs (including single-member LLCs and series LLCs)
• Partnerships
• Professional and business associations
• S-Corporations
• Banks, savings and loan associations, and state limited banking associations

Not sure if your business qualifies as operating or doing business in Texas? The Texas Administrative Code (Title 34 Part 1, Rule §3.586) provides a comprehensive list of activities that constitute doing business in Texas, such as having employees, real estate, holding companies, or inventory in the state.

Who is exempt from filing?

Businesses exempt from filing and paying Texas Franchise Tax are non-taxable entities, including:

• Estates
• General Partnerships (only if both partners are natural persons, not LLCs)
• Sole proprietorships
• Unincorporated political committees

Additionally, there are various exemptions for specific types of businesses. For example, educational, religious, and public charity nonprofit corporations are exempt, along with certain businesses in agriculture, public utilities and other key industries. For a full list of exemptions, see the state’s tax code (Title 2F, Chapter 171B).

Who will owe the franchise tax?

As of January 1, 2016, if the gross receipts of your company were over $2,470,000 for the year, you are subject to the tax.

Have gross receipts less than $2.47 million? You don’t need to file a Franchise Tax Report, but you may need to file a Public Information Report.

How is the franchise tax total calculated?

There are two forms you can use to find out your tax total: the E-Z Computation or the Long Form. Each form calculates your tax differently.

The E-Z Computation Form

If your total receipts for the year are over the current threshold ($2,470,000) but under $20 million, you can use the E-Z form.

There are some drawbacks to using the E-Z form though. You will not be able to deduct costs of goods sold, deduct compensation, take any economic development credits, take any temporary credits, or carry over any credits for business loss.

Currently, the EZ Computation Rate is 0.331% of revenue apportioned to Texas.

The Long Form

If you cannot (or do not want to) use the E-Z form, the amount that will be taxed is based on the total revenue of the business and calculated in one of the following ways:

• total revenue times 70%
• total revenue minus costs of goods sold
• total revenue minus compensation
• total revenue minus $1 million

The method that produces the lowest number is the one that will be used. Once you have that amount, you can figure out the estimated amount of franchise tax you will have to pay.

Retail trader and wholesale companies are taxed at a rate of 0.375%. All other companies are taxed at 0.75%. An easier way to figure out what you will owe is to use the Franchise Tax Calculation tool on the Texas Comptroller’s Website (scroll down to Additional Resources).

How do I file the Texas Franchise Tax?

Here is a step-by-step overview of how to file the franchise tax in Texas.

1. Collect Everything You Need to File

There are a few key items you’ll need before getting started. For example:

• FEIN: You’ll need your Federal Tax ID, or FEIN: Federal Employer Identification Number. A FEIN is a unique nine-digit number issued by the IRS for tracking and tax purposes. The IRS issues these number for free and the entire process can be completed online at the IRS website.
• Additional Documents: Depending on your entity type, taxes due, and industry type, you may need to file additional documents such as:
  • Public Information Report (essentially an annual report—required for LLCs and corporations)
  • Affiliate Schedule
  • Common Owner Information Report
  • Payment Form (if mailing a check or money order)

All of these forms are available on the Texas Comptroller’s Franchise Tax Forms page.

2. Determine Which Form to File

Depending on how much your company took in over the year, you’ll file one of two forms:

• EZ Computation
• Long Form

If they were higher than the $2.47 million threshold but less than $20 million, you can file the EZ Computation or the Long Form. And if they were higher than $20 million, you’ll file the Long Form.

3. Choose Your Filing Method

No matter which form you choose to file, you have a few different filing method options.

• Online: All three forms are available electronically via WebFile. To use WebFile, you will need to sign up for a WebFile account and obtain your WebFile number. WebFile is the online tax filing system used by the State of Texas. It is available for use 24 hours a day, seven days a week.
• Paper filing: All three forms, along with extension forms, and payment forms for checks or money orders are available on the Texas Comptroller’s Franchise Tax Forms page. Once completed, send forms to:

In addition to WebFile and the Texas Comptroller website, the state also maintains a list of approved providers for forms and electronic submission software.

4. Choose Your Payment Method

Your payment method options vary depending on how much tax you owe.

Less than $10,000:

• WebFile (EFT or major credit card)
• TEXNET
• Approved electronic submission software providers
• Check/money order with payment form

$10,000 – $499,999:

• WebFile (EFT or major credit card)
• TEXNET
• Approved electronic submission software providers

$500,000 or more:

• TEXNET

5. Complete and Submit Your Filing

Provide all necessary information and double check to make sure you haven’t missed anything. The report is due by May 15^th each year.

FAQ:

When is the Texas Franchise Tax due?

The franchise tax is due on May 15th following the year of the entity’s formation. For example, if you formed a business on April 8, 2018, your franchise tax is not due until May 15, 2019.

What happens if I file my franchise tax report late?

If you miss the due date to file your franchise tax report, you will be subject to a $50 penalty.

Are there any available tax credits?

Yes. Texas recognizes the following tax credits for franchise tax:

• Temporary Credit for Business Loss Carryforwards (TX Tax Code Section 171.111)
• Research and Development Activities Credit (TX Tax Code Chapter 171, Subchapter M)
• Certified Historic Structures Rehabilitation Credit (TX Tax Code Chapter 171, Subchapter S)

Where can I find more information?

Texas Franchise Tax is complicated. To find out more about who, what, where, when, and why, and how to file, here are some places you can get a littler more information:

Comptroller.Texas.Gov
Questionnaires For Franchise Tax Accountability
Texas Comptroller Index to Rules by Subject Matter

Or you can call the Texas Taxpayer Services Line at 1-800-252-1381. This line is specifically dedicated to franchise tax questions and is available for your assistance Monday through Friday, from 8 AM until 5 PM.

Do I have to pay Texas Franchise Tax if I have a New Veteran-Owned Business?

Probably not. New businesses owned by US veterans don’t have to pay the franchise tax for the first five years of operation (Texas Tax Code § 171.0005 ). To qualify for this exception, the veteran-owned business must have been formed between either of these two time frames:

• Jan. 1, 2016 – Jan. 1, 2020
• Jan. 1, 2022 – Jan. 1, 2026

Qualifying business owners must complete a “Letter of Verification of Veteran’s Honorable Discharge” from the Texas Veterans Commission and submit Form 05-904 to the Texas Secretary of State.

Do I have to pay Texas Franchise Tax if I own a foreign business?

If your business entity was formed in another state but transacts business in Texas and your business makes over $2.47 million per year, you’ll be required to file a franchise tax report. (“Foreign,” in this case, means out-of-state. But the answer to this question also applies to international companies.)

Why is there a Texas Franchise Tax?

Franchise taxes are “privilege taxes”— taxes levied for the privilege of doing business in the state. Texas has had a version of a franchise for well over a hundred years, although it’s definitely become much more complicated as time has marched. To learn about the initial introduction of the tax and how it’s changed over time, check out our tax history page.