Texas LLC Franchise Tax 2026: What You Actually Owe

Texas Franchise Tax in One Sentence

Every Texas LLC files an annual return with the Texas Comptroller, but most LLCs owe $0 because Texas exempts entities below the $2.47M annualized revenue threshold for 2026. If you do owe, the rate is 0.375% for retail/wholesale or 0.75% for everyone else — applied to taxable margin, not gross revenue.

Who Actually Pays Franchise Tax

Texas uses a revenue-based threshold called "No Tax Due." For reports due in 2026, the threshold is $2,470,000 of annualized total revenue. LLCs below that owe $0 in franchise tax — but still file the Public Information Report (PIR) every year.

Three outcomes for any Texas LLC at tax time:

1. **Under $2.47M**: owe $0 tax, file the No Tax Due report + PIR. 2. **$2.47M-$20M**: owe franchise tax on taxable margin (multiple calculation methods — see below). 3. **Passive entity** (75%+ income from passive sources like rental real estate): usually exempt, file No Tax Due report + PIR + a passive-entity questionnaire.

Single-member LLCs taxed as disregarded entities are not exempt. The LLC itself files the franchise tax return even if the owner reports income on their personal 1040.

The Four Margin Calculation Methods

If your LLC crosses the threshold, Texas lets you pick whichever of these four methods produces the lowest taxable margin:

1. **Total revenue × 70%** — the simplest fallback, always available. 2. **Total revenue − COGS** — for businesses with cost of goods sold (retailers, manufacturers, construction). "COGS" has a specific Texas definition that differs from federal rules. 3. **Total revenue − compensation** — sum of wages paid to employees up to a per-employee cap ($450,000 for 2026) plus qualifying benefits. 4. **Total revenue − $1,000,000** — the "E-Z computation" — simpler but tax rate locked at 0.331%.

Most software, consulting, and service businesses land on method 3 because compensation is their biggest expense. Retailers land on method 2. New LLCs with sparse expenses sometimes benefit from method 1 or the E-Z computation.

Tax Rates

- Retail or wholesale business (use the retail/wholesale code): **0.375%** - All other businesses (including service, consulting, SaaS): **0.75%** - E-Z computation rate (for any business electing it): **0.331%**

Multiply your taxable margin by the applicable rate to get your franchise tax owed.

Example: $3M Revenue SaaS LLC

Total revenue: $3,000,000 Employee compensation (up to cap): $800,000

Method 1: $3M × 70% = $2,100,000 margin. Method 2: Not applicable — SaaS has no COGS. Method 3: $3M − $800K = $2,200,000 margin. Method 4 (E-Z): $3M − $1M = $2,000,000 margin at 0.331% rate.

Method 1 wins on taxable margin ($2.1M × 0.75% = $15,750 owed). Method 4 (E-Z) wins on cash ($2M × 0.331% = $6,620 owed).

Result: E-Z computation saves $9,130. Worth the slightly simpler return.

The Public Information Report (PIR)

Every active Texas LLC files a PIR each year, regardless of tax owed. The PIR reports:

- LLC name, Texas file number (SOS filing number), and principal office address. - Whether the LLC is still active. - Each governing person (member, manager, director, officer) with their name, mailing address, and title. - Whether the LLC owns 10%+ of another entity, or whether another entity owns 10%+ of the LLC.

This is public record. It appears on the Texas Comptroller's website and is searchable. Members' names and personal mailing addresses become findable. This is one of the big reasons privacy-focused LLC owners form in Wyoming or Delaware instead.

Deadlines

Franchise tax reports (including No Tax Due) and PIRs are due **May 15** each year. That's earlier than the federal individual tax deadline. Miss May 15 and you owe:

- $50 late fee for filing late (regardless of tax owed). - 5% penalty if tax is owed and paid 1-30 days late. - Additional 5% if 30+ days late. - 10% permanent loss of timely-filing bonus + monthly interest if extremely late. - Forfeiture of LLC's "right to transact business" if 45+ days late — cannot sue in Texas courts, can lose asset protection.

If you need more time, file Form 05-164 (extension request) by May 15. Extension gives you until August 15. You still must estimate and pay any tax owed by May 15 even with extension.

How to File

Online via the Texas Comptroller's WebFile system: https://comptroller.texas.gov/taxes/franchise/

You need:

- Webfile number (mailed to your registered office when your LLC was formed, or retrievable via "eSystems" account). - Sales tax permit if you have one. - Previous year's franchise tax return numbers for comparison.

Most no-tax-due LLCs can complete the filing in 15-20 minutes. Tax-owing LLCs typically hire a CPA for the margin calculation and payment schedule — the margin rules have enough nuance (especially around COGS and compensation caps) that DIY is risky.

What About Multi-State LLCs?

If your LLC operates in Texas but was formed elsewhere (Delaware, Wyoming), you still owe Texas franchise tax on the revenue you earn from Texas activities. You register as a foreign LLC, get a Texas file number, and file annual reports like any Texas-formed LLC. There's no tax advantage to forming outside Texas if you operate in Texas — you end up paying Texas franchise tax either way.

Conversely, a Texas-formed LLC operating entirely in another state (say, California) typically owes Texas nothing on out-of-state revenue but does owe California tax. Apportionment rules determine which state gets each dollar.

Common Mistakes

**Missing the May 15 deadline because you think you owe nothing.** You still file the No Tax Due report. The $50 late fee hits even at $0 tax.

**Using COGS on a service business.** COGS in Texas franchise tax has a specific definition — mostly physical goods. If you're a consultancy deducting your subcontractor fees as "COGS," the Comptroller will audit and reassess.

**Hitting the employee comp cap.** Method 3's compensation deduction caps at $450,000 per employee for 2026. Founders paying themselves $600K would only deduct $450K in the calculation.

**Forgetting passive-entity status.** If 75%+ of your LLC's revenue is rental property income, you may qualify as a passive entity and file a simpler return. Check the Comptroller's passive-entity checklist each year — the specific rules change.

**Not updating the PIR when members change.** The PIR asks about governing persons. If you add or remove a member mid-year and don't update the PIR, the Comptroller can flag it as a filing discrepancy.

What to Do Next

If your Texas LLC is new, [FormifyAI handles formation + annual report reminders](/form-llc/texas) so you never miss May 15. If you already have a Texas LLC and need franchise tax help, the Texas Comptroller WebFile system is straightforward for No Tax Due filings; for tax-owing filings, a Texas CPA will charge $500-$1,500 and save you more than that in margin optimization.