Last reviewed against the Texas Comptroller's franchise tax rates table and the 2026 Texas Franchise Tax Report Information and Instructions (Form 05-915).
Who owes Texas franchise tax?
The Texas franchise tax is a privilege tax on each taxable entity formed or organized in Texas or doing business in Texas. The list includes corporations, LLCs (single-member and series LLCs too), partnerships, professional associations, trusts, business associations and most other legal entities. Sole proprietorships and general partnerships made up entirely of natural persons are outside it.
For a venture-backed startup, the usual way in is the second half of that sentence: a Delaware C-corp with an office, employees or other activity in Texas has nexus and becomes a Texas taxable entity, even though it was incorporated elsewhere. The Comptroller's Rule 3.586 lists the activities that count as "doing business in Texas".
The tax is built on margin, not income. A company losing money can still owe Texas franchise tax if its revenue is large enough, and a profitable company with modest revenue may owe none.
The no tax due threshold for 2026 and 2027
The single most important number for an early-stage company is the no tax due threshold. The Comptroller adjusts it every two years:
| Report years | No tax due threshold | Compensation cap per person |
|---|---|---|
| 2026 and 2027 | $2,650,000 | $480,000 |
| 2024 and 2025 | $2,470,000 | $450,000 |
An entity whose annualized total revenue is less than or equal to the threshold owes no tax. Since the 2024 report year it also does not file a No Tax Due Report: that form was discontinued. It must still file a Public Information Report (Form 05-102) if it is a corporation, LLC, limited partnership, professional association or financial institution, or an Ownership Information Report (Form 05-167) for other entity types.
"Annualized" matters in a company's first year. If the accounting period is shorter or longer than 12 months, divide total revenue by the number of days in the period and multiply by 365. The Comptroller's own example: $800,000 of revenue earned over 108 days annualizes to $2,703,703.70, which is over the threshold, so that entity files a report. It still reports and is taxed on the actual $800,000.
The report year is the year the report is due, not the year the revenue was earned. A calendar-year company's 2027 report covers its 2026 accounting year.
The four ways to compute margin
Unless the entity elects the EZ computation, its tax base is its margin, computed four ways. Each is floored at zero, and the long-form report (Form 05-158-B, Item 23) takes the lowest:
| Method | Calculation | Who it usually helps |
|---|---|---|
| 70% of revenue | Total revenue x 70% | Companies with little COGS or payroll |
| Revenue minus COGS | Total revenue - cost of goods sold | Manufacturers, resellers, construction |
| Revenue minus compensation | Total revenue - wages, cash compensation and benefits | Software and services startups |
| Revenue minus $1 million | Total revenue - $1,000,000 | Revenue under about $3.33 million |
Total revenue starts from the revenue lines of the federal return, less statutory exclusions such as flow-through funds and certain dividends and interest.
Cost of goods sold covers the costs of acquiring and producing goods (tangible personal property and real property) sold in the ordinary course of business. The Comptroller is explicit that entities selling only services or intangibles "will not generally have allowable costs", with some industry exceptions. Most SaaS companies should assume COGS is not available.
Compensation is W-2 Medicare wages and tips and other cash compensation paid to officers, directors, owners and employees, capped at $480,000 per person per 12-month period for 2026 and 2027 reports, plus benefits (health care, retirement, workers' compensation) to the extent federally deductible, which are not capped. Stock awards and options count when they are deducted for federal income tax. 1099 contractor payments and the employer's share of payroll taxes do not count.
The $1 million deduction beats the 70% method only while revenue is below $3,333,333, the point where revenue minus $1 million equals 70% of revenue.
The EZ computation: 0.331% on revenue
An entity with $20 million or less of annualized total revenue may elect the EZ Computation Report (Form 05-169). It multiplies total revenue by the apportionment factor and then by 0.331%. In exchange it gives up every margin deduction (COGS, compensation, the 30% and the $1 million) and every credit, including the temporary credit for business loss carryforwards for that year.
A little arithmetic shows when it pays:
- EZ always beats the 70% method. 0.331% of revenue is less than 0.75% of 70% of revenue (0.525%).
- The long form wins when your lowest margin is below about 44% of revenue (0.331% / 0.75%). A startup whose payroll is more than about 56% of revenue usually does better on the compensation deduction.
- For retailers and wholesalers at 0.375%, the long form wins whenever margin is below about 88% of revenue, which is almost always.
The calculator computes both and shows the lower one. You can amend from the EZ report to the long form to elect COGS or compensation, within the refund rules.
Apportionment: only the Texas share is taxed
Margin (or, for EZ, total revenue) is apportioned to Texas using a single gross-receipts factor: Texas gross receipts divided by gross receipts everywhere, rounded to four decimal places. If Texas receipts are zero, the factor is zero; if they equal or exceed receipts everywhere, it is 1.0000.
For a startup selling software to customers across the country, the factor is often small. A company with $1,000,000 of its $4,000,000 of receipts from Texas customers has a factor of 0.2500, and only a quarter of its margin is taxed.
An entity with zero Texas gross receipts owes no tax but, if it is over the no tax due threshold, still files a report (long form or EZ) showing total revenue and zero Texas receipts, plus its information report.
The $1,000 rule
Texas has no minimum tax. Instead, an entity whose computed tax is less than $1,000 is not required to pay any tax. It is not excused from filing: it still files the franchise tax report that shows the computation, and its Public Information Report or Ownership Information Report.
Combined with apportionment, this means many startups above the $2.65 million threshold owe nothing. A company with $4 million of revenue and $2.7 million of compensation that books only 6.25% of its receipts in Texas computes $609.38 of tax and pays none of it.
Worked example
The calculator's defaults: a calendar-year software company filing its 2027 report on its 2026 numbers. Total revenue $4,000,000, no COGS, $2,500,000 of W-2 wages (nobody over the $480,000 cap) and $200,000 of benefits. $1,000,000 of its receipts are from Texas customers.
| Step | Calculation | Result |
|---|---|---|
| Annualized revenue vs threshold | $4,000,000 > $2,650,000 | Report required |
| 70% of revenue | $4,000,000 x 70% | $2,800,000 |
| Revenue minus COGS | $4,000,000 - $0 | $4,000,000 |
| Revenue minus compensation | $4,000,000 - $2,700,000 | $1,300,000 (lowest) |
| Revenue minus $1 million | $4,000,000 - $1,000,000 | $3,000,000 |
| Apportionment factor | $1,000,000 / $4,000,000 | 0.2500 |
| Apportioned margin | $1,300,000 x 0.25 | $325,000 |
| Long-form tax | $325,000 x 0.75% | $2,437.50 |
| EZ alternative | $4,000,000 x 0.25 x 0.331% | $3,310.00 |
The long form wins, and the tax is due May 17, 2027 (May 15 is a Saturday). Remove the payroll and the compensation margin rises to $4,000,000, the 70% method gives $5,250, and the EZ computation at $3,310 becomes the better choice. Cut the Texas receipts to $250,000 and the tax falls to $609.38, under $1,000, so nothing is owed.
Due dates, extensions and the Public Information Report
- Annual report and PIR/OIR: May 15 of the report year, or the next business day when May 15 falls on a weekend or holiday. In 2026 that was Friday, May 15. In 2027 it is Monday, May 17.
- First report. An entity that became subject to the tax during 2025 filed its first annual report on May 15, 2026. A company that first establishes Texas nexus in 2026 files its first report by May 17, 2027.
- Extension. Entities not required to pay by EFT can extend to November 15 by paying at least 90% of the tax due with the current report, or 100% of the tax on the prior year's report, by the original due date. A company that became subject to the tax in the prior year cannot use the 100% option for its first report.
- No estimated payments. Texas law does not require estimated tax reports or payments.
- Late reports. A $50 penalty applies to a franchise tax report filed after the due date, even when no tax is due.
- The PIR is not optional. An entity that does not file a completed, signed Public Information Report or Ownership Information Report can forfeit its right to transact business in Texas, which includes losing the right to sue or defend in a Texas court and can make officers and directors personally liable for certain debts.
Common mistakes
- Skipping the PIR because no tax is due. Below the threshold there is no franchise tax report, but the Public Information Report is still required every year.
- Using the wrong year's threshold. The 2027 report uses $2,650,000 even though it covers 2026 revenue.
- Forgetting to annualize. A short first year can push annualized revenue over the threshold.
- Counting contractors as compensation. 1099 payments and employer payroll taxes are excluded.
- Not capping executive pay. Each person's wages count only up to $480,000 per 12-month period.
- Claiming COGS for a services business. Selling only services or intangibles generally means no COGS.
- Defaulting to EZ. It is simple, but a payroll-heavy company often pays less on the long form.
- Assuming no Texas receipts means no filing. Over the threshold, a report showing zero Texas receipts is still required.
Frequently asked questions
Does my startup owe Texas franchise tax if it has less than $2.65 million in revenue?
No tax is owed for report years 2026 and 2027 if annualized total revenue is at or below the $2,650,000 no tax due threshold. Since the 2024 report year such entities no longer file a No Tax Due Report, but a corporation or LLC organized in Texas or with Texas nexus must still file a Public Information Report (or an Ownership Information Report for other entity types) by May 15.
What is the Texas franchise tax rate?
0.75% of taxable margin for most entities and 0.375% for qualifying retailers and wholesalers. Entities with $20 million or less of annualized total revenue can instead elect the EZ computation, which taxes apportioned total revenue at 0.331% with no deductions and no credits.
How do I choose between the four margin methods?
Compute all four (70% of total revenue, revenue minus cost of goods sold, revenue minus compensation, revenue minus $1 million) and use the lowest; the long-form report asks you to enter the lowest amount. For a payroll-heavy software startup the compensation deduction usually wins. Then compare the result with the EZ computation if you qualify.
Is the compensation deduction capped?
Wages and cash compensation are limited to $480,000 per person per 12-month period for reports due in 2026 and 2027 ($450,000 for 2024 and 2025), prorated for a shorter period. Benefits such as health care, retirement and workers' compensation are not subject to the per-person cap. Payments on Forms 1099 and the employer's share of payroll taxes do not count as compensation.
When is the Texas franchise tax report due in 2027?
Annual reports are due May 15, moved to the next business day when May 15 falls on a weekend or holiday. May 15, 2027 is a Saturday, so the 2027 report and Public Information Report are due Monday, May 17, 2027. Entities not required to pay by EFT can extend to November 15 with a timely extension payment.
Do I owe anything if the calculated tax is under $1,000?
No. An entity whose computed tax is less than $1,000 does not pay it, but it must still file the franchise tax report (long form or EZ) together with its Public Information Report or Ownership Information Report. Texas has no minimum tax and requires no estimated payments.
Sources
- Texas Comptroller, Franchise Tax (rates, thresholds and deduction limits by report year)
- Texas Comptroller, 2026 Texas Franchise Tax Report Information and Instructions (05-915)
- Texas Comptroller, Franchise Tax Overview (98-806)
- Texas Comptroller, No Tax Due Reporting for Report Year 2024 and Later
- Texas Comptroller, Public Information Report and Ownership Information Report
- Texas Comptroller, Franchise Tax FAQs: Reports and Payments
- Texas Comptroller, Franchise Tax Extensions of Time to File
This calculator and article are general information, not tax or legal advice. They do not model combined groups, tiered partnerships, credits or industry-specific revenue exclusions. Confirm your numbers with your CPA or the Texas Comptroller before you file.