If you run a business in Texas, you’ve probably heard of franchise tax. But what exactly is it, who needs to pay for it, and how do you stay compliant without pulling your hair out? This guide breaks it down in simple terms—so you can avoid costly mistakes and focus on growing your business.

What Is the Texas Franchise Tax?

Texas doesn’t have a corporate income tax, but it does have a franchise tax—a fee businesses pay for the privilege of operating in Texas.

Unlike traditional income tax, franchise tax is based on your business’s total revenue and taxable margin, not just profits.

This distinction matters because even businesses with zero net profit might still owe franchise tax if their total revenue exceeds the state’s threshold.

How to Calculate Texas Franchise Tax?

The tax is based on a business’s total revenue, but Texas gives you multiple ways to calculate your taxable margin:

• Total Revenue minus Cost of Goods Sold (COGS)

• Total Revenue minus Compensation

• Total Revenue multiplied by 70%

• Total Revenue minus $1 million (if applicable)

Once your taxable margin is determined, it’s taxed at one of two rates:

• 0.75% for most businesses

• 0.375% for wholesalers and retailers

If your business earns less than $2,470,000 in total revenue (as of 2025), you don’t owe any tax, but you must still file a Franchise Tax Report.

Important Update:

The No Tax Due Report (Form 05-163) has been eliminated. Businesses under the revenue threshold must now submit their Franchise Tax Report online through Webfile on the Texas Comptroller’s website.

When and How to File Your Texas Franchise Tax Report?

• Annual Franchise Tax Report Due Date: May 15 every year

• Where to File: Online via Webfile on the Texas Comptroller’s website

• Who Must File? All taxable entities in Texas, even if no tax is due

Missed Your Texas Franchise Tax Deadline? Here’s What Happens Next

Failing to file your Franchise Tax Report on time can result in serious penalties, including:

• A $50 penalty for late filing

• Up to 10% in additional penalties on unpaid taxes

• Interest charges on overdue amounts

• Potential loss of good standing, which can affect business contracts, loans, and legal operations

File on time to avoid penalties. Waiting until the last minute often leads to errors, delays, and unnecessary fees.

Texas Franchise Tax Payment Options: Which One Is Best for You?

Businesses can pay their franchise tax using one of the following methods:

• Online Payment: Recommended for all businesses. Payments can be made through the Texas Comptroller’s Webfile system.

• By Mail: Businesses may also mail a check or money order along with their Franchise Tax Report.

• Electronic Payment Requirement: If your total franchise tax liability exceeds $500, you may be required to pay electronically.

Even if you qualify for No Tax Due, you still must file a report through Webfile — a $0 tax liability does not mean no paperwork.

Common Mistakes to Avoid

• Forgetting to file a Franchise Tax Report — Even if you owe no tax, failing to file can result in penalties.

• Miscalculating total revenue – Errors in reporting revenue or deductions can lead to incorrect tax assessments.

• Missing the deadline – Late filings result in penalties and can impact business operations.

Texas Tax Compliance

• Texas Franchise Tax—All Texas businesses subject to franchise tax must file a report annually. The deadline is May 15.

• Sales Tax – The state sales tax rate is 6.25%, but local jurisdictions can add up to 2% more, bringing the total rate to 8.25% in some areas. Check your local tax rate.

• Local Permits & Licenses – Some Texas cities, including Austin and Houston, have additional local regulations. Verify city-specific rules.

How Jupid Tax Can Help

Franchise tax compliance can be complicated, but Jupid Tax simplifies the process. We’re building an AI-powered accountant to simplify LLC formation, bookkeeping, and tax compliance through natural conversations.

File your Franchise Tax Report accurately and on time with Jupid Tax.

Final Thoughts

Understanding the Texas franchise tax is essential for keeping your business compliant. Whether you owe taxes or just need to file a Franchise Tax Report, staying ahead of your obligations will save you time, money, and stress.

What is the best way to avoid tax season headaches? Let Jupid Tax handle the details, so you can focus on what matters—growing your business.

Learn more at Jupid Tax.

References

Texas Secretary of State: https://www.sos.state.tx.us/corp/related.shtml

Texas Comptroller – Franchise Tax: https://comptroller.texas.gov/taxes/franchise/

Texas Comptroller – Franchise Tax Filing: https://comptroller.texas.gov/taxes/franchise/filing.php

Texas Comptroller – Sales Tax: https://comptroller.texas.gov/taxes/sales/