Texas Franchise Tax Explained: What Every Small Business Needs to Know

Unlike many states, Texas does not impose an individual income tax, but it does levy a franchise tax on most business entities. Misunderstanding your obligations could cost your business fines or cause a loss of good standing.

Who Pays and When:

• Applies to: LLCs, corporations, and limited partnerships

• Exempt: Sole proprietorships and certain general partnerships with only individual owners

• 2025 Threshold: No-tax-due if total annual revenue is $2.47 million or less

Tax Rates:

• 0.375% for businesses primarily engaged in retail or wholesale

• 0.75% for all others

What Must Be Filed:

• Public Information Report (PIR) or Ownership Information Report

• Annual Franchise Tax Report Even if your business owes no tax, these filings are still mandatory.

Common Errors:

• Assuming a new LLC doesn’t have to file until profitable

• Missing PIR filings and risking franchise status revocation

• Misreporting gross revenue or classification errors

Expert Tip:

Use line-item reporting and keep revenue classifications consistent year to year. Consider a CPA-prepared return even for no-tax-due businesses to prevent classification issues down the road.

Let’s make sure your Texas franchise tax filings are accurate, timely, and audit-ready.