Texas is famous for having no state income tax — one of the big reasons businesses keep moving there. But “no income tax” does not mean “no state tax obligations.” Most Texas businesses still have to deal with the franchise tax (often called the “margin tax”), and the rules changed meaningfully starting in 2024. Here’s what your service or software business actually needs to file in 2026.
What is the Texas franchise tax?
The franchise tax is a privilege tax imposed on most taxable entities formed in or doing business in Texas — LLCs, corporations, S-corps, and partnerships (general partnerships of natural persons are a notable exception). Rather than taxing income, it’s based on a business’s “margin,” which is calculated using the lowest of several allowed methods (such as total revenue minus cost of goods sold, minus compensation, or a fixed percentage of revenue).
The 2026 no-tax-due threshold: $2.65 million
Here’s the most important number for small businesses: if your entity’s annualized total revenue is at or below the no-tax-due threshold — $2.65 million for 2026 reports — you generally owe no franchise tax. Texas roughly doubled this threshold in recent legislation, which means many more small businesses now owe $0.
The rule that trips people up: you no longer file a “No Tax Due Report” — but you still must file
Effective for reports due on or after January 1, 2024, Texas eliminated the No Tax Due Report. If you’re under the threshold, you no longer file that particular form. However, you are still required to file an annual Public Information Report (PIR) — or, for some entities, an Ownership Information Report (OIR) — with the Texas Comptroller.
This is where many owners get caught: they hear “you don’t owe franchise tax” and assume they can ignore Texas entirely. Skipping the PIR/OIR can put your entity in “not in good standing” status, which can jeopardize your right to do business in the state and even your liability protection. It’s an easy filing to make — and an expensive one to miss.
What if you’re above the threshold?
If your annualized revenue exceeds $2.65 million, you’ll calculate and pay franchise tax on your margin. Choosing the right margin calculation method — and capturing the deductions you’re entitled to — can materially change what you owe, so this is worth getting right rather than defaulting to the simplest method.
Key Texas franchise tax deadlines
Franchise tax reports (and the accompanying information reports) are generally due May 15 each year. Missing the deadline triggers penalties and interest and can affect your good standing. Because the franchise tax year and your federal tax year don’t always line up cleanly, it’s easy to lose track — which is exactly why we calendar and file these for our Texas clients automatically.
What your Texas business should do
- Confirm your filing obligations — even if you owe no tax, you almost certainly must file the PIR or OIR.
- Calendar May 15 for your franchise tax and information reports.
- If you’re near the threshold, watch your annualized revenue closely so a strong year doesn’t catch you off guard.
- If you’re over the threshold, make sure you’re using the most favorable margin method.
We handle all of this as part of our Texas accounting and tax service for service and software businesses — from the franchise tax calculation to the Public Information Report — so you stay compliant and in good standing without thinking about it. It pairs with your federal tax and monthly bookkeeping.
Frequently asked questions
Does my Texas LLC have to file franchise tax if it owes nothing?
You no longer file a “No Tax Due Report,” but if you’re under the $2.65 million threshold you must still file a Public Information Report (or Ownership Information Report) each year to stay in good standing.
What is the no-tax-due threshold for 2026?
$2.65 million in annualized total revenue. At or below that, you generally owe no franchise tax — but information-report filing is still required.
What happens if I miss the filing?
Penalties, interest, and potential loss of “good standing,” which can affect your right to do business in Texas and your liability protection. The information report is quick to file and important not to skip.
When are Texas franchise tax reports due?
Generally May 15 each year. Confirm the current-year date and your specific obligations with the Texas Comptroller or your CPA.
This article is general information, not tax advice. Texas franchise tax thresholds, forms, and rules change — confirm current figures with the Texas Comptroller of Public Accounts or your CPA before acting.
