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Texas Tax Guide
No income tax

Texas —
no income tax, but the franchise tax has a May 15 trap.

Texas has no personal income tax and no corporate income tax on net income. But the Texas Franchise Tax — also called the Margin Tax — applies to most businesses and has a May 15 deadline that catches founders off guard every year.

0%Income tax
0.75%Franchise tax rate
May 15Annual deadline
$2.47MNo-tax-due threshold
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Texas is excellent for small business founders. No personal income tax, no corporate income tax on profits, and the franchise tax only applies if your annual revenue exceeds $2.47 million. Most small businesses owe zero Texas franchise tax.
0%
Personal income tax
Texas has no personal income tax — constitutionally prohibited
0%
Net income tax
No traditional corporate income tax on profits
0.75%
Franchise tax — general
On taxable margin. Most businesses over $2.47M revenue
0.375%
Franchise tax — retail/wholesale
Lower rate for qualifying retail and wholesale businesses
6.25%
State sales tax
State rate. Local additions bring most areas to 8.25% maximum
$2.47M
No-tax-due threshold
Revenue below this — file the return but owe zero franchise tax
The May 15 deadline catches everyone off guard. Texas franchise tax returns are due May 15 — not April 15 like most other state taxes. This is a different date than both federal returns AND most state income tax returns. Set a separate reminder every year.

Texas Franchise Tax — the Margin Tax explained

The Texas Franchise Tax is unlike most business taxes. It's calculated on "taxable margin" — which is your revenue minus one of four deductions you choose.

Everyone must file — even if they owe nothing. If your Texas annual revenue is under $2.47 million you owe zero franchise tax, but you MUST still file a No Tax Due Report by May 15. Failure to file results in penalties and can lead to forfeiture of your right to do business in Texas.
The four margin calculation methods — pick the one that's lowest
Method 1
70% of total revenueTaxable margin = 70% of total revenue. Simple, no documentation needed. Often best for high-margin service businesses.
Method 2
Revenue minus cost of goods soldTaxable margin = revenue minus COGS. Best for product businesses with significant material costs. Requires documentation of COGS.
Method 3
Revenue minus compensationTaxable margin = revenue minus compensation (wages, benefits, retirement). Best for labor-intensive businesses. Capped at $400,000 per employee.
Method 4
EZ computation — 0.331% of total revenueFor businesses with revenue under $20 million. Simpler calculation, may result in lower tax for some businesses.
Run all four calculations before filing and pick the method that results in the lowest taxable margin. Texas explicitly allows this — choosing the most favorable method is legal tax planning, not avoidance.

Texas forms and key deadlines

05-163
No Tax Due ReportFiled by businesses with Texas revenue under $2.47M. Required even though no tax is owed. Due May 15. File at comptroller.texas.gov.
May 15
05-158
Texas Franchise Tax ReportFiled by businesses with revenue over $2.47M. Includes the margin calculation and tax payment. Due May 15 with automatic extension available to November 15.
May 15
Sales
Sales Tax ReturnFiled monthly, quarterly, or annually. Due 20th of month following period. File at comptroller.texas.gov. Texas sales tax applies to tangible goods and some services.
20th of following month
PIR
Annual Franchise Tax Public Information ReportEvery Texas entity files this annually with the franchise tax return. Lists officers, directors, and registered agent. Required regardless of tax-due status.
May 15
Texas sales tax on services: Texas taxes some services — including telecommunications, data processing, real property repair, and security services. If you sell services in Texas, verify whether they're subject to sales tax before assuming they're exempt.

Key tips for Texas founders

Under $2.47M in revenue — your Texas compliance is simple. File the No Tax Due Report by May 15, file your federal return by April 15, and collect/remit sales tax if applicable. That's essentially it for most small Texas businesses.
May 15 is the one date you must never forget. Texas franchise tax returns — including the zero-dollar No Tax Due Report — are due May 15 every year. Missing this date results in a $50 penalty plus 5% of any tax owed and can ultimately result in losing your right to operate in Texas.
The EZ computation can save you work. If your annual revenue is under $20 million, the EZ computation (0.331% of total revenue) is available. For businesses where this results in lower tax than the standard margin calculation, it also requires less documentation — a double win.
S-Corp election is straightforward in Texas. No state-level S-Corp return required — the federal election is sufficient. Franchise tax is calculated the same way for S-Corps as for LLCs. The SE tax savings from the S-Corp election go directly to your bottom line with no state income tax offset.