eriksjaastad Texas Franchise Tax Calculator
Compute Texas Franchise Tax liability using margin-based calculations. Handles 4 margin methods, retail/wholesale rate (0.375%) vs. standard rate (0.75%), EZ computation (0.331%), no-tax-due threshold ($2.65M), and annual filing per Texas Comptroller rules.
When to Activate
- User mentions "Texas franchise tax", "Texas margin tax", "Texas business tax", "Texas Comptroller"
- Computing annual franchise tax liability
- Choosing between margin calculation methods
- Evaluating EZ computation eligibility
- Any business formed in or doing business in Texas
What This Tax Is
Texas Franchise Tax is a margin-based privilege tax on entities formed in or doing business in Texas. Unlike gross receipts taxes (WA B&O, OH CAT), the Texas franchise tax is computed on taxable margin — total revenue minus allowable deductions. This makes it a hybrid between income tax and gross receipts tax[^1].
The tax applies to corporations, LLCs, partnerships, banks, S-corps, trusts, and other legal entities. Sole proprietorships and general partnerships composed entirely of natural persons are exempt[^1].
Texas has no corporate income tax and no personal income tax. The franchise tax is the primary business-level tax.
[^1]: Texas Comptroller — Franchise Tax Overview
Rate Structure
| Rate Type | Rate | Who Qualifies | Source |
|---|---|---|---|
| Standard | 0.75% | Most entities | TX Comptroller |
| Retail/Wholesale | 0.375% | Entities primarily in retail or wholesale trade | TX Comptroller |
| EZ Computation | 0.331% | Entities with total revenue ≤$20M | TX Comptroller |
No-Tax-Due Threshold
| Report Year | Threshold | Source |
|---|---|---|
| 2026-2027 | $2,650,000 | TX Comptroller |
| 2024-2025 | $2,470,000 | TX Comptroller |
Entities below the no-tax-due threshold owe no tax but must still file a franchise tax report (No Tax Due Information Report)[^1].
Surcharge
Texas does not impose an additional surcharge on the franchise tax.
Credits and Exemptions
Margin Calculation — 4 Methods
The tax base is taxable margin, calculated as total revenue minus the lowest of four options[^2]:
- 70% of total revenue (automatic floor)
- Total revenue minus cost of goods sold (COGS)
- Total revenue minus compensation (subject to per-person cap)
- Total revenue minus $1,000,000 (flat deduction)
The taxpayer chooses the method producing the lowest margin (and therefore lowest tax).
[^2]: TX Comptroller — Franchise Tax Overview and 2026 Franchise Tax Instructions
Per-Person Compensation Cap
| Report Year | Cap Per Person | Source |
|---|---|---|
| 2026 | $480,000 | TX Comptroller |
| 2025 | $450,000 | TX Comptroller |
Compensation includes W-2 wages, officer/owner compensation, and deductible employee benefits. Does not include 1099 contractor payments[^2].
EZ Computation
Entities with total revenue of $20 million or less may elect the EZ Computation at 0.331% of total revenue. EZ filers cannot use the COGS, compensation, or $1M deductions and cannot claim credits[^2].
Exempt Entities
| Entity Type | Source |
|---|---|
| Sole proprietorships | TX Comptroller |
| General partnerships of natural persons only | TX Comptroller |
| Certain passive entities | TX Comptroller |
| Certain REITs | TX Comptroller |
Tax Credits
Available credits include[^1]:
- Business loss carryforwards
- Research and development activities
- Certified historic structures rehabilitation
Filing Requirements
Filing Due Date
| Item | Detail | Source |
|---|---|---|
| Annual report due | May 15 | TX Comptroller |
| Late penalty (1-30 days) | 5% of tax | TX Comptroller |
| Late penalty (>30 days) | 10% of tax | TX Comptroller |
| Late report penalty | $50 per report | TX Comptroller |
| Interest | Accrues 61+ days after due date | TX Comptroller |
Extensions must be requested by the original due date. File through the Comptroller's Webfile portal.
Who Must File
All entities formed or organized in Texas or doing business in Texas must file a franchise tax report, even if no tax is due. The No Tax Due Information Report is filed if total revenue is below the threshold[^1].
Nexus
A taxable entity has nexus if it is doing business in Texas, which includes[^1]:
- Having a physical presence in Texas (office, employees, inventory)
- Having gross receipts from Texas sources
- Being organized under Texas law
Texas uses a broad "doing business" standard. If revenue is sourced to Texas, the entity generally has franchise tax obligations.
City/Local Tax Overlays
Texas cities do not impose a separate franchise tax or margin tax. The franchise tax is a state-level tax only. Houston, San Antonio, and Dallas do not have additional business profit taxes.
Some Texas cities impose other business-related taxes (hotel occupancy, mixed beverage, etc.) but none parallel the franchise tax.
Calculation Process
Step 1: Determine Total Revenue
Sum all revenue from Texas business activity. Exclude dividends/interest on government bonds, Schedule C dividends, and foreign royalties.
Step 2: Check No-Tax-Due Threshold
- At or below $2,650,000 (2026): File No Tax Due report. No tax owed.
- Over threshold: Proceed to Step 3.
Step 3: Choose Margin Method (or EZ)
If total revenue ≤$20M, consider EZ Computation: tax = 0.00331 × total_revenue
Otherwise, compute all four margin methods and use the lowest:
margin_70pct = 0.70 × total_revenue
margin_cogs = total_revenue - cost_of_goods_sold
margin_comp = total_revenue - compensation # per-person cap applies
margin_1m = total_revenue - $1,000,000
taxable_margin = min(margin_70pct, margin_cogs, margin_comp, margin_1m)
Step 4: Apply Rate
If retail/wholesale: tax = 0.00375 × taxable_margin
Otherwise: tax = 0.0075 × taxable_margin
Step 5: Apply Credits
Subtract any available credits (R&D, historic structures, loss carryforward).
Example: Texas Software Company
Total revenue: $5,000,000
COGS: $800,000
Compensation: $2,200,000 (all under $480K/person cap)
Entity type: Non-retail/wholesale
Margin Method 1: 70% × $5,000,000 = $3,500,000
Margin Method 2: $5,000,000 - $800,000 = $4,200,000
Margin Method 3: $5,000,000 - $2,200,000 = $2,800,000 ← lowest
Margin Method 4: $5,000,000 - $1,000,000 = $4,000,000
Taxable margin: $2,800,000 (compensation method)
Tax: $2,800,000 × 0.0075 = $21,000.00
EZ comparison: $5,000,000 × 0.00331 = $16,550.00 ← lower!
Best choice: EZ Computation at $16,550.00
Due date: May 15
Common Mistakes
- Not comparing all four margin methods — Always compute all four and use the lowest. The best method varies by business type[^2]
- Forgetting EZ computation — For entities under $20M, EZ at 0.331% is often cheaper than any margin method
- Including 1099 contractors in compensation — Only W-2 wages and officer/owner compensation qualify for the compensation deduction[^2]
- Exceeding per-person cap — Compensation over $480,000 (2026) per person is not deductible[^2]
- Not filing because under threshold — Even entities below $2.65M must file a No Tax Due report[^1]
- Using the wrong rate — Retail/wholesale entities pay 0.375%, not 0.75%. Verify your primary business activity
- Missing the May 15 deadline — Texas franchise tax is due May 15, not April 15 like most other state taxes
References
Official Texas Comptroller
- Franchise Tax Overview
- Franchise Tax Main Page
- 2026 Franchise Tax Instructions
- 2026 Report Forms
- EZ Computation Form
- Webfile Portal
Texas Tax Code
Output Format
When computing franchise tax, present results as:
## Texas Franchise Tax — [Report Year]
| Item | Amount |
|---|---|
| Total Revenue | $X,XXX,XXX.XX |
| Margin Method Used | [70% / COGS / Compensation / $1M deduction / EZ] |
| Taxable Margin | $X,XXX,XXX.XX |
| Rate | X.XXX% |
| Gross Tax | $XX,XXX.XX |
| Credits | ($X,XXX.XX) |
| **Net Tax Due** | **$XX,XXX.XX** |
| Due Date | May 15, [Year] |
Constraints
- MUST use Decimal arithmetic for all money calculations — never floats
- MUST compute all four margin methods and use the lowest (unless EZ elected)
- MUST compare EZ computation to margin methods when revenue ≤$20M
- MUST apply the per-person compensation cap ($480,000 for 2026)
- MUST NOT include 1099 contractor payments in the compensation deduction
- MUST note that entities below the no-tax-due threshold must still file
- MUST use May 15 due date (not April 15)
- MUST warn if total revenue approaches the no-tax-due threshold within 10%
- MUST warn and show extrapolation method when estimating annual liability from partial-year data
- MUST cite sources when presenting rates or thresholds to the user
Disclaimer
This provides general tax guidance based on publicly available information. It is not legal or tax advice. Consult a qualified tax professional for your specific situation.