Business taxes in Texas include a revenue-based franchise tax and local property tax, but most small businesses—particularly sole proprietorships—are exempt from paying the state’s primary business tax. Apart from the franchise tax, there is no corporate income tax or any general tax on business income.
Businesses with revenue of $2.47 million or less owe no franchise tax, though they may still need to file an informational report.
Franchise Tax (Margin Tax)
The Franchise Tax is Texas’s primary statewide business tax. It applies to corporations, limited liability companies (LLCs), and certain other legal entities, but not to sole proprietorships. General partnerships owned entirely by individuals are also excluded. As a result, many small businesses—particularly sole proprietorships—are fully exempt, while entities structured as LLCs or corporations that fall below the revenue threshold may still have to file informational reports.
The tax is assessed annually by the Texas Comptroller of Public Accounts and is based on a business’s taxable margin, calculated using one of several authorized methods—whichever is most favorable to the business. Only the portion of revenue attributable to Texas is used to determine the final taxable amount.
For reports due in 2024 and 2025, entities with annualized revenue of $2.47 million or less owe no tax, though they must still file an ownership or public information report. The tax rate is:
- 0.75% for most entities
- 0.375% for retailers and wholesalers
- 0.331% under the optional EZ computation method (available to entities with $20 million or less in annual revenue)
Remote entities with gross receipts of $500,000 or more from Texas sources are considered to have economic nexus and must file Franchise Tax reports.
Sales and Use Tax
Businesses engaged in selling taxable goods or services in Texas are required to collect and remit Sales and Use Tax. The statewide rate is 6.25%, with local jurisdictions authorized to impose up to an additional 2%, bringing the maximum combined rate to 8.25%.
Taxable goods include tangible personal property, while taxable services include data processing, telecommunications, amusement services, and certain labor. Exemptions exist for certain items.
Sellers must register with the Comptroller and file sales tax reports on a monthly, quarterly, or annual basis depending on the volume of taxable sales. Businesses are also required to maintain resale and exemption certificates when applicable.
Marketplace providers and remote sellers must collect Texas sales tax if their total Texas receipts exceed $500,000 per year.
Ad Valorem (Property) Taxes
In Texas, local governments—not the state—levy ad valorem taxes on real and personal property. Businesses that own real estate, equipment, inventory, or furniture may be subject to property tax assessments by counties, cities, school districts, and special districts.
Business personal property includes items such as office furniture and fixtures, machinery and equipment, and raw materials and finished goods inventory.
All property is appraised annually by local appraisal districts. Businesses are generally required to file a Business Personal Property Rendition by April 15 each year, listing all taxable property owned as of January 1. Failure to file can result in penalties.
While real estate values typically dominate residential assessments, business property assessments can be significant for industrial and commercial firms.
Industry-Specific and Other Taxes
In addition to the broad taxes described above, certain businesses in Texas are subject to specialized levies. For example, insurance companies pay a tax on gross premiums, oil and gas producers are subject to severance taxes, and alcohol distributors pay excise levies. These taxes are administered separately and typically require industry-specific registration and reporting procedures.
Licensing and Registration Requirements
Texas does not impose a general statewide business license requirement. However, certain professions and regulated industries must obtain licenses, certifications, or permits from state agencies. Examples include: health professionals, electricians, real estate agents and brokers, and food establishments and alcohol sellers.
Businesses structured as corporations or LLCs must register with the Texas Secretary of State, either as domestic entities or as foreign entities if formed in another state but operating in Texas. Local jurisdictions may also require zoning permits or other permissions, depending on the type and location of the business.
Filing and Compliance
Filing obligations for business taxes in Texas vary based on business structure and activity. Sole proprietorships are typically exempt, while other entities may be required to file annually, even if no tax is owed.
- Franchise Tax reports are due annually on May 15
- Sales tax reports may be due monthly, quarterly, or annually depending on tax liability
- Property tax renditions are generally due April 15
- Specialized taxes have their own due dates as determined by statute and Comptroller rules
Filing obligations depend on the business’s structure, revenue, and activity. Sole proprietorships are typically exempt from state-level business tax filings, while corporations, LLCs, and other entities may be required to file annually, even if no tax is owed.
Disclaimer
This article is for general informational purposes only and does not constitute legal or tax advice. While efforts are made to keep content accurate and up to date, laws and regulations may change. Users assume all risk of reliance on the information included on this site. For specific guidance, consult a qualified professional or the appropriate state agency.
