Texas Franchise Tax for Small Businesses: What You Need to Know

The Texas franchise tax is one of the most misunderstood obligations facing small business owners in North Dallas. Here is a plain-English explanation of who owes it, how it is calculated, and what you can do about it.

Texas is known for having no individual income tax, which makes it an attractive state for business owners and high earners. But Texas does have a franchise tax, also called the margin tax, which applies to most entities doing business in the state. Many small business owners in the North Dallas area are either unaware of this obligation or have a significant misunderstanding of how it works. Getting it wrong can result in penalties, interest, and compliance issues with the Texas Comptroller.

Who Owes the Texas Franchise Tax

Most entities with legal authority to do business in Texas owe the franchise tax. This includes LLCs, corporations, S-Corps, limited partnerships, and professional associations. Sole proprietorships and general partnerships with only natural persons as partners are generally exempt. If you formed an LLC or corporation in Texas, you are almost certainly required to file an annual franchise tax report.

The No-Tax-Due Threshold

Texas provides a no-tax-due threshold for businesses below a certain revenue level. For recent tax years, entities with total revenue below approximately $2.47 million owe no actual franchise tax but may still be required to file an annual Public Information Report or No-Tax-Due Report. Many small businesses in North Dallas fall below the threshold and owe no tax, but they still have a filing obligation. Failing to file, even when no tax is owed, can result in penalties and eventual loss of good standing.

How the Franchise Tax Is Calculated

For entities above the threshold, the franchise tax is calculated on taxable margin, which is determined using one of several calculation methods: total revenue minus cost of goods sold, total revenue minus compensation paid to employees, total revenue at a 70 percent factor, or total revenue minus $1 million. The method that produces the lowest taxable margin is the one you would use. The resulting taxable margin is then multiplied by the applicable tax rate, which varies by business type.

Filing Deadline

Texas franchise tax reports are due annually on May 15. For an entity on a calendar year, the report filed in May 2026 covers the 2025 tax year. Extensions are available, but an extension to file is not an extension to pay any tax owed. Missing the May 15 deadline without an extension results in penalties beginning immediately.

Many small business owners in North Dallas are surprised to learn they have a franchise tax filing obligation even when they owe no money. A CPA can ensure your filings are complete, on time, and accurate so you maintain good standing in Texas.

Sumler Advisory helps small business owners across Carrollton, Plano, Frisco, and North Dallas stay compliant with Texas franchise tax requirements. Your first consultation is always free.

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