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Texas Franchise Tax

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Guide to Filing the Texas Franchise Tax

What is the Texas Franchise Tax?

The Texas Franchise Tax is an annual tax imposed by the Texas Comptroller on taxable entities conducting business in Texas with annual revenues exceeding $2.47 million. The tax is calculated based on a business’s margin, which can be determined using several methods. Businesses required to pay this tax must file a Franchise Tax Report by May 15 each year.

For entities under the $2.47 million revenue threshold, a Franchise Tax Report is not required, but a Public Information Report (PIR) or Ownership Information Report (OIR) must still be filed by the same deadline.

Who is Required to Pay the Franchise Tax?

Entities earning over $2.47 million in revenue and conducting business in Texas must pay the franchise tax. These include:

  • Corporations
  • LLCs & Series LLCs
  • Banks
  • Professional Corporations
  • S-Corporations
  • Partnerships
  • Trusts
  • Professional Associations
  • Business Associations
  • Joint Ventures
  • Other Legal Entities

Which Entities Are Exempt?

Certain entities are not required to pay the franchise tax, including:

  • Sole Proprietorships (except Single-Member LLCs)
  • General Partnerships owned directly by an individual
  • Entities exempt under Tax Code Chapter 171, Subchapter B
  • Certain passive entities and grantor trusts
  • Real Estate Mortgage Investment Conduits
  • Qualified Real Estate Investment Trusts
  • Non-profit Self-Insurance Trusts
  • Trusts qualified under IRS Code Section 401(a)
  • Unincorporated Political Committees

What is the Public Information Report (PIR)?

Businesses making less than $2.47 million in revenue must file a PIR or OIR instead of a Franchise Tax Report. Entities required to file a PIR include:

  • Corporations
  • LLCs & Series LLCs
  • Limited Partnerships
  • Professional Associations
  • Financial Institutions

Non-exempt businesses like trusts must file an OIR. Both forms are due May 15 and can be mailed to the Texas Comptroller.

Calculating the Franchise Tax

For businesses earning over $2.47 million, the tax is based on the entity’s margin, calculated using one of the following methods:

  1. Total Revenue x 70%
  2. Total Revenue – Cost of Goods Sold
  3. Total Revenue – Compensation
  4. Total Revenue – $1 Million

Total Revenue: Determined from federal income tax reports, excluding specific items such as federal dividends, foreign royalties, and industry-specific exclusions.
Cost of Goods Sold: Includes expenses related to acquiring or producing goods but typically excludes service-related costs.
Compensation Deduction: Includes W-2 wages, cash compensation, and deductible employee benefits but excludes 1099 labor and employer payroll taxes.

Available Tax Credits

Businesses may qualify for tax credits, including:

  • Temporary credit for business loss carryforwards.
  • Research and Development activities credit.
  • Certified Historic Structures Rehabilitation credit.

How to File

The Texas Franchise Tax Report can be filed using:

  • EZ Computation Form
  • Long Form

Entities below the $2.47 million threshold do not owe franchise tax but must still file a PIR or OIR.

Forms can be downloaded from the Texas Comptroller website and mailed to:
Texas Comptroller of Public Accounts
PO Box 149348
Austin, TX 78714-9348

Filing Extensions

If you need extra time to file, you can submit a Franchise Tax Extension. Extensions are generally approved if 90–100% of the tax owed is paid by May 15. The Comptroller offers four types of extensions, depending on the circumstances.