Texas has no personal income tax and no corporate income tax in the usual sense. What it has instead is the franchise tax, a tax on the privilege of doing business in the state as a registered entity. If you formed an LLC or a corporation, you are in the system from the day the Secretary of State accepted your filing, and the Comptroller expects to hear from you every year whether you made money or not.
Who has to deal with it
- Limited liability companies, including single-member LLCs that are ignored for federal tax purposes. The federal treatment does not matter here; Texas sees the entity.
- Corporations, S corporations, professional associations and limited partnerships.
- Out-of-state entities registered to do business in Texas.
- Not sole proprietors and not general partnerships owned directly by individuals. If you never formed an entity, you have no franchise tax filing.
Why most small businesses owe nothing
The tax is calculated on a business's margin, which starts from total revenue and subtracts one of several allowed amounts. But the state sets a revenue threshold, adjusted periodically, below which no tax is due at all. That threshold is high enough that the majority of small businesses in Midland and Odessa, from a one-truck hauling LLC to a family restaurant, fall under it and owe zero.
Owing zero is not the same as having nothing to file. That distinction is where businesses get into trouble.
The report that is still due
Every entity subject to the tax must file an annual information report with the Comptroller. For most LLCs and corporations that is the Public Information Report, which lists the officers, directors or managers and the business address. Entities under the no-tax-due threshold are no longer required to file a separate no-tax-due form, but the information report itself remains mandatory. Larger businesses file a franchise tax report with the calculation and pay whatever is owed.
The due date is May 15 each year, or the next business day when that falls on a weekend. An extension is available on request. A business's first report is due the May after the year it was formed.
The Comptroller mails reminders to the address on file with the Secretary of State. If that address is an old apartment, a former partner, or a registered agent you stopped paying, you will not see the notice, and you will not see the forfeiture warning either.
What happens when it is skipped
- 01A late report draws a penalty, and any tax owed draws interest.
- 02After continued non-filing the Comptroller forfeits the entity's right to transact business in Texas. It can no longer sue in a Texas court, and its officers can become personally liable for debts incurred during forfeiture.
- 03Eventually the Secretary of State forfeits the entity's charter. The LLC is, on paper, gone.
- 04Reinstatement is possible, but it requires filing every missing report, paying every penalty, obtaining a tax clearance letter, and filing a reinstatement with the Secretary of State. It costs far more in time and money than the report ever would have.
Frequently asked questions
My LLC never made a dollar. Do I really have to file?
Yes. An LLC with zero revenue files the information report like any other. If you are done with the business, the better move is to formally dissolve it so the obligation ends.
Is the franchise tax the same as the sales tax?
No. Sales tax is collected from customers on taxable sales and remitted, often monthly or quarterly. Franchise tax is an annual tax on the entity itself. A business can owe one, both or neither.
I got a forfeiture notice. Is it too late?
Usually not. Bring the notice and your formation documents and we will work out which reports are missing and get the entity back in good standing.
Put it on the calendar with us
If we handle your bookkeeping, the franchise report is part of the annual work. If not, bring your formation paperwork and we will get you current. Call (432) 257-7547 or come by 700 C Andrews Hwy in Midland. English and Spanish.
Related services