Texas franchise tax is a “privilege tax” for doing business in Texas. Part of this privilege includes liability protections provided by state law.
A Franchise Tax Report must be filed by all Texas LLCs, regardless of activity, revenue, or how they are taxed by the IRS.
What is the franchise tax rate?
- 0.375% of taxable margin for wholesalers and retailers
- 0.75% of taxable margin for all other companies or
- 0.331% of total revenue for companies using the EZ computation method
Most LLCs don’t pay franchise tax, but still have to file
Your Texas LLC won’t have to pay franchise tax if either of the following are true:
- Your LLC’s annualized total revenue for the tax year is below the “No Tax Due Threshold“, which is currently $1,130,000
- Your LLC’s calculated tax liability is less than $1,000
Remember, even if your LLC owes no tax, you still must file a No Tax Due Report (Form 05-163) and a Public Information Report (Form 05-102).
If you have a veteran-owned Texas LLC, you are exempt from your first 5 years of franchise tax. However, you still have to file a No Tax Due Report (Form 05-163) every year. More information will be provided below.
When are franchise tax reports due?
Your Texas LLC’s Annual Franchise Tax Report (and the Public Information Report) are due on, or before, May 15th every year.
Penalties for not Filing Texas Franchise Tax Reports
If your Texas LLC fails to file its franchise tax reports:
- Your LLC will be charged with penalties and interest
- The Comptroller has the power to forfeit the right of your LLC to transact business in this state
- Your LLC being denied the right to sue or defend itself in a Texas court
- Each LLC Member and/or Manager becomes personally liable for the LLC’s debts and taxes owed to the state
- Your LLC won’t be awarded a contract by any state agency, and
- Your LLC won’t be granted a permit or license from any state agency
45-day Grace Period
Texas law requires that the Comptroller’s Office gives your LLC at least 45 days grace period. That 45-day grace period starts after you receive the “Notice of Pending Forfeiture”.