Texas LLC Taxes: The Franchise Tax and the "No Income Tax" Myth

What the Franchise Tax Actually Is

Texas's franchise tax isn't a tax on your LLC's net profit — it's a tax on "taxable margin," a modified revenue calculation, applied to the privilege of doing business in Texas. That distinction matters: a business can be unprofitable in a given year and still, in theory, owe franchise tax, because the tax is keyed to revenue rather than what's left over after expenses.

The Texas Comptroller's franchise tax page, read September 15, 2026, gives the rates directly: 0.375% for retail and wholesale businesses, and 0.75% for every other type of business, applied to taxable margin once you're above the No Tax Due threshold.

The $2.65M No Tax Due Threshold

Most small businesses land under this line, which is exactly why the "Texas has no taxes" idea sticks — for a lot of LLCs, the actual bill really is $0. The threshold moves periodically (it was lower in earlier report years), so it's worth confirming the current figure on the Comptroller's site each filing season rather than assuming last year's number still applies.

The May 15 Deadline — File Even at $0

This is the part the "no taxes" myth causes real damage on. The Comptroller's franchise tax page, read September 15, 2026, states plainly: "The annual franchise tax report is due May 15. If May 15 falls on a weekend or holiday, the due date will be the next business day." That due date applies whether you owe $2,650,001 or $0.

For the mechanics of actually filing the report and the Public Information Report that goes with it, see Texas LLC Annual Report 2026: PIR & Franchise Tax Due May 15.

What "No Income Tax" Really Covers

"No state income tax" is a specific, narrow claim, and it's worth being precise about what it does and doesn't cover:

• Covered: Texas does not tax your LLC's profit at the state level, whether it passes through to you personally or stays in the business.
• Not covered: Federal income tax still applies to that same profit, reported normally for your LLC's federal tax classification.
• Not covered: The franchise tax, which is a revenue-based tax, not an income tax — the two are legally and functionally separate.
• Not covered: Sales tax, local property tax, and employment taxes, none of which are income taxes.

Put together: the "no income tax" reputation is true and it is a real savings compared to high-income-tax states, but it describes one tax out of several a Texas LLC may encounter — not a blanket exemption.

Sales Tax and Registration Fees

Two more things readers searching for "Texas business registration fees" usually want to know, neither of which is the franchise tax:

Sales Tax (If You Sell Taxable Goods or Services)

The Texas Comptroller's sales tax page, read September 15, 2026, states: "Texas imposes a 6.25 percent state sales and use tax on all retail sales, leases and rentals of most goods, as well as taxable services." The same page confirms local jurisdictions can add up to 2% more, for a combined maximum of 8.25%. This only applies if your LLC actually sells taxable goods or services — it's unrelated to the franchise tax and requires its own registration with the Comptroller if it applies to you.

The One-Time Registration Fee

"Registration fees" and "taxes" are two different things, and it's an easy mix-up. Forming the LLC itself means filing a Certificate of Formation with the Texas Secretary of State — a one-time fee, not a tax, and not billed again in future years. It has no connection to the franchise tax threshold above. For the current filing fee and how to pay it, see our Texas LLC Certificate of Formation fee guide.

Bottom Line

For the full annual cost picture — formation fee, franchise tax, and the Public Information Report all in one table — see Texas LLC Costs 2026. To keep the LLC itself in good standing beyond taxes, check Texas registered agent requirements.