Texas Franchise Tax – What You Need to Know

Overview

When your business is registered for Texas Sales Tax, the Texas Comptroller of Public Accounts automatically creates a Franchise Tax account on your behalf. This is standard procedure for all businesses registering in Texas. These two registrations go hand in hand in Texas, and it's important to understand that they are separate obligations, each with its own filing requirements and deadlines.

⚠️ Important: Kintsugi handles your Texas sales tax registration and filings. However, Kintsugi does not handle Texas Franchise Tax. Once your sales tax registration is completed through Kintsugi, you are responsible for completing and maintaining your Franchise Tax registration and filings directly with the Texas Comptroller of Public Accounts.

When you register for sales tax in Texas through Kintsugi, you will see a pop-up notification reminding you of this requirement. Please do not dismiss this because missing your Franchise Tax obligations can have serious consequences for your business (see below).

Why Texas Franchise Tax Matters

Texas takes Franchise Tax compliance very seriously. Failing to file or pay on time can trigger significant consequences:

• Forfeiture of your right to do business in Texas. The state will automatically revoke your business license if you miss your Franchise Tax filing.

• Frozen bank accounts. Texas has the authority to freeze business bank accounts associated with a forfeited entity. Unfreezing a frozen account requires a formal hearing, which is a time-consuming and costly process.

• Late filing penalties. A flat $50 penalty is assessed on every report filed after the due date, regardless of whether any tax is owed. If tax is paid 1–30 days late, a 5% penalty applies. Beyond 30 days, the penalty increases to 10%.

The good news: staying compliant is straightforward once you know what's required.

What Is Texas Franchise Tax?

Texas Franchise Tax is the state's primary business tax, a tax on the privilege of doing business in Texas. Unlike a traditional corporate income tax (which Texas does not have), Franchise Tax is calculated based on your business's taxable margin, which is generally your total revenue minus certain allowable deductions.

Who Must File?

Most formal business entities operating in Texas are required to file, including:

• Corporations (including S corps)

• Limited Liability Companies (LLCs), including single-member and series LLCs

• Limited Partnerships (LPs) and Limited Liability Partnerships (LLPs)

• Professional Associations

• Financial institutions

• Out-of-state entities with Texas economic nexus

Exempt entities (generally not required to file) include sole proprietorships and general partnerships owned entirely by natural persons, though exceptions apply.

Filing Thresholds: Do You Owe Tax?

Not every business that files will owe franchise tax. Texas has a No Tax Due threshold:

• If your annualized total revenue is at or below the threshold, no franchise tax is due. However, you are still required to file a Public Information Report (PIR) or Ownership Information Report (OIR) annually.

• If your annualized total revenue is above the threshold, you must file a full franchise tax report and pay the applicable tax.

💡 Note: Even if you owe zero tax, skipping the PIR or OIR filing can result in forfeiture of your business's right to operate in Texas. Filing is always required.

How to File Texas Franchise Tax

Step 1: Log In to Your Texas State Account

1. Go to the Texas Comptroller's Webfile portal at comptroller.texas.gov.

2. Log in using your Texas Webfile credentials. These are the credentials associated with your Texas Comptroller account, the same login used to manage your sales and use tax account.

3. If you have not yet set up Webfile access, select "Create Profile" and follow the prompts to register using your 11-digit Texas taxpayer number.

Step 2: Determine Which Form to File

The report you file depends on your revenue and entity type:

If your revenue is at or below the No Tax Due threshold ($2.47M for 2025):

• You do not file a franchise tax return.

• File Form 05-102 (Public Information Report / PIR) if your entity is a corporation, LLC, LP, professional association, or financial institution.

• File Form 05-167 (Ownership Information Report / OIR) if your entity is any other type.

If your revenue is above the threshold:

• EZ Computation (Form 05-169) — Available if your total revenue is $20 million or less. Applies a flat rate of 0.331% to your Texas gross receipts. Simple to calculate, but you cannot claim deductions or credits.

• Long Form (Forms 05-158-A and 05-158-B) — Required if your revenue exceeds $20 million, or if you want to use deductions or credits. Tax is calculated on your taxable margin using the lowest result from four methods:

  • 70% of total revenue

  • Revenue minus Cost of Goods Sold (COGS)

  • Revenue minus Compensation (capped at $450,000 per person for 2025; $480,000 for 2026)

  • Revenue minus a flat $1,000,000 deduction

Standard tax rates:

• 0.75% for most taxable entities

• 0.375% for qualifying retail or wholesale entities

Step 3: Complete and Submit Your Report

1. Select the appropriate form in the Webfile portal.

2. Enter your revenue, deductions (if applicable), and any other required information.

3. Complete and attach your PIR or OIR (required for most entities, even if no tax is owed).

4. Review and submit your report electronically.

💡 TIP: Large tax payers are required to submit payments via TEXNET. If this applies to you, make sure your payment is submitted through the correct channel.

Step 4: Pay Any Tax Due

If tax is owed, payment can be submitted through the Webfile portal at the time of filing. Make sure the payment is submitted by May 15 to avoid late penalties.

Key Deadlines

Example: If you began doing business in Texas in 2025, your first Franchise Tax report is due May 15, 2026.

Next Steps After Your Kintsugi Sales Tax Registration

Once your sales tax registration is completed through Kintsugi:

1. Log in to your Texas Comptroller account at comptroller.texas.gov.

2. Complete your Franchise Tax registration questionnaire if you have not already done so. This establishes your mailing address, tax responsibility start date, and first report due date on file with the Comptroller.

3. Determine your filing obligation. Check whether you are below the No Tax Due threshold and whether you qualify to file a PIR/OIR only, or whether you need to file the EZ Computation or Long Form.

4. File and pay by May 15 each year to stay in good standing with the state.

Need Help?

Kintsugi does not provide Franchise Tax filing services. For questions specific to your Franchise Tax obligations, we recommend:

• Visiting the Texas Comptroller's Franchise Tax page at comptroller.texas.gov/taxes/franchise

• Calling the Texas Comptroller's office at (800) 252-1381 (Monday–Friday, 8:00 a.m. – 5:00 p.m. CT)

• Consulting a licensed CPA or tax advisor familiar with Texas business tax compliance

For questions about your Kintsugi sales tax registration, reach out to our team at success@trykintsugi.com. We are here to help, and we love hearing how we can improve.