Texas small business taxes: what an owner pays and when

Texas small business taxes include a franchise tax with a 0.75% rate for most businesses and a lower 0.375% rate for qualifying retail or wholesale businesses. An entity with $2,650,000 or less of annualized total revenue owes no franchise tax but still files an information report, there is no personal income tax, and sales tax is 6.25% at the state level plus up to 2% local. ^{[1][2][3][4][5]}

Texas small business taxes: income and business taxes

Work out the franchise tax first, since there is no personal income tax return to file.

The Texas Constitution bars the legislature from taxing individuals' net incomes, including an individual's share of partnership and unincorporated association income. ^[2]

The Texas Constitution bars any tax on the capital gains, realized or unrealized, of an individual, family, estate or trust. ^[2]

Texas franchise tax is figured on margin, which is the smallest of 70% of total revenue, total revenue minus $1 million, or total revenue minus either cost of goods sold or compensation, whichever the business elects (Tax Code s. 171.101, in force for 2026 and 2027 reports). General example for 2027: a Texas-only business with $5,000,000 of revenue and $3,800,000 of cost of goods sold has a margin of $1,200,000 (less than $3,500,000 or $4,000,000), so at the 0.75% rate it owes $9,000. ^[6][3]

Sales tax rates and local additions

Charge the combined state and local rate where the sale happens, and track your remote sales into Texas if you sell from out of state.

The Texas state sales tax rate is 6.25% (2026). ^[1]

An out-of-state seller with no Texas location must get a Texas permit and collect state and local use tax once its total Texas revenue passes $500,000 over the preceding twelve calendar months; below that it is not required to. Collection must start by the first day of the fourth month after the month it passed $500,000. Revenue counts taxable and nontaxable sales, shipping and handling fees, and sales for resale (rule in force for 2026). ^[7]

Texas sales tax applies to the services the Tax Code lists as taxable, such as amusement services, cable and satellite television, data processing and information services (Comptroller taxable services page, rule in force for 2026). ^[8]

Texas holds a yearly sales tax holiday weekend; the next one runs Friday, August 6, 2027 through midnight Sunday, August 8, 2027. Most clothing, footwear, school supplies and backpacks sold for less than $100 can be bought tax free, in stores or from online sellers doing business in Texas. ^[9]

Permits, filing and seller obligations

Get a permit for each location before your first sale, and file every report on time, even for a period with no sales.

A Texas seller needs a separate sales tax permit for each place of business, must display each permit conspicuously at the place of business it covers, and cannot transfer a permit to another person or location (Tax Code s. 151.201, in force for 2026). General example for 2026: a company running three stores in 2026 holds three permits, one displayed at each store. ^[10]

A Texas seller cannot reuse a cancelled or inactive permit number from an old business or from a business it bought; it must apply for a new sales tax permit (Comptroller sales tax FAQ, checked October 27, 2026). ^[11]

A Texas seller with an active sales tax permit must keep filing sales tax returns even when it has no taxable sales or purchases to report (Comptroller sales tax FAQ, checked October 27, 2026). ^[11]

A Texas seller qualifies to file sales tax quarterly instead of monthly only while it owes less than $500 for a month or $1,500 for a quarter (Tax Code s. 151.401, in force for 2026). General example for 2026: a seller that owes $1,200 for October to December 2026 files quarterly by January 20, 2027. ^[10]

A Texas seller that files and pays sales tax on time can keep 0.5% of the tax due as a reimbursement for collecting it (Tax Code s. 151.423, in force for 2026). General example for 2026: a seller reporting $20,000 of tax for October 2026 on time by November 20, 2026 keeps $100. ^[10]

An applicant for a Texas sales tax permit must post security with the Comptroller to cover the tax it will collect (Tax Code s. 151.251, in force for 2026). ^[10]

All of a Texas seller's gross receipts are presumed taxable unless it accepts a properly completed resale or exemption certificate (Tax Code s. 151.054, in force for 2026). General example for 2026: a $10,000 sale to a reseller made without a resale certificate on file is treated as taxable, so the seller can owe $625 of state tax (6.25%) plus local tax on it. ^[10]

A Texas seller can stop paying tax on the unpaid part of a taxable sale if, in the period of the sale, it decides the amount will stay unpaid, writes it off as a bad debt in its books, and claims it as a federal tax deduction (Tax Code s. 151.426, in force for 2026). General example for 2026: a $2,000 invoice written off as a bad debt lets the seller hold back $125 of state tax (6.25%) plus the local tax on it. ^[10]

Selling at retail in Texas without the required permit, or after it is suspended, is a Class C misdemeanor for the person or corporate officer; a second conviction is a Class B misdemeanor punishable by a fine only, of up to $2,000 (Tax Code s. 151.708, in force for 2026). General example for 2026: an officer convicted a second time in 2026 can be fined up to $2,000. ^[10]

Franchise tax details for small businesses

Run the margin numbers each way before you file, because the method you choose changes the tax.

Texas uses a single factor, gross receipts, to work out how much of an entity's taxable margin belongs to Texas. ^[5]

A Texas business that subtracts compensation to figure its franchise tax margin can count wages and cash pay of up to $480,000 per person for 2026 and 2027 reports, up from $450,000 for 2024 and 2025 reports (Comptroller franchise tax rates and compensation FAQ). General example for 2027: an owner paid $600,000 in wages counts $480,000 of it toward the deduction. ^[3][12]

On top of capped wages, a Texas business using the compensation deduction can subtract benefits for all staff, including workers' compensation, health care and retirement benefits, to the extent they are deductible for federal income tax (Comptroller compensation FAQ, checked October 27, 2026). General example for 2027: a business that pays $90,000 of employee health and retirement benefits in its 2026 accounting year adds that $90,000 to its compensation deduction on the 2027 report. ^[12]

When figuring franchise tax margin, a Texas business that subtracts cost of goods sold or compensation can also subtract compensation paid to a person while that person serves on active duty in the U.S. armed forces, if the person was a Texas resident when ordered to active duty, plus the cost of training a replacement (Tax Code s. 171.101, in force for 2026 and 2027 reports). General example for 2027: a business that paid $40,000 during its 2026 accounting year to an employee from Texas serving on active duty can subtract that $40,000 as well. ^[6]

A new veteran-owned business formed in Texas on or after January 1, 2022 and owned 100% by honorably discharged veterans is not subject to franchise tax and does not file a Public Information Report or Ownership Information Report for its first five years; it needs a verification letter from the Texas Veterans Commission for each owner (Comptroller page, checked October 27, 2026). General example for 2026: an LLC formed in March 2026 by two honorably discharged veterans owes no franchise tax for its first five years. ^[13]

A Texas business with no Texas gross receipts still has to file a long form or EZ computation franchise tax report, filling in its total revenue and reporting zero on the Texas gross receipts line, unless it is at or below the no tax due threshold (Comptroller tax policy news, checked October 27, 2026). General example for 2027: a Texas-formed company with $4,000,000 of revenue, all from customers outside Texas, files a report showing $0 of Texas gross receipts. ^[14]

A Texas combined group must include every member in its group franchise tax report, even a member whose own revenue is at or below the no tax due threshold (Comptroller tax policy news, checked October 27, 2026). General example for 2027: a group with a $1,000,000 revenue subsidiary still reports that subsidiary in its 2027 group report. ^[14]

The franchise tax no-tax-due threshold went up to $2,650,000 for 2026 and 2027 reports, from $2,470,000 for 2024 and 2025. ^[3]

Credits that can lower the bill

Ask your tax pro which credits fit your plans before you spend, since some need an application first.

Texas Enterprise Zone Program: a Texas community can nominate a company to get refunds of state sales and use tax on qualified spending at a site in an economically distressed area. A Half Enterprise Project investing $40,000 to $5,000,000 can earn up to $625,000, at $2,500 per job; an Enterprise Project investing $5,000,000 to $149,999,999 can earn up to $1,250,000 (program page checked October 27, 2026). General example: a Half Enterprise Project that creates 100 jobs supports a refund of up to $250,000. ^[15]

Enterprise Zone applications are taken in rounds due on the first business day of March, June, September and December, so the next round is due December 1, 2026; the nominating community files through the portal with a non-refundable fee. ^[15]

Strong Families franchise tax credit: a business can earn a credit for designated contributions to eligible nonprofits that provide family-strengthening services, made in the previous calendar year; only contributions made since June 1, 2026 count, and total credits are capped at $5 million a year and $1 million per taxable entity (program page checked October 27, 2026). ^[16]

Research and development franchise tax credit: from January 1, 2026, Texas replaced its old research credit with a new Subchapter T franchise tax credit for qualified research done in Texas; some entities that owe no franchise tax can get it as a refundable credit. ^[17]

The Texas Historic Preservation Tax Credit is 25% of the cost of rehabilitating a historic building used to earn income or by a nonprofit; the credit can be sold and used against the franchise tax or the insurance premium tax (Texas Historical Commission, checked October 27, 2026). General example for 2026: a $1,000,000 qualifying rehabilitation earns a $250,000 credit. ^[18]

Texas small business tax dates

Set reminders a few weeks ahead of each of these dates.

• May 17, 2027: the 2027 franchise tax report and its Public Information or Ownership Information Report are both due ^[5][19]

Texas sales tax reports are due the 20th of the month after the period, or the next business day if that falls on a weekend or holiday. Quarterly filers next file by January 20, 2027 (for October to December 2026), then April 20, 2027, July 20, 2027 and October 20, 2027. Yearly filers file for 2026 by January 20, 2027. ^[20]

A Texas business must file a rendition with its county appraisal district listing a good faith estimate of value for inventory, furniture and fixtures, machinery, equipment and other business property owned on January 1, 2027; the deadline is April 15, 2027, and the chief appraiser must extend it on a written request; the extended date, May 15, 2027, falls on a Saturday, so it moves to Monday, May 17, 2027 under Tax Code section 1.06. ^[21][22]

Interest on past due Texas taxes starts 61 days after the due date, at a rate set yearly at the prime rate plus 1 percent: 7.75% for 2026. The Comptroller's example for 2026: $1,000 of tax owed for 150 days at 7.75% costs $31.85 in interest. ^[23]

Questions people ask

Does Texas have a business tax? Texas taxes businesses through a franchise tax, a privilege tax on each taxable entity formed in Texas or doing business there. For 2026 and 2027 reports the rate is 0.75% of taxable margin (0.375% for entities primarily in retail or wholesale trade), and an entity with annualized total revenue of $2,650,000 or less owes no franchise tax but still files an information report. ^[3][4][5]

What is the business tax rate in Texas? The Texas franchise tax rate is 0.375% for retail or wholesale businesses, lower than the 0.75% rate for everyone else. A Texas business with total revenue of $20 million or less can elect the EZ computation, which taxes apportioned revenue at 0.331% with no deductions, instead of the regular margin calculation (Tax Code s. 171.1016; Comptroller rates for 2026 and 2027 reports). General example for 2027: a Texas-only business with $3,000,000 of revenue owes $9,930 under the EZ computation ($3,000,000 x 0.331%), so it compares that with its regular margin tax before choosing. ^[3][6]

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General information from the official sources listed below, checked October 27, 2026. Not tax or legal advice.