Texas has no corporate income tax and no personal income tax, and most small businesses owe no franchise tax because of a $2.65 million revenue threshold. Larger businesses pay a 0.75% tax on margin, or 0.375% for retailers and wholesalers. The state makes up for the lack of an income tax with a 6.25% sales tax plus local add-ons and high property taxes.
This guide covers Texas business taxes for 2026, with worked examples and comparisons with its neighbors.
Texas business taxes at a glance
A Texas corporation or LLC with revenue below $2.65 million pays no state tax on profit. Above the threshold, it pays 0.75% of taxable margin, which is revenue minus the largest of cost of goods sold, compensation, 30% of revenue or $1 million. Owners pay no personal income tax. Customers pay 6.25% state sales tax plus up to 2% local tax. Businesses pay property taxes on real estate and on equipment and inventory above the exemption. LLCs pay $300 to form and file a free Public Information Report each year.
Franchise (margin) tax
| Item | 2026 |
|---|---|
| No-tax-due threshold | $2.65 million of annualized revenue |
| Standard rate | 0.75% of taxable margin |
| Retail and wholesale rate | 0.375% |
| EZ computation (revenue up to $20 million) | 0.331% of apportioned revenue |
Taxable margin is the lowest of:
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70% of total revenue
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Revenue minus cost of goods sold
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Revenue minus compensation
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Revenue minus $1 million
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Who pays: Corporations, LLCs, limited partnerships, LLPs, professional associations and business trusts.
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Not taxable: Sole proprietorships, general partnerships owned directly by individuals and some passive entities.
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Apportionment: Single gross receipts factor.
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Combined reporting: Required for affiliated groups engaged in a unitary business.
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Reports: Due May 15.
No personal income tax
The Texas Constitution prohibits a personal income tax without voter approval, and a 2019 amendment prohibits it outright.
- Sole proprietors, LLC members, partners and S corporation shareholders pay no state income tax on business income.
- Wages are untaxed.
- Capital gains are untaxed.
Sales and use tax
| Component | Rate |
|---|---|
| State sales tax | 6.25% |
| Local taxes | Up to 2% |
| Maximum combined rate | 8.25% |
| Average combined rate | About 8.2% |
- Groceries and prescription drugs are exempt.
- Services: Many services are taxable, including data processing (80% of the charge), information services, security services and some repair services.
- Manufacturing equipment is exempt.
- Remote sellers with more than $500,000 of Texas sales must collect, or can elect a single local use tax rate.
Payroll and property taxes
- Unemployment insurance: Employers pay on the first $9,000 of each employee's wages.
- Property tax: Texas property taxes are among the highest in the country, typically 1.6% to 2.5% of market value. Business personal property, including inventory and equipment, is taxed, but a constitutional amendment approved by voters in November 2025 raised the exemption to $125,000 of value from 2026.
- Freeport exemption: Inventory shipped out of state within 175 days can be exempt in participating jurisdictions.
Forming a business in Texas: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $300 | $300 |
| Annual report | Public Information Report (free) | Public Information Report (free) |
| Franchise tax | None below $2.65M revenue | None below $2.65M revenue |
| Registered agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Texas income tax | $0 |
| Federal tax at 21% on $500,000 | $105,000 |
| Total income tax | $105,000 (21%) |
If the business had $2 million of revenue, it would owe no franchise tax. With $10 million of revenue and $6 million of cost of goods sold, taxable margin would be $4 million and franchise tax would be $30,000. For a single LLC owner with $150,000 or $75,000 of profit, Texas income tax is $0.
How Texas compares with its neighbors
| State | Corporate rate | Top personal rate | State sales tax |
|---|---|---|---|
| Texas | None (0.75% margin tax above $2.65M) | None | 6.25% |
| New Mexico | 4.8% to 5.9% | 5.9% | 4.875% GRT |
| Oklahoma | 4% | 4.5% | 4.5% |
| Arkansas | 4.3% | 3.9% | 6.5% |
| Louisiana | 5.5% | 3% | 5% |
Texas is the only state in the region without an income tax, and its threshold means most small businesses pay no entity-level tax either. Its property taxes and sales taxes are higher than most neighbors', which affects businesses with large real estate or inventory.
Choosing an entity in Texas
- LLC: The most common choice. No state income tax, and no franchise tax below the threshold.
- S corporation: Federal payroll tax savings; Texas treats S corporations like any other taxable entity for franchise tax.
- C corporation: Pays only the 21% federal rate, which makes it relatively attractive for businesses retaining earnings.
- Series LLC: Texas allows series LLCs, letting one LLC hold separate assets in protected series.
Texas taxes by business type
Startups and small businesses. Below $2.65 million of revenue, there's no franchise tax, no income tax and no annual report fee, making Texas one of the cheapest states to run a small business.
Retailers and wholesalers. Above the threshold, they pay the reduced 0.375% rate and can deduct cost of goods sold. They also collect sales tax and pay property tax on inventory.
Professional services. Law firms, consultants and agencies above the threshold often use the compensation deduction to reduce taxable margin. Some services they provide may be subject to sales tax.
Energy. Oil and gas producers pay severance taxes of 4.6% on oil and 7.5% on natural gas, which fund a large share of the state budget.
Doing business across Texas
Texas has four of the country's largest metros: Houston, with energy and the port; Dallas-Fort Worth, with finance and corporate headquarters; Austin, with technology; and San Antonio, with health care and the military. Many companies have moved headquarters to Texas in recent years. Texas created its own business courts in 2024 and the Texas Stock Exchange launched in 2026, both aimed at attracting corporations.
Tax planning tips for Texas businesses
Track revenue against the threshold. If you're near $2.65 million, plan around the threshold and choose the best margin deduction once you exceed it.
Protest your property valuation. Appraisal districts set values each year, and businesses commonly protest them. A successful protest can save more than any other state tax planning.
Use the EZ computation if it helps. For businesses with revenue up to $20 million, the 0.331% rate on revenue can be lower than 0.75% of margin, especially for low-cost service businesses.
Recent changes for 2025 and 2026
- No-tax-due threshold set at $2.65 million for 2026 and 2027 reports.
- No-tax-due reports eliminated from 2024; only information reports are required.
- Business personal property exemption raised to $125,000 in 2025.
- Business courts and the Texas Stock Exchange launched.
Is Texas a good state for business?
Advantages
- No corporate or personal income tax
- No franchise tax for businesses under $2.65 million of revenue
- Large, growing markets and labor pool
- Business courts and pro-business regulation
Drawbacks
- High property taxes
- Sales tax up to 8.25%, applying to some services
- Franchise tax on gross margin for larger businesses
- $300 formation fee
Compliance checklist
- File a Certificate of Formation with the Secretary of State.
- Register with the Comptroller for sales tax and franchise tax.
- Register with the Texas Workforce Commission for unemployment tax if you hire.
- File the Public Information Report and any franchise tax report by May 15 each year.
- File business personal property renditions with the county appraisal district by April 15.
Compare Texas with its neighbors below or estimate your taxes in the United States calculator. See LLC taxes for more.