How to Stay Compliant with Texas Franchise Tax Requirements

Owning a business in Texas offers many advantages — no personal state income tax, a pro-business climate, and a fast-growing economy. But every business operating in the state must stay compliant with one critical obligation: the Texas Franchise Tax.

At Luna CPA, LLC, we help Texas business owners — especially those in Laredo, TX — understand and fulfill their state tax responsibilities to avoid penalties, maintain good standing, and stay on the path to success.

What Is the Texas Franchise Tax?
The Texas Franchise Tax, often called the margin tax, is a privilege tax imposed on each taxable entity formed or doing business in Texas. It's administered by the Texas Comptroller of Public Accounts and applies to most entities, including:

• Corporations
• Limited Liability Companies (LLCs)
• Professional Associations
• Partnerships (except general partnerships owned entirely by individuals)
  
  The tax is based on a company's "taxable margin," which is a modified measure of total revenue.
  
  Who Must File
  Every taxable entity that is organized in Texas or conducts business in the state must file a Franchise Tax Report — even if no tax is due.
  
  This includes:
• Businesses with no income or activity
• Entities below the "no tax due" threshold
• Foreign entities registered to do business in Texas
  
  Failing to file can result in penalties and even forfeiture of your right to operate in the state.
  
  The No-Tax-Due Threshold
  For 2025, businesses with total annual revenue of $2.47 million or less owe no franchise tax, but they must still file a No Tax Due Report or an Information Report.
  
  This filing confirms your company's status and keeps it in good standing with both the Texas Comptroller and the Texas Secretary of State.
  
  Franchise Tax Rates
  For entities that exceed the threshold, the tax rate depends on business type:
• 0.375% for retail and wholesale businesses
• 0.75% for all other taxable entities
  
  Businesses may calculate their taxable margin using the lowest of the following four methods:

1. Total revenue × 70%
2. Total revenue -- cost of goods sold (COGS)
3. Total revenue -- compensation
4. Total revenue -- $1 million (EZ Computation Method, if qualified)
   
   A CPA can help determine which method minimizes your tax liability while keeping you fully compliant.
   
   Key Filing Deadlines
   The annual due date for Texas Franchise Tax Reports is May 15.
   
   If this date falls on a weekend or holiday, the deadline moves to the next business day. Extensions are available, but only if requested before the original due date.
   
   Entities that fail to file or pay on time may face:

• A 5% penalty for missing the due date
• An additional 10% penalty after 30 days
• Forfeiture of the right to transact business in Texas
  
  At Luna CPA, LLC, we help ensure all filings are submitted accurately and on time, protecting your entity's good standing.
  
  Additional Required Reports
  Alongside the Franchise Tax Report, most entities must file a Public Information Report (PIR) or Ownership Information Report (OIR).
  
  These reports include details such as:
• Principal office address
• Officers and directors (for corporations)
• Members and managers (for LLCs)
  
  These filings maintain transparency with the state and help avoid administrative forfeiture.
  
  Common Mistakes to Avoid
  Many Texas business owners make costly mistakes due to misunderstanding or oversight. Common errors include:
• Failing to file because "no income" was earned
• Using incorrect revenue calculations
• Missing the Public Information Report
• Failing to request an extension before the deadline
  
  Even if no tax is due, missing a filing can lead to penalties or suspension of your business's authority.
  
  Why Work with a CPA
  The Texas Franchise Tax can be deceptively complex — particularly for multi-entity groups or businesses engaged in cross-border trade (common in Laredo).
  
  A Certified Public Accountant (CPA) helps you:
• Accurately calculate your taxable margin
• File annual reports and PIRs correctly
• Maintain compliance with Texas Comptroller and Secretary of State
• Plan ahead to minimize next year's tax burden
  
  At Luna CPA, LLC, we provide year-round guidance to keep your business in good standing and ensure every filing is handled properly.
  
  Final Thoughts
  Texas is one of the best states to run a business, but compliance is key to keeping it that way. Staying current with Franchise Tax filings protects your entity, avoids penalties, and preserves your ability to operate and grow.
  
  Whether you need help filing a No-Tax-Due Report, calculating your margin, or catching up on missed filings, Luna CPA, LLC in Laredo, TX is here to help.
  
  Luna CPA, LLC
  Certified Public Accountants in Laredo, Texas — your trusted partner for tax compliance, reporting, and business success.