How Texas LLCs handle the franchise tax and no state income tax in Austin

What to take away

How the Texas franchise tax applies to an Austin LLC

Texas does not tax LLC profits directly. Instead, the state charges a franchise tax on the privilege of doing business in Texas, which is why the tax shows up even for an LLC that lost money.

A state franchise tax is generally a charge for the right to exist as a business entity in that state, and Texas applies it broadly. The Comptroller's franchise tax report instructions list corporations and limited liability companies, including single member and series LLCs, among the entities subject to the tax. They compute the taxable margin as total revenue times 70%, or total revenue minus cost of goods sold, minus compensation, or minus $1 million, and set the rates at 0.75% for most entities, 0.375% for qualifying wholesalers and retailers, and 0.331% for entities with $20 million or less in annualized total revenue that use the EZ computation.

An LLC formed in Texas is a taxable entity from the moment the Secretary of State accepts its certificate of formation.

An LLC formed elsewhere but doing business in Austin, with an office, employees, or a physical presence, may need to register as a foreign entity first. That process is covered in foreign llc registration in texas.

Once registered, the LLC files a franchise tax report each year with the Texas Comptroller of Public Accounts. The report is due May 15. If May 15 falls on a weekend or holiday, the deadline rolls to the next business day.

The tax base is not net income. Texas uses a margin calculation: total revenue reduced by one of the four methods named above, then apportioned to Texas with a single-factor formula based on gross receipts. Most Austin service businesses with no out-of-state activity apportion 100 percent of their margin to Texas.

The rate depends on the entity. Retail and wholesale businesses pay a lower rate than everyone else. The rate figures are set out above; the no-tax-due threshold changes by report year, and the current one is given in the next section.

New LLCs get a break on the first report. A Texas LLC is not required to file and pay franchise tax for its first year of existence, with the first report covering the following calendar year.

No-tax-due thresholds and the EZ computation

The no-tax-due threshold is the revenue line below which a Texas LLC owes zero franchise tax. It is based on total revenue from the entire business, not just Texas revenue. Cross the threshold and a tax may be due, even if the business barely made money.

According to the Comptroller's 2026 franchise tax forms, the no-tax-due threshold for the 2026 report is $2.65 million. An LLC at or below it no longer files a No Tax Due Report; it files Form 05-102, the Public Information Report, or Form 05-167, the Ownership Information Report. An LLC can use the E-Z Computation Report (Form 05-169) if its annualized total revenue is $20 million or less; above the threshold, any LLC that does not use it files the Long Form (Forms 05-158-A and 05-158-B).

Above the threshold, a small LLC can use the EZ computation. This method applies the single EZ rate to revenue and allows no margin deduction, and it is meant to be simpler than the standard margin calculation.

Here is how the choice works in practice.

An Austin example. Suppose a design studio with three contractors bills $1.4 million in a year. That is below the 2026 no-tax-due threshold, so the studio files its Public Information Report and owes no franchise tax.

If the studio later grows past the threshold, it compares two methods. Under the EZ computation it multiplies revenue by the EZ rate. Under the standard method it subtracts the highest of the four deductions, likely compensation, then applies the standard rate. The studio runs both and files the lower one.

Above the EZ total revenue threshold, the EZ computation is no longer available and the standard margin method is mandatory.

The Public Information Report and what it discloses

The Public Information Report Texas requires is not a separate filing. It is part of the annual franchise tax report, and it is where the state keeps its public record of who runs the LLC.

The report lists the LLC's registered agent and registered office, plus the names and addresses of managers, members, or officers, depending on how the LLC is governed. It also states the principal office and the entity's Texas taxpayer number.

The information is public. Anyone can look up an Austin LLC and see who is listed. That matters for owners who value privacy, because the Public Information Report is often the document that exposes a name that was kept off the formation paperwork.

If a manager or agent changes during the year, the Public Information Report is the place to update it. Filing an outdated report can lead to penalties and, eventually, forfeiture of the right to do business in Texas.

An LLC that fails to file faces a $50 penalty plus interest, and the Comptroller can block the entity from obtaining a certificate of account status. That certificate is required for many bank and licensing tasks, so the report is not optional housekeeping.

Texas Secretary of State filing steps for an Austin business

Formation itself is a state filing, not a city one. Austin has no separate LLC registration, so the paperwork goes to the Texas Secretary of State in Austin.

The SBA maintains a State registration lookup - Small Business Administration that points to the correct state office.

If you are comparing entity types before you file, LLC formation covers what to keep and what to drop. Owners forming in more than one state can use state filing guides to see where the steps diverge.

No state income tax and what replaces it for LLCs

Texas has no state income tax on individuals. That is written into the Texas Constitution, and it is a large part of why Austin keeps attracting founders from California and New York.

An LLC does not get a separate state income tax bill either. A single-member LLC is disregarded for federal tax purposes by default, and a multi-member LLC is usually taxed as a partnership. Either way, the profit flows to the owners' personal returns.

What replaces the income tax is the franchise tax. Texas funds state government largely through sales tax, property tax, and the franchise tax, so the margin tax is the price of operating as a registered entity rather than a personal income levy.

Federal tax still applies. LLC owners pay self-employment tax and federal income tax on their share of profit, and the IRS does not care that Texas has no state income tax.

Texas also charges no state income tax on wages, so there is no state withholding to set up for Austin employees. Employers still handle federal withholding and payroll taxes.

One myth worth killing: no state income tax does not mean no state tax filings. The franchise tax report, the Public Information Report, and any sales tax returns still land on the calendar.

Owners who want to test whether their setup holds up over time can review LLC formation metrics.

Common questions