Looking for franchise tax as a planning number? It is a better way to meet the tax than as a May surprise. Steven Palmieri, a Tax CFO, treats it as one more figure that the books can estimate all year. If you know where revenue sits against the Comptroller's line, there is almost nothing left to be surprised by.
Franchise tax is levied each year on the privilege of operating as an entity in Texas. Limited liability companies, corporations, many partnerships and several other legal entities are taxable. A sole owner who never formed a company is not, and neither is a general partnership owned entirely by individuals. A company with one owner is still an entity if it was formed as an LLC, which surprises people who think of it as a personal matter.
An entity whose annualized revenue is $2,650,000 or less owes nothing, for the 2026 and 2027 report years. From report year 2024 on, that entity skips the tax report. What it sends is the public information report or, for some entity types, the ownership information report. The year matters because the line moves from one period to the next, so we always put the report year beside the figure.
A company above the line files a full report, or the EZ computation if its annualized revenue is $20 million or less, with some deductions given up. The tax rate for retail and wholesale is 0.375 percent, and for other businesses it is 0.75 percent. The EZ rate is 0.331 percent. The rate applies to margin, which is not profit. Four routes lead to margin. A company can take 70 percent of revenue, or deduct the cost of goods sold, or deduct compensation, or deduct one million dollars from revenue. The choice is made on purpose and with the numbers in hand.
A service business rarely has much cost of goods sold, so the compensation method and the flat percentage often compete. A business with many employees may find compensation attractive. A business using 1099 labor may not, because that labor does not count as compensation. This is the kind of choice that is easy to make well in the fall, with the year mostly closed, and hard to make well in May. The list of other Texas items that sit beside it is on the page about what a Texas fractional CFO plans for.
The report is due May 15. When May 15 lands on a weekend or holiday, the next business day counts. Extensions run to August 15 or November 15, depending on how the company pays, and they require a payment of the right size. A company filing its first annual report cannot use the 100 percent prior-year payment to extend it, because there is no prior year to measure by. Skipping the information report is not a small matter. The state can take away the company's right to transact business over it.
A company that files from last year's numbers learns about its franchise tax, its sales tax errors and its property values afterward. A Tax CFO closes each month by location, so the threshold, the margin method, owner pay and the entity question are weighed while the year is still open. They are weighed next to the federal return, which comes from the same books. One counts what happened. The other decides what happens next.
Say a design company has $2,400,000 of revenue by the end of the third quarter and expects about $3,100,000 for the year. These are round numbers for illustration. Its report will be a full one, and the owner learns that in September instead of in May. There is time to compare the margin methods, to set aside a reserve for the payment, and to consider how owner pay is treated. Nothing about the tax changes, only the timing of the decision.
The Texas date to carry from this page is May 15, with the report year written next to any dollar figure on the plan. For the 2026 and 2027 reports, the figure to watch is $2,650,000.
Find out where your company sits against the line on a free Second Look call. No paperwork and no payment. The next page, no state income tax in Texas and what it changes, covers what else the missing income tax leaves on the list.
You will be talking to the Steven Palmieri practice.