If you own a business in Texas — or are planning to start one — you’ve probably heard the term “no tax due threshold.” It’s one of the most searched and misunderstood concepts in Texas taxation.
As a Texas tax expert, I’ll walk you through everything you need to know in simple, clear language:
- What the no tax due threshold actually means
- Who qualifies
- How it applies to Texas franchise tax
- Filing requirements
- Common mistakes
- How it affects LLCs, corporations, and small businesses
By the end of this guide, you’ll understand exactly how the threshold works and whether it applies to your business.
First: Texas Has No Personal Income Tax
Before we dive into the threshold, let’s clarify something important:
Texas does not have a personal income tax.
When we talk about the “no tax due threshold,” we are referring to the Texas Franchise Tax, which applies to certain businesses — not individuals earning wages.
What Is the Texas Franchise Tax?
The Texas Franchise Tax is a tax imposed on businesses for the privilege of operating in Texas.
It applies to:
- LLCs
- Corporations
- Limited partnerships
- Professional associations
- Certain other business entities
Sole proprietorships (without LLC formation) are generally not subject to franchise tax.
So, What Is the No Tax Due Threshold?
The no tax due threshold is the revenue amount below which a business does not owe franchise tax.
If your business earns less than this threshold in total annual revenue, you:
- Do not owe franchise tax
- But still must file a report
This is where many people get confused.
“No tax due” does not mean “no filing required.”
What Is the Current No Tax Due Threshold?
The Texas Comptroller periodically adjusts the threshold for inflation.
In recent years, the threshold has been set at:
👉 $2.47 million in annualized total revenue
If your business earns less than this amount, you generally owe zero franchise tax.
However, you must still file a No Tax Due Report.
Always verify the current threshold on the Texas Comptroller’s website, as it may change in future years.
What Does “Total Revenue” Mean?
Total revenue is not just profit.
It includes:
- Gross receipts from business activities
- Sales revenue
- Service income
- Rental income
- Interest income (in some cases)
It is calculated before expenses.
So even if your profit is small, your total revenue may exceed the threshold.
Example of How the Threshold Works
Let’s say:
Your LLC has total annual revenue of $1.8 million.
Since this is below $2.47 million:
- You owe $0 in franchise tax.
- You still must file the required report.
Now suppose your revenue is $3 million:
- You exceed the threshold.
- You must calculate and pay franchise tax based on the applicable rate.
Why Does Texas Have a No Tax Due Threshold?
The threshold exists to:
- Protect small businesses
- Encourage entrepreneurship
- Reduce administrative burden on startups
- Simplify compliance for smaller operations
Texas is known for being business-friendly, and this threshold plays a major role in that reputation.
Important: Filing Is Still Required
Even if you owe no tax, most entities must file:
- A No Tax Due Report
- A Public Information Report (PIR)
Failure to file can result in:
- Penalties
- Interest
- Loss of good standing
- Forfeiture of right to transact business in Texas
Many business owners mistakenly believe that if they owe nothing, they don’t need to file. That is incorrect.
What Happens If You Exceed the Threshold?
If your total revenue exceeds the no tax due threshold, you must calculate franchise tax using one of the permitted methods.
Texas offers several calculation methods:
1️⃣ No Tax Due (Below Threshold)
If under threshold → $0 tax owed.
2️⃣ EZ Computation Method
For businesses under a higher revenue cap (if eligible).
3️⃣ Regular Franchise Tax Calculation
Based on taxable margin.
What Is Taxable Margin?
If you exceed the threshold, Texas calculates franchise tax based on “margin,” which is generally the lowest of:
- Total revenue minus cost of goods sold
- Total revenue minus compensation
- 70% of total revenue
- Total revenue minus $1 million (fixed deduction option)
The tax rate depends on business type:
- 0.375% for retail/wholesale
- 0.75% for most other businesses
But remember — none of this applies if you’re below the no tax due threshold.
Who Must File Even If No Tax Is Due?
Most registered entities must file, including:
- LLCs
- Corporations
- Professional corporations
- Limited partnerships
Sole proprietorships (without separate legal entity status) are typically exempt from franchise tax entirely.
Common Misunderstandings About the No Tax Due Threshold
Let’s clear up some myths.
❌ Myth 1: If I make less than $2.47 million, I don’t have to file.
Wrong. You must still file the No Tax Due Report.
❌ Myth 2: The threshold is based on profit.
Wrong. It is based on total revenue.
❌ Myth 3: I only need to worry if I made money.
Even if you had a loss, revenue still counts toward the threshold.
❌ Myth 4: The threshold applies to personal income.
No. This only applies to business entities subject to franchise tax.
What About New Businesses?
If you just formed an LLC or corporation:
- You still must file a franchise tax report.
- Your first report may cover a partial year.
- The threshold is annualized.
Many startups fall under the threshold during early years.
What Happens If You Don’t File?
Failure to file franchise tax reports can result in:
- $50 penalty for late filing
- Additional penalties if tax is owed
- Loss of corporate privileges
- Personal liability for directors/officers
- Business forfeiture
Even if no tax is due, missing the filing deadline can cause serious administrative issues.
When Is the Franchise Tax Due?
Texas franchise tax reports are generally due:
👉 May 15 each year
If May 15 falls on a weekend or holiday, the deadline shifts to the next business day.
Does the Threshold Apply to Out-of-State Businesses?
Yes — if the business is registered in Texas or doing business in Texas and subject to franchise tax.
Even out-of-state LLCs operating in Texas may need to file.
Why the Threshold Is Good for Small Businesses
The no tax due threshold provides:
✔ Financial breathing room
✔ Lower compliance burden
✔ Encouragement for growth
✔ Reduced startup pressure
Many small Texas businesses operate entirely under the threshold for years.
Strategic Considerations for Business Owners
Here are smart tips:
✔ Monitor Revenue Closely
Don’t wait until year-end to realize you exceeded the threshold.
✔ Keep Clean Records
Proper accounting ensures accurate reporting.
✔ File Early
Avoid last-minute issues before May 15.
✔ Consult a CPA if Near Threshold
Crossing the threshold triggers calculation complexity.
How Often Does the Threshold Change?
The Texas Comptroller adjusts the no tax due threshold periodically, often every two years, based on economic conditions and inflation.
Always check the most current number before filing.
Final Answer: What Is the No Tax Due Threshold in Texas?
The no tax due threshold is the revenue level below which a business does not owe Texas franchise tax.
Currently, that threshold is approximately $2.47 million in total annual revenue.
If your business revenue is below that amount:
- You owe $0 in franchise tax.
- You must still file a No Tax Due Report.
- You must file a Public Information Report.
If your revenue exceeds the threshold:
- You must calculate franchise tax using one of Texas’s approved methods.
- You may owe tax based on margin.
Bottom Line for Texas Business Owners
The Texas no tax due threshold is one of the biggest advantages of doing business in the state.
It means:
- Many small businesses legally pay no franchise tax.
- Texas remains one of the most business-friendly states.
- Filing compliance is still mandatory.
Understanding this rule can save you money, protect your entity’s good standing, and help you plan for growth.
If you’re unsure whether your business qualifies, reviewing your annual revenue early in the year can prevent costly surprises.
