The Texas Comptroller of Public Accounts has released an updated franchise tax guide for the 2025 tax year. The new guidance raises the no tax due threshold to $2.47 million and introduces simplified filing options for smaller business entities. The reforms, passed under Senate Bill 3, are designed to ease compliance while preserving state oversight.
The updated franchise tax guide sets the no tax due threshold at $2.47 million in annual revenue. Any taxable entity earning less than this amount will not be required to pay franchise tax for the 2025 tax year. While these businesses are exempt from payment, they may still need to file information reports to remain compliant.
The Texas franchise tax functions as a privilege tax imposed on companies for the right to operate in the state. Unlike a corporate income tax, the system uses a margin-based calculation to determine liability. Businesses calculate their margin using total revenue minus cost of goods sold, total revenue minus compensation, or other approved methods under the tax code.
Businesses that exceed the $2.47 million threshold must continue filing annual franchise tax reports. The reports are due each year on May 15, with extensions available if the deadline falls on a weekend or holiday. The new guidance highlights that maintaining accurate revenue records is essential for determining whether an entity qualifies for exemption.
The Comptroller’s office notes that the higher threshold is expected to exempt thousands of small companies from preparing a full franchise tax report. Officials said the change reflects an effort to reduce compliance costs and streamline obligations for smaller enterprises while maintaining oversight of larger business entities.
The franchise tax rates remain the same for 2025. Businesses classified primarily in retail or wholesale will continue to pay 0.375 percent, while other taxable entities pay 0.75 percent. These franchise tax rates are applied to the company’s margin, which is calculated using methods allowed under the tax code.
Taxable entities can choose from several approaches to determine their margin:
The method selected can affect the tax due and may be influenced by industry type, annual revenue, and deduction limits established under the law.
Smaller businesses benefit from simplified reporting. Entities with annual revenue of $20 million or less may use the EZ Computation form, which requires fewer calculations and less detail. Larger entities must file the Long Form, which involves additional schedules and detailed disclosure of financial information.
Officials noted that the filing option chosen should match the taxable entity’s circumstances. “Taxpayers should carefully review the updated instructions before deciding which form to use,” the Comptroller’s office stated in the published guidance.
The updated guidance confirms that annual franchise tax reports are due on May 15 each year. The deadline shifts to the next business day if the due date falls on a weekend or holiday. Timely filing is essential, as late reports can lead to penalties, interest charges, and loss of good standing with the state.
Even when businesses qualify for the no tax due threshold, they may still need to submit a Public Information Report or an Ownership Information Report. These filings ensure the state maintains accurate records of business entities and ownership structures.
The Comptroller’s office reminds taxpayers that filing requirements vary by entity type. Limited liability companies, partnerships, and other legal entities remain responsible for submitting proper documentation, even when no tax is due. By following the updated instructions, businesses can avoid unnecessary errors and maintain compliance with state law.
Legislative Background and Policy Context
The latest changes to the Texas franchise tax stem from Senate Bill 3, which the Legislature passed in July 2023. Lawmakers said the measure was designed to reduce the compliance burden for small businesses while preserving the state’s ability to generate stable revenue.
Texas does not levy a state income tax on individuals or impose a corporate tax on business entities. Instead, the state collects revenue through the franchise tax, a privilege tax imposed on companies for the right to operate in the Lone Star State. Liability is calculated on a margin basis rather than net income, setting Texas apart from many other states.
Since its introduction, the franchise tax has been revised several times, including changes to deduction limits, margin formulas, and the treatment of limited liability companies and partnerships. The 2025 increase in the tax due threshold is one of the most significant shifts in recent years, signaling continued efforts to ease obligations for small businesses while keeping larger taxable entities under oversight.
The Texas Comptroller’s office said the reforms reflect the Legislature’s intent to reduce regulatory pressure while keeping the state’s tax system effective. “The changes simplify compliance for small businesses and demonstrate our commitment to balancing relief with oversight,” officials noted in the updated guidance.
Tax professionals and business groups broadly welcomed the higher threshold. A Houston-based CPA, John Martinez, said the move will “exempt many small firms from filing full franchise tax reports, creating meaningful cost savings.” The Texas Association of Business added that companies must remain attentive to filing obligations, even when no tax is due.
The higher threshold is expected to reduce compliance costs for thousands of small enterprises across the state. Companies earning less than $2.47 million in annual revenue will no longer owe franchise tax, allowing them to redirect resources toward operations, hiring, or growth initiatives. For many, the update removes the need to prepare complex tax returns yearly.
Larger entities, however, must continue to file annual franchise tax reports and calculate liability using approved methods such as cost of goods sold or compensation deduction. The Comptroller’s office advises all business entities to review the updated guidance carefully and consult a tax professional, since filing obligations remain even for those exempt from payment.
The Texas Comptroller’s website provides complete details on the 2025 franchise tax, including updated forms and instructions, guidance on deduction limits, and answers to common filing questions. Businesses can also access interactive tools to determine whether their revenue level requires filing and paying franchise tax.
For additional help, the Comptroller’s office operates a toll-free hotline. Officials recommend that taxpayers call during early morning or late afternoon hours to avoid long wait times. Companies uncertain about their obligations must consult a tax professional familiar with Texas taxes to ensure accurate reporting and compliance.
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